Welcome to the second of PYMNTS’ eight-part series on decentralized finance (DeFi).
Over the coming days, we’ll be looking at every part of DeFi — the biggest, hottest, most rewarding and riskiest part of the blockchain revolution.
At the end of it, you’ll know what DeFi is, how it works, which projects and blockchains are leading the way, and the risks and rewards of investing in it.
See Part 1: What Is DeFi?
So, what are the top DeFi platforms by total value locked (meaning invested)?
Maker $19.03 billion
Curve Finance $15.36 billion
InstaDApp $12.25 billion
Aave $12.18 billion
Compound $11.38 billion
Convex Finance $9.99 billion
UniSwap $8.29 billion
yearn.finance $4.23 billion
SushiSwap $3.73 billion
Liquidity $2.84 billion
We’re not just going to be running down the top 10 by total value locked — meaning invested. Rather, we’ll look at some of the important platforms in each category and give you a taste.
A good resource is DeFi Pulse, which shows the total value locked (TVL) in DeFi projects — currently $105 billion — as well as lists nearly 130 projects by TVL. Its DeFi List breaks out even more projects by type, such as lending, trading and derivative exchanges, payments, wallets, stablecoins and many more. There are also sections for education sites, webcasts, podcasts and newsletters.
Any discussion of DeFi begins with Maker.
Started in 2014, Maker is one of the oldest DeFi projects, and the biggest, with $19.3 billion in total value locked — which gives it about 18% of the dollars invested in DeFi projects at present.
Maker has two parts. First, it is a lending platform. Lock Ether or one of a number of other cryptocurrencies into a “vault” as collateral — 150% is a common number — and it mints Dai (DAI) stablecoins. Like any lending platform, Maker will liquidate the collateral if its value falls too close to the value of the loan — generally at a substantial loss. The collateral can be reclaimed by repaying the Dai plus a “stability fee.”
You can lock Dai into a Dai Savings Rate contract to earn interest. Holders of the MKR governance token stabilize the price of DAI tokens by voting to raise or lower the interest rate impacting demand, and therefore the price.
The No. 5 DeFi project is another Ethereum-based lending platform. You can earn compounding interest by supplying crypto to liquidity pools, with rates adjusted based on supply and demand. Locked crypto can be exchanged for cTokens, which are loaned at 50% to 75% of the collateral.
The No. 9 project, SushiSwap is a decentralized exchange, or DEX — specifically, an automated market maker (AMM) that automatically sets the exchange rates between cryptocurrency pairs. It also has liquidity pools offering rewards.
The No. 2 DeFi project by TVL, Curve Finance is a DEX that creates liquidity pools on which stablecoins — and only stablecoins — can be traded with particularly low fees and slippage. Participants can lock their crypto into liquidity pools, which eliminates the need for counterparties in exchange for fees.
Another AMM DEX, PancakeSwap is unusual in that it runs on the Binance Smart Chain rather than Ethereum, which means cheaper and faster trades. It has grown very quickly as the use of BSC has soared.
Next up: What Are Smart Contracts?
Smart contracts are the heart of DeFi. These self-executing contracts are behind the “De” in DeFi — they allow the decentralized governance of a complex project like a DEX without any third-party (human) intervention.