Roughly a year after the total value locked (TVL) in decentralized finance (DeFi) protocols rose above $1 billion, tracking the performance of Ethereum prices in Q1 2020, the value of digital assets under management in various DeFi dApps is now above $17.5 billion according to Defi Pulse on Jan 4.
DeFi dApps are open finance protocols that mimic traditional finance instruments. Within this sub-sector are various solutions seeking to democratize finance. These applications include those in lending, like Maker and Kava, token swapping, for example Uniswap, or those that draw maximum yield from different DeFi projects, including liquidity mining and staking, like Cocoricos.
In October 2020, the United States Commodity Futures Trading Commission (CFTC) chairperson, Heath Tarbert, said DeFi could help prevent systemic risk. Adding that he was “impressed with Ethereum.” Therefore, as the sub-sector matures, participants expect DeFi to expand and the governance tokens of potent open finance dApps to extend gains in 2021.
For this, here are the top five DeFi tokens to watch out for:
EGG is the governance and utility token of the Cocoricos platform that will list on Jan 15 on Uniswap. A finance dApp based on Ethereum, Cocoricos offers a suite of DeFi products that generate passive rewards via liquidity mining, airdrops, staking, and Proof-of-Stake on various assets via smart contracts activating a leverage effect on DeFi yields. The EGG token is used for voting and it helps to use a single asset to provide liquidity and increase yield by adding EGG rewards. Its value is determined by the platform’s utility, asset reserve, and network effects.
Token holders can vote, dictating which type of assets the protocol will support and the type of modification that can be made on the platform. EGG is designed to stabilize the protocol, acting as a lender of last resort in extreme cases and incentivizing participation, capturing the economic value of the Cocoricos ecosystem.
2.Kava Protocol (KAVA)
The Kava protocol is an interoperable DeFi lending hub providing services to some popular cryptocurrencies like Bitcoin and BNB. Through Kava, users can borrow loans in USDX using their digital assets as collateral. USDX is the protocol’s stable coin backed by cryptocurrencies.
Modeled after Maker, the Kava protocol enables synthetic leverage since borrowers can take out loans and buy more collaterals. Also, there is staking support for USDX. Therefore, holders can hedge and receive interest. There is an incentive program running for four years, where borrowers receive Kava rewards.
All interest payments are distributed to USDX holders in stability fees at a 4.5 percent APY.
3.Hard Protocol (HARD)
The Hard protocol is built on the Kava blockchain but is distinct from the Kava lending protocol. It is a cross-chain money market that allows holders of cryptocurrencies like Bitcoin, Kava, USDX, and BNB, to borrow, lend, and earn. HARD is the Hard Protocol’s governance token awarded to borrowers, lenders, and KAVA stakes.
In total, there are 200 million HARD tokens. 20 percent has been allocated to KAVA stakers, while 40 percent is for borrowers and lenders who participate in the protocol’s liquidity mining.
The first version of Hard was released in October 2020, supporting the borrow-side functionality of the platform. Version 2, which will extend the HARD governance token’s functionality and activate the borrowing of assets, will activate in 2021.
The initial distribution of UNI tokens in four pools—ETH/USDT, ETH/USDC, ETH/DAI, and ETH/WBTC, ended on November 17, 2020. However, there is a proposal to resume UNI liquidity mining at half the initial rate.
According to BTCPEERS, Coinbase invested 1.1 million USDC in Uniswap and PoolTogether, a lottery pooling service, according to a report in April 2020. This was the Bootstrap Fund that the exchange created in September 2019 to support DeFi projects.
Maker is a DeFi lending protocol in Ethereum with a 21 percent market share, managing $3.56 billion worth of assets. The governance token of Maker is MKR. Using the token, holders can vote on which asset can be added as collateral, the stability fee, and protocol changes.
Token holders can lend assets and earn interest. Borrowers can deposit their assets as collateral and receive loans in DAI, a stable coin minted by the Maker protocol. The MKR token derives value from the network’s utility and fee paid by borrowers.