At the moment, the world of digital finance and dApps continues to gain popularity. Thus, the DeFi space expands with more and more platforms that offer users unique opportunities to make financial transactions with no third parties. One of the most important metrics for any DeFi platform is the locked value, which shows the total amount of assets frozen in smart contracts that keep the platform running. In today's article from Notum, we will talk about DeFi platforms and the way they work, as well as look at the top platforms with the highest total value locked (TVL), paying attention to their features and benefits.
What Are DeFi Platforms?
Decentralized Finance platforms are innovative financial instruments and services based on blockchain. Their main feature is to eliminate the need for intermediaries and centralized authorities, allowing users to make financial transactions directly. This revolutionary solution opens up both new financial opportunities and new investment options for DeFi users.
As known, DeFi platforms are based on smart contracts managed by the blockchain. They provide security and transparency of financial transactions, thereby allowing users to control their assets and participate in various financial processes. Using such platforms, people can receive and provide loans, trade digital assets, as well as participate in staking and receive rewards. Moreover, DeFi platforms don’t need centralized organizations or intermediaries, work around the clock, have no geographic restrictions, and don’t require KYC, which makes them accessible to everyone.
How Do DeFi Platforms Work?
DeFi platforms work on blockchain and use smart contracts that store the rules and conditions of financial transactions. Smart contracts are executed automatically, without any intermediaries, which makes them an integral part of the DeFi world. To confirm and verify the financial transaction, the blockchain network uses consensus mechanisms such as Proof of Stake (PoS), Proof of Work (PoW) and others.
Fulfilling its main goal, DeFi platforms allow users to fully control their assets, namely to independently store, send and receive their funds, as well as decide how to use them. Also, different DeFi platforms can integrate with each other so that users can move between apps and use a variety of financial services.
As said, DeFi platforms provide access to dApps, and thereby to various financial services and tools, which include asset exchange, lending, borrowing, buying and selling assets, and so on. On top of this, some DeFi platforms offer liquidity providing where users can deposit their funds into a common pool to exchange or trade assets. For contributing to the platform maintenance, users receive rewards in the form of an interest rate or tokens. Platforms can also offer staking, where users can receive rewards for keeping the blockchain running. Thus, the general idea of DeFi operation is to provide people with direct access to financial services and tools without intermediaries and give them freedom and control over their finances.
Top 5 DeFi Platforms by TVL
- TVL: $15,139B
Lido is a DeFi platform that allows users to stake Ethereum (ETH) on Ethereum 2.0 network and other layer-1 PoS blockchains, like Polkadot, Polygon and others. Lido allows users to deposit Ethereum (ETH) on the platform and receive in return stETH, a LSD (Liquid Staking Derivative) linked to a participant's stake in an Ethereum 2.0 staking pool. Thanks to this, participants receive passive income in the form of staking rewards and at the same time maintain the liquidity of their funds.
The great thing about Lido is that it eliminates the need for a minimum amount of staking, which makes staking ETH 2.0 more affordable. Another advantage of Lido is the ability to trade stETH on various decentralized exchanges. Thus, Lido is a significant platform in the DeFi ecosystem that has the highest TVL and provides participants with an easy and secure way to earn income from Ethereum 2.0 staking.
Lido Key Features
- Specialization in Ethereum 2.0 staking. Lido allows users to deposit Ethereum and receive stETH in return, making it the leading ETH 2.0 staking platform.
- Availability. Since Lido has no restrictions on the minimum amount of staking, this profitable strategy becomes available to more people.
- Tradeability. Lido allows users to trade the stETH LSD on various decentralized exchanges, while other platforms may restrict the exchange or withdrawal of funds.
- TVL: $6,076B
Aave is a popular DeFi platform that provides borrowing and lending services based on the Ethereum’s blockchain. Despite Ethereum, Aave works on other networks, particularly Avalanche, Polygon, Arbitrum, Optimism, Metis, Fantom and Harmony. It gives participants the opportunity to deposit their digital assets in various liquidity pools and borrowers to receive loans based on pledged assets. Key features of Aave include the ability to earn interest on deposits, real-time variable interest rates, the ability to use various digital assets as collateral, and flexible loan repayment terms. “While traditional lending uses a peer-to-peer model and requires third-party intervention, Aave uses a peer-to-pool where lender and borrower are equal.” – Notum.
The platform is also famous for its innovative features, such as flash loans, allowing users to receive short-term financing without collateral, and voting in the protocol management system, allowing AAVE token holders to participate in decision-making. Thus, Aave provides users with access to financial services without intermediaries and provides opportunities for earning, lending and effectively using digital assets.
Aave Key Features
- Pool protocols. With Aave, users can deposit their digital assets and receive loans based on pledged assets, which differs from the traditional loan model and offers more flexible use of their assets.
- Changeable interest rates. Aave's dynamic interest rates are driven by supply and demand on the platform.
- Flash loans. Aave has introduced an innovative feature for obtaining short-term loans without collateral.
- Voting and governance. AAVE token holders have voting rights in the Aave protocol governance system.
- Rich selection of assets. The platform offers a wide range of digital assets for deposits and loans, providing more flexibility for users.
- Integration with other platforms. As Aave is actively integrating with other DeFi platforms, users have more options to leverage their assets.
- TVL: $5,594B
Maker (formerly MakerDAO) is a DeFi platform built on the Ethereum blockchain that provides tools to create and manage the DAI stablecoin. Maker is based on the Collateralized Debt Position (CDP) system, which allows users to pledge their digital assets such as Ethereum (ETH) in exchange for DAI. In this way, they get access to loans independent of traditional financial intermediaries. “Moreover, the platform enables people to securely borrow at pre-set interest rates, which will provide transparency to the economy.” – Notum.
Maker's key features include autonomous governance, where decisions and transactions are made through smart contracts, and a DAI price stabilization mechanism that keeps DAI's price pegged to the US dollar. Moreover, Maker has developed DAI price stabilization mechanisms such as the oracle system and the DAI Stability Mechanism (DSR). This helps keep the value of DAI pegged to the dollar, providing stability for users. The platform allows users to earn interest on pledged assets and access financial services, providing flexibility and liquidity in the DeFi world.
Maker Key Features
- DAI. Maker is the first and most popular platform to provide the DAI stablecoin.
- Collateralized loans. Maker allows users to pledge digital assets in exchange for borrowed DAI funds, giving them access to loans independent of traditional financial intermediaries.
- Autonomous control. Smart contracts on Maker provide autonomous and decentralized governance, which means that decision-making does not require intermediaries and can be carried out by the participants themselves.
- Extending ecosystem. As Maker is an open-source platform, developers can create and integrate additional tools and applications to extend the platform's capabilities.
- TVL: $3,624B
Curve is a DeFi AMM platform that specializes in stablecoin exchanges with minimal fees and slippage. It allows users to exchange various stablecoins such as USDT, USDC, DAI and others at minimal cost and without significant price impact. “Curve differentiates itself by only accommodating liquidity pools made up of similarly behaving assets like stablecoins, or wrapped versions of like assets such as wBTC and tBTC.” – Gemini.
The main features of Curve include optimized exchange curves that take into account the price and liquidity characteristics of stablecoins, ensuring the most efficient exchanges. Also, Curve provides low volatility and low transaction costs, making it attractive to users looking for the stability and efficiency of stablecoin exchanges. Curve also actively integrates with other DeFi platforms, so users can exchange stablecoins in the DeFi ecosystem and participate in various financial transactions, such as staking, borrowing, and providing liquidity.
Curve Key Features
- Specialization in stablecoins. Since Curve mainly works with stablecoin exchanges, the platform is a popular solution for users who want to minimize their risks and losses on commissions.
- Optimized exchange curves. Curve uses mathematical models and algorithms to optimize the exchange of stablecoins, which helps to achieve the most efficient exchanges.
- Volatility and costs. Curve specialization and optimized exchange curves ensure low volatility and transaction costs.
- Integration with other platforms. Curve also integrates with other DeFi platforms, allowing users to exchange stablecoins and participate in financial transactions in DeFi space.
- TVL: $3,316B
Convex Finance is a DeFi platform designed to optimize and maximize the returns of users who stake stablecoins. The platform runs on the Curve protocol and provides additional options for Curve and stablecoin holders. Key features of Convex include stablecoin aggregation and staking, CRV token rewards, and the ability to use the Convex CRV enhanced derivative (cvxCRV) for additional rewards and benefits.
Convex also offers additional optimization mechanisms and integration with other DeFi platforms, which ensures maximum profitability for stablecoins’ stakers. As such, Convex remains one of the most popular DeFi platforms due to its innovative features, additional rewards, and integration with the Curve ecosystem.
Convex Key Features
- Profit optimization. Convex provides users with additional optimization mechanisms to ensure they get the most out of their investment.
- Curve integration. Convex is based on the Curve protocol, which provides guaranteed liquidity and efficient exchange of stablecoins.
- Additional rewards. With Convex, users can earn CRV tokens based on their staking assets.
- Improved Convex CRV derivative. cvxCRV provides additional benefits for members, which creates added value and attraction for Convex users.
DeFi platforms continue to grow and develop, making them more and more attractive to investors and members of the crypto community. Among the many DeFi projects, some platforms stand out for their impressive total value locked, demonstrating resilience and significant user trust. They not only provide opportunities for financial transactions without intermediaries, but also expand traditional financial opportunities. However, remember that DeFi investments also come with their own risks, so it's important to research your chosen platform carefully before investing. Given the dynamism and popularity of the industry, all of the above DeFi platforms are expected to continue to evolve and offer innovative solutions to the decentralized finance world.
Disclaimer: Notum does not provide any investment, tax, legal, or accounting advice. This article is written for informational purposes only. Cryptocurrency is subject to market risk. Please do your own research and trade with caution.