Two months ago, Anchor Protocol collapsed. In the end, $14 billion flew away. And since then the note gets longer. What are these decentralized financing protocols and what are they used for?
On May 8, 2022, the Anchor Protocol crypto protocol weighed in at a staggering $14.75 billion. Two months later in the day, the total locked value (indicator of the strength of a DeFi protocol) fell 99% to $1.7 million. Nearly $15 Billion Missing…
With the fall of Anchor, the crypto world entered a violent bear market and the value of these DeFI protocols (for decentralized finance) has been in free fall for several months now. But what are these decentralized financial protocols that are (or were) worth billions? Who are they and what are they for? Most of them are used to borrow or exchange cryptocurrencies, with rates of return that make you wonder, but shouldn’t make you forget the extreme volatility of the assets.
To move forward, the JDN wanted to look at it and had to try several times to establish a top 10: in a few weeks, some left the rankings (Instadapp), others joined (WBTC), and for the most of them have dropped the TVL’s. Example with MakerDAO, which has lost half its value since April 8, 2022, from $15.21 billion to $7.7 billion. Whoops, another 7 billion dollars gone. Here is the top 10 most valued crypto protocols, not achieved without effort.
1. MakerDAO: $7.74 Billion
MakerDAO is a decentralized credit platform: borrowers deposit assets placed on the Ethereum blockchain as collateral and receive in return 66% of the amount in Dai, a US dollar-indexed stable currency highly valued by the crypto ecosystem for transactions to be carried out. The debt incurred in Dai leads to the payment of interest at an annual interest rate of 1% in MKR, Maker’s crypto, allowing investors who have made their Dai available to be reimbursed.
2. Aave: $6.68 Billion
Aave is a decentralized credit protocol. Depositors provide liquidity to the market, while borrowers can take out a loan worth 75% of the value of the collateral they provide. The yield of all delivered crypto assets automatically and algorithmically adjusts based on supply and demand in the protocol.
3. Packaged Bitcoin: $5.65 Billion
Wrapped Bitcoin offers tokens on the Ethereum blockchain backed by bitcoin in a 1:1 ratio: WBTC. Supporting cryptocurrencies from different blockchains can be expensive due to transaction costs. With Wrapped BTC, wallets and payment applications only need to manage Ethereum tokens, even for bitcoin transfers.
4. Lido: $5.36 Billion
Lido is a staking platform (a blockchain validation mechanism). Investors deposit their money on the platform, in return they receive between 4 and 20% APR (gross annual return) paid in convertible tokens: a st token that aligns its value with that of the crypto assets wagered. They can then trade these new tokens on platforms such as Curve.
5. Curve: $5.28 Billion
Curve offers swaps of stablecoins, tokens that maintain parity with national currencies. The liquidity pools available on the platform are made up of different tokens and remunerate the liquidity providers in CRV, the Curve token. The amount of the annual return varies depending on the daily trading volume and the total liquidity available in the pool. The investor who wants to trade cryptocurrencies runs the risk of an increase in the APY and thus an increase in interest rates.
6. Uniswap: $5.21 Billion
Uniswap is a crypto asset trading platform. Its peculiarity: being a DEX, for decentralized exchange, that is, the tokens are exchanged directly between the wallets of the users. The platform has no reserves but needs liquidity. Thus, it offers rewards to those who lock their funds on the platform. Their use leads to more responsibility for users.
7. Convex Finance: $3.43 Billion
To understand how Convex Finance works, it must be linked to that of Curve. Users can lock CRV, Curve’s token, (forever) against cvxCRV, Convex’ synthetic token, to increase the liquidity pool they have borrowed from on Curve. This manipulation allows them to get increased rewards to which Curve’s gains are added.
8. Pancake Swap: $2.88 Billion
Pancakeswap is a crypto asset trading platform and like Uniswap it is a DEX. The upside: Users can access tokens before being listed on CEX (centralized exchange), where the crypto assets exchanged are held by the platform and not directly by the users. It is recommended to buy small amounts because the price is algorithmically rebalanced after each trade: this is the slip tolerance.
9. JustLend: $2.86 Billion
JustLend is a credit-only decentralized platform for Tron blockchain tokens. Liquidity depositors can get an APY between 0.25% and 21.86% depending on the tokens. Borrowers incur debts in jTokens against collateral on deposit. While traditionally interest is determined every day, on Justlend it is updated every 3 seconds in accordance with market variations using an algorithm.
10. Connection: $2.77 Billion
Compound is a decentralized credit platform. Interest rates are calculated based on market dynamics. To take out loans, borrowers must provide collateral. The interest that depositors receive is paid out in the form of c-tokens.