DeFi, or Decentralized Finance, is an ecosystem of financial apps. These are developed on top of blockchain networks, particularly the Ethereum blockchain. Furthermore, they function without the involvement of a third-party external source or central administration.
What is DeFi lending?
The DeFi lending platforms provide trustless crypto loans and enable users to enroll their cryptocurrencies in the DeFi lending platforms for lending purposes. A borrower may take out a loan directly via this decentralized network, known as DeFi P2P lending. Additionally, the lending protocol enables the lender to earn interest.
Out of all the DApps accessible, the DeFi is regarded as the most crucial contributor for locking crypto assets with the most significant loan growth rate.
How does DeFi lending work?
Crypto assets in a wallet do not earn interest. The underlying value may rise or fall, but you will not profit from owning that specific coin.
Consider the possibility of lending your cryptocurrency to someone else and earning interest on the loan. That is how banks presently operate, but it is a service that few people have access to. Anyone may become a lender in the world of DeFi.
You may earn interest on your crypto assets by lending them to others. There are many methods to do this, but the most common is via lending pools. These are conventional bank lending offices.
Top DeFi lending platforms
Aave is a non-custodial liquidity market platform that is open source. It allows users to engage as deposits or borrowers. According to the Aave website, “depositors supply liquidity to the market to earn a passive income, while borrowers may borrow in either an overcollateralized (perpetual) or undercollateralized (one-block liquidity) fashion.”
If users are willing to use the Aave protocol, they need to follow specific steps. Initially, one needs to deposit the decided asset and amount. Once this is done, the lender will get passive revenue which depends on the market borrowing demand. Furthermore, depositing assets enables customers to borrow by utilizing the deposited assets as collateral. The income you receive by depositing cash may assist in offsetting the interest rate consumers incur by borrowing.
MakerDAO is another open-source, decentralized governance platform powered by DAI, a cryptocurrency with a target price of $1, often known as a stablecoin. MakerDAO’s decentralized governance community controls DAI creation through an integrated governance mechanism inside the Maker Protocol.
The Maker Protocol is a collection of smart contracts intended to minimize the DAI stablecoin’s price volatility, enabling lenders and borrowers to borrow various digital currencies without fear of counterparty risk. The Protocol was the first decentralized finance (DeFi) application to gain widespread acceptance, and it is still one of the most popular decentralized apps (DAPPs) on the Ethereum blockchain.
Compound is a DeFi-based lending tool in the cryptocurrency world that employs a money market method, with separate pools of cash used for each supported commodity. Lenders may deposit specified sums into lending pools, earning interest continually with no set loan terms.
Compound recently implemented a governance system to replace their previous protocol administrator with community governance, enabling users to propose, debate, and adopt new improvements or recommendations.
PhoenixDAO, a community-based decentralized platform, caters to the requirements of companies and institutions while influencing the future generation of DeFi apps. The platform aims to achieve complete decentralization via governance and control through a committed network of community members. Phoenix’s Identity-powered dapp store will fuel the DAO, guaranteeing a one-person-one-vote mechanism.
The decentralized application dapp enables users to earn up to 20% APY on staked PHNX tokens. PhoenixDAO is presently working on advanced features for a future edition, such as liquidity farming and engaging on the DAO platform using the native PHNX currency.
Curve Finance is a decentralized trading network that allows the users of its platform to swap and sell Ethereum quickly. In addition, compound’s lending protocol offers liquidity in the DeFi market. Such is the case with Curve Finance.
Curve is an essential platform for DeFi lending to the current date. It pioneers its liquidity to the market via the use of a market-making algorithm. This algorithm exchanges cryptocurrency, taking advantage of bid and ask price spreads.
Curve allows users to exchange stablecoins for minimal mining costs, thereby functioning as an automated market protocol. Furthermore, anyone, wherever, may also contribute their assets primarily to various liquidity pools. Thus, smoothly earning income would be possible.
Whatever is needed to accomplish this is to have an ETH wallet. Curve also makes it simple to exchange all sorts of tokenized forms of currencies at any moment. It also offers to exchange possibilities for tokens with almost identical price ranges.
WBTC must be included in any discussion of the top ten DeFi lending platforms in 2021. Wrapped Bitcoin or WBTC is a lending system (DeFi-based) that was developed in the year 2019. It mainly functions as an ERC20 token, whereas WBTC assets are comparable to or equal one Bitcoin.
Moreover, WBTC has been incorporated into various platforms, including ETH wallets, DApps, and Smart Contracts. Users may use WBTC to convert BTC to Wrapped Bitcoin and also do it the other way round.
WBTC, in particular, works in such a manner that users may get access to Bitcoin cryptocurrency through the Ethereum network without incurring any counterparty risk. WBTC, as the name suggests, is one of the DeFi trending protocols in 2021.
It provides simple and easy-to-flow liquidity inside the DeFi market as an open-source platform. In terms of staking, WBTC enables individual users to stake Bitcoin using an interest-earning mechanism.
Harvest Finance is up next, a decentralized finance (DeFi) platform aggregator in the DeFi sector. An automated platform intended for customers who want to combine their assets to generate a more significant amount, thus the term ‘Harvest.’
On the other hand, individual users support themselves with tokens, to begin with, to produce more on the Harvest Finance marketplace. Furthermore, Harvest Finance advises customers to the finest and most appropriate farming location. It does it by using the most current agricultural techniques to increase output.
Furthermore, problems like high transaction costs and the necessity for smart contract audits prompted the development of the yield protocol. As a consequence, Harvest Finance is audited by firms such as Haechi Audit and PeckSheild.
Harvest Finance also monitors and handles farmers’ Annual Percentage Yield (APY) and transaction expenses efficiently. Additionally, it strategically protects farmers’ money more effectively.
These were some of the best top defi lending platforms you should know about.
In this examination of DeFi lending and the topmost DeFi lending platforms, we’ve shown that, in terms of technology, decentralized finance protocols make a significant contribution to the DeFi sector. Because of how well the DeFi protocols work, they significantly promote DeFi adoption not just inside the DeFi ecosystem but also across the world. As a result, they are the most powerful DeFi lending platforms in crypto today. However, DeFi financing systems continue to appear more viable, offering appealing services to DeFi customers.