DeFi protocols that will shape the future of Crypto Finance

Introduction to DeFi, protocols for crypto finance

Decentralized Finance is an emerging part of the crypto-finance economy, and has become a big fan since it started to emerge in early 2019. 2020 brings even more promising developments that could change the core operating model of the financial sector.

If you are not familiar with what DeFi is, it can be defined as follows: Decentralized Finance (DeFi) is a movement that uses decentralized networks to transform traditional financial products (loans, investments, etc.) into transparent protocols that operate without centralized intermediaries work. .

Many see DeFi as the natural evolution of the crypto-finance economy as it moves to replace or at least disrupt the traditional banking system. Imagine being able to do everything a bank does… without a bank. It’s a strange concept to most, but something enthusiasts hope will become a reality sooner rather than later.

For additional reading on DeFi, check out this great course on BlockGeeks.

Top 3 DeFi Protocols to Watch

It is my opinion that these three protocols have great growth potential in terms of introducing us to new concepts in crypto.

1. Composite Finance – Lending, Collateralized Loans.

2. Convexity Protocol – Crypto Options

3. Yield Protocol – Fixed income products aka bonds

Composite Finance

My first taste of DeFi came from composite finance when I heard about it from a 16z video. After exploring the platform, I was truly impressed with how much thought went into the development of this protocol.

Let’s assume that you hold some crypto for a good return on investment through price appreciation, but what if you could further diversify your portfolio by earning an interest rate on it so that you can offset your holding costs and also stabilize the portfolio? Compound financing is something you might want to look into.

Source: Composite Finances

As you can see, if you deposit (deposit) your crypto with compounding, you earn an interest rate that is very comparable to the interest rates offered on savings accounts in developed countries, unlocking a new rate of return on your passive investment. Additionally, you can even use that provided crypto as collateral and borrow an equivalent amount of other crypto to diversify your holdings, helping you leverage and improve the liquidity of your portfolio. The best part is that you only need a wallet like metamask to perform these transactions, so say goodbye to exchange fees.

In short, Compound Finance helps you earn an additional return on your crypto assets without ever selling your crypto!

We’ve seen this concept pop up in crypto-finance lately, with companies like Bitbuy’s partner Cred. Although Cred works a bit differently than this DeFi protocol, the results are similar and the interest earned for HODLer’s can be very lucrative.

Convexity Protocol (Opyn)

I fell in love with the white paper and would recommend everyone to read it as the author Zubin did an excellent job of describing the basics of options and how convexity protocol makes it so easy to create and trade crypto options.

Let’s say you hold Ethereum, but what if Ethereum drops below your purchase price? To hedge this downside risk, you can visit Opyn and buy protected puts by posting your ether as collateral and creating oTokens that act as the option tokens that can be sold on the market to option buyers on Uniswap.

This critical development in crypto-options could bypass the exchanges, thus removing the centralized control of option prices and introducing more liquidity into the derivatives space.

Yield protocol

The retail investment industry has not been able to benefit much from the 100 trillion Bond Market due to the illiquidity and sophistication of fixed income products, even though it is an excellent financial planning product. You can’t go to your broker and buy a bond for $100 because you have to have a huge minimum investment to even get started in this space because of the cost of buying bonds.

Crypto ecosystem was unknown to bonds until Dan wrote the yield protocol that makes it easy for anyone to pledge their crypto of any amount as collateral and sell bonds (yTokens) that have an expiration date and are priced based on a target asset (such as e.g. as a Stablecoin such as Tether).

The maturity date, interest rate coupon of the bond and the price of the yToken’s price are verified using an on-chain price oracle. This helps in liquidity and transparency for the bond buyers and sellers. So for any crypto finance investor looking to achieve fixed income returns on their holdings, return protocol looks like one of the best solutions.

Honorable mentions

MakerDAO (Dai stablecoin)

Dai, unlike other stablecoins, uses Ethereum, a relatively volatile digital asset to maintain a steady value. It does this by using complex smart contracts to offset price gains and losses that Ethereum makes from day to day.

Kyber Network (on-chain liquidity)

Kyber is an on-chain liquidity protocol that pools liquidity from a wide range of reserves, powering instant and secure token exchange in any decentralized application. Kyber allows anyone to exchange tokens instantly without using exchanges. For example, it could allow sellers to accept different types of cryptocurrency while still being paid in their preferred crypto of choice. Any smart contract blockchain has the ability to integrate Kyber.

Synthetix (synthetic assets)

Synthetix is ​​a crypto-backed synthetic asset platform that provides on-chain exposure to real-world currencies, commodities, stocks and indices. Synthetix uses “Synths” which are tokens that provide exposure to assets. The assets currently available are gold, Bitcoin, US dollars and stocks like Apple and Tesla. Synthetix aims to be a leader in crypto finance by offering an all-in-one investment mix.

Shut down

DeFi is one of the fastest developing crypto-finance ecosystems, so stay tuned for even more fascinating developments. It will certainly be interesting to see which protocols gain steam and seriously disrupt the traditional financial landscape. Mass adoption will be the only way to break the trend, will these open source protocols be able to go mainstream? Only time will tell.

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Disclaimer: These protocols have not been reviewed by Bitbuy, and this analysis and opinions in this article are those of the author and not of Bitbuy as an organization. This article should not be considered investment advice in any way.