Decentralized finance (DeFi) enables users to peer-to-peer transactions using blockchain networks eliminating the role of intermediaries. This is contrary to traditional banking where users need to deal with third parties which may become costly and sometimes results in delayed transactions. With the elimination of middlemen, DeFi transactions are quicker, cheaper, and more efficient. Decentralized finance or DeFi total value locked has ballooned to a whopping $70.97 billion in data by DeFi Llama. DeFi projects include payment, investments, and lending. Most of these projects have become one of the most lucrative investments in the crypto space today. In this article, we will discuss the top DeFi lending protocols that are worth investing in or utilizing their services. But what are DeFi lending protocols?
DeFi lending protocols are platforms built on blockchain networks like Ethereum that offers crypto loans without intermediaries and enables users to stake their tokens in the platform for lending purposes. Borrowers in the decentralized platform can take a loan through peer-to-peer lending. These protocols offer lending opportunities and advantages to their users which include the following.
- Hedge funding – Cryptocurrencies in general are volatile and are vulnerable to price swings. By investing their crypto assets into pools for a specific time, investors earn passive income even when the market is down instead of selling off.
- Earning interest by holding – By lending their cryptocurrencies in a defined time to borrowers in lending protocols, investors earn a good interest rate as stated in the smart contract.
- Less paperwork – Contrary to traditional banks, DeFi lending platforms do not require documentation that’s why it’s very convenient for both parties and saves a lot of your precious time. When predefined conditions are met, the transaction can immediately push through.
Let’s now start our countdown for the top DeFi lending protocols in the crypto market today.
MakerDAO
One of DeFi’s longest-running protocols, MakerDAO has regained its spot as the #1 DeFi protocol in the DeFi space and the largest of its kind with its TVL of $7.45 billion according to data by DeFi Llama. Built on the Ethereum network, the platform is a DeFi lending protocol that issues US pegged stablecoin DAI. It enables users to create a Vault, deposit digital assets like ETH, BAT, and USDC as collateral, and create DAI as a debt against the deposited assets. Afterwhich, a stability fee (serves as a loan interest) is charged on that which will be paid upon return of the borrowed DAI.
The DeFi protocol is governed by the community and MKR (MakerDAO) is its governance token. Holders of the token have the power to vote on governance issues in the system which may include adjusting the stability fee. They are also responsible for any corrective action in cases when a black swan event occurs in the protocol.
Each loan taken from the platform has an interest rate of 1.5% and when repaid, it triggers the purchase and burning of an equivalent amount in MKR tokens. This mechanism creates scarcity which helps to increase the price of the remaining MKR (MakerDAO) in circulation.
MakerDAO is a very secure platform with an 85 security score. No wonder it dominates the DeFi space.
Aave
Built on the Ethereum and was deployed in the network in 2020. Aave protocol is an open-source and non-custodial liquidity protocol where users can earn both as lenders and borrowers. It has a total value locked (TVL) of $5.7 billion in data by DeFi Llama. The platform is one the most secure among its kind garnering a 95 security score by Certik.
AAVE (Aave) is the governance token of the protocol and all participants are required to hold AAVE tokens in their account in order to borrow, swap, stake, and vote. Here are the steps on how can you start investing in Aave as a lender.
- Connect to a wallet – You need to connect a wallet to Aave to utilize its features. You can either choose from browser wallets like Metamask, Trustwallet, and Formatic or hardware wallets like Ledger.
- Deposit funds in your account – You need to deposit funds into Aave. Connect your wallet and simply click on the deposit tab of the Aave protocol. The protocol will detect the cryptocurrencies that you have in your account.
- Stake your tokens in Aave – Be sure that you have AAVE tokens in your wallet otherwise, you can buy them in Uniswap. Once you acquire the desired amount, you can type the amount you want to stake and you’re done!
Your aTokens or Aave interest-bearing tokens will now start accruing interest and pegged 1:1 to the value of your deposited digital asset. For example, if you deposited 100 DAI, then you will also receive 100 aDAI tokens. Investing with the Aave protocol can earn you a 3.5% APR + compounding interest.
Compound
Also built on the Ethereum network, the Compound protocol aims to diversify and grow users’ crypto portfolios. The Compound protocol has a TVL of $2.62 billion and is ranked at #8 among DeFi protocols in data by DeFi Llama. The platform supports a wide range of digital assets which include DAI, ETH, WBTC, REP, BAT, USDC, USDT, and ZRX.
Users can join as lenders and borrowers on the platform. Lenders can loan their deposited money to borrowers to earn interest. The funds are forwarded to the liquidity pools and used by borrowers who will pay interest back into Compound. The generated revenue from the interest rates will then be distributed to the lenders based on their annual interest rates. They will receive the same token they deposited on the platform’s liquidity pool. The APY (annual percentage yield) differs for every token but digital assets with the highest percentage are UST with 3% APY and DAI with 2.68% APY.
JustLend
The platform is the first-ever DeFi lending protocol in the Tron blockchain officially launched in December 2020. JustLend allows users can borrow, lend, deposit assets and earn interests. Despite being a new player in the market, the platform has now reached a TVL of $1.47 billion and ranked at #10 among DeFi protocols. The protocol now supports 14 digital assets which include ETH, BTC, TRX, BTT, USDT, USDJ, USDD, and others.
JustLend accumulates all funds deposited by lenders into a liquidity pool which helps to increase liquidity and provides a better monetary balance. Lenders can withdraw their assets anytime even if the loan expiration has not yet reached which enables the protocol to provide higher liquidity than their other competitors with the same model. APYs vary on the type of token lenders provide for the protocol and can earn as high as 24.64% APY.
InstaDapp
A decentralized application that acts as a bridge that connects several different protocols on the decentralized web. The platform generates revenue from fees collected from integrated protocols, users, and developers. Instadapp has a TVL of $1.47 billion and is ranked at #9 among top DeFi platforms. It was launched on the Ethereum mainnet in December 2018 and released its v2 update in April 2019. InstaDapp has integrated with leading DeFi projects which include MakerDAO, Compound Finance, Aave, Liquity, and Uniswap. It allows users to optimize, manage and position the assets and get high yields across its integrated protocols.
The platform comes with a simple interface and is user-friendly. Also, users only need to pay the transaction fees in ETH (ethereum). Other than that, they can utilize the platform for free.
That wraps up our list of leading DeFi lending protocols in the market today. Investing in these platforms guarantees a passive earning but since it involves investing money, as an investor, you need to do your own diligence. Invest at your own risk.
