The DeFi market is on fire at the moment with new platforms and features emerging weekly. DeFi (decentralized finance) seeks to convert traditional financial services into decentralized applications. By doing so, DeFi networks can provide more efficiency, cost savings, and security. Consequently, DeFi is one of the fastest-growing sectors in the blockchain market.
All of this growth is great for the industry but can leave new investors a bit confused. Some new terms and features are unique to the sector. Luckily, you won’t need to take the day off work to research the best features to look for in a platform. Here are the top DeFi features and services for 2021.
Many DeFi platforms operate as or incorporate some form of a DEX (decentralized exchange). These networks eliminate the need for expensive centralized exchanges and enable traders to swap assets directly. In many instances, DEXs eliminate the trading book as well. Instead, off-chain oracles provide accurate pricing data with less slippage.
Some of the top DeFi DEXs in the market today include Uniswap, PancakeSwap, and SushiSwap. There are also in-protocol DEXs that enable users to connect to a third-party exchange from their wallet or conduct direct chain to chain swaps known as atomic swaps. Both of these methods save traders’ fees and improve security.
Staking your coins is one of the best ways to create a passive income stream. Staking can come in many forms but in the DeFi sector, it’s the act of locking your cryptocurrency into a smart contract in exchange for rewards. Unlike trading, you don’t need to invest time researching market conditions or other technical indicators. For these reasons, staking is considered a better option for new users.
You can increase your rewards by increasing the number of tokens your stake. You can also add more rewards by staking for longer periods. Your rewards can come in the form of cryptocurrencies like ETH, or custom rewards tokens such as Xsushi. The latter enables you to then take your rewards and yield farm to improve your ROI.
Yield Farming is another popular feature found on many DeFi networks today. Yield farmers provide liquidity to large smart contracts called farming pools. In exchange for their participation, they are paid a yield, or dividend, on their farmed crypto. This dividend is paid in cryptocurrency. You also receive a pool token that represents the pool.
The more people that invest in the yield farming pool, the higher the value of the pool token. This strategy enables users to benefit from their farming rewards twofold. They earn a yield on their initial tokens and they gain from the appreciation of the pool’s token.
Another feature worth seeking out is Airdrops. Before the introduction of DeFi, Airdrops were rewards that platforms released to users directly. These rewards deposit in your wallet without the need to do anything extra. The integration of the Airdrop strategy into the DeFi sector has had some interesting effects.
DeFi Airdrops are usually integrated directly into the platform’s fee structure. For example, a network may have a 10% flat fee on all transactions. Half of this fee could go to operation costs and the other half could be redistributed to token holders via Airdrops. By automating the process, it provides a lasting incentive for HODLers.
Peer-to-Peer lending services are an essential part of the DeFi ecosystem. These networks eliminate the gatekeepers from the lending equation and enable borrowers to access funding immediately. In most DeFi lending protocols, the networks integrate lending pools. Users can deposit or borrow from these pools.
Borrowers pay interest on their loans that go back into the pool. The interest rate varies depending on the repayment schedule the borrower selects. This interest is then divided between the lender and the lending pool. This strategy enables P2P lending platforms to secure lenders against losses and late payments.
Another fun feature common in the marketplace is crypto savings accounts. These protocols operate like your traditional banking account in that you can deposit your funding and receive interest based on the amount. Unlike your local bank branch, there is no centralized organization operating this account.
Instead, DeFi networks eliminate all human intervention. Smart contracts are preprogrammed to handle the core processes of these accounts. By removing the middlemen from the equation, users can secure higher APYs. For example, your bank pays you around .25% APY on your savings on average. In comparison, DeFi bank accounts can payout as high as 12%.
Notably, some platforms such as META 1 even provide debit card services. These cards operate like traditional bank cards and can be used to make purchases anywhere that shows the VISA logo. They can accomplish this task by instantly converting your purchase value from crypto to fiat. Since the merchants only receive fiat currency, there are no extra steps required on their end to complete the transaction.
Most DeFi networks incorporate some form of community governance. Community governance protocols protect investors in many ways. Primarily, they ensure that the network develops in a manner that is conducive to further growth.
Most community governance mechanisms introduce a governance token. Users hold these tokens to become eligible to vote and put forth proposals. The more governance tokens in your network wallet, the more weight your vote carries. This strategy ensures that only those with vested interests get a say in the platform’s future.
Another interesting feature to look out for is no-loss lotteries. These protocols leverage interest-earning liquidity pools to provide you with unlimited chances to win prizes. To participate in a no-loss lottery, you deposit tokens into a prize pool. You are then issued tickets.
This prize pool operates continuously. As long as you don’t withdraw from the pool, you are always eligible to win prizes. You can remove your deposit whenever you like and there is no early withdrawal penalty. However, you will no longer be eligible for prizes once you exit the pool.
Top DeFi Features to Consider
It doesn’t take long to see why the DeFi sector is on the rise. These features are just a couple of the most popular options in the market today. You can expect this list to expand over the coming weeks as more features, services, and platforms enter the market. For now, you are ready to configure your DeFi investment strategy accordingly.