2021 will go into crypto history as the year of DeFi. It has been a long time since we have seen a hype of similar magnitude, probably best comparable to the 2017 ICO hype.
In this blogpost, we will be looking into the top 5 best DeFi projects and whether an investment into those could make sense.
The DeFi projects are selected by: how much potential there is in the idea, how good the team behind the project is, if there is a proven track-record already of completed milestones/past successes by team members, and how much growth potential there still is for the coin or token.
The Top 5 Best DeFi projects, in no particular order
Chainlink is a decentralized oracle network that aims to provide smart contracts with real word data & information.
In the traditional world, simple things such as the purchase or sale of something online can become quite complicated. If you are a buyer, do you send the money first and then hope for the seller to deliver on their promise and really send you the item? Or the other way around, if you are a seller, how do you know that someone will really pay you after you ship out your product?
The answer is: you don't. That's the whole reason why third party intermediaries such as eBay are so successful. But even there, you still have to trust a third party. Ideally, you would be able to do this in a trustless, controllable manner where nothing can go wrong.
That's what smart contracts are trying to solve, where instead of trusting and relying on the reputation and mercy of a third party, you only have to trust a smart contract - which basically means trusting math.
The problem: A smart contract needs some way to know when and what happened in the real world, so it can automatically execute and make the decision it was programmed for. But how do you give a smart contract such information in a trustless and decentralized manner?
Chainlink aims to be the solution to this, but how exactly they are trying to achieve that is a topic for another article. Here, let's focus and analyse Chainlink from an investment perspective.
Chainlink investment analysis
i. Potential of the idea: The usage of smart contracts is growing and growing, and with it the demand for solutions to the big problem of how to synchronize the smart contract with real world data - this idea definitely has big potential: 1/1 points here.
ii. Team behind the project: While the team is public and we definitely know who stands behind the Chainlink project, the Founder and CEO (Sergey Nazarov) as well as the CTO (Steve Ellis) are quite private people with not much activity on social media and public information. Sergey seems to have been involved with blockchain since 2011 though. We give this one a 0.5/1
iii. Proven track-record of completed milestones: With Chainlink being over 3 years old already (a long time in the cryptospace) and having shot up to the top 10 coins recently, they definitely have a proven track-record of completed milestones. This one is most definitely a pass: 1/1.
iv. Growth potential for the token: This all sounds pretty exciting - but the thing is: This exciting thing is not a secret anymore. Virtually everyone in the cryptospace knows about Chainlink, and being in the top 10 coins by coin market cap, many people have already invested in it, too. Is there still room to grow? Yes, but 10x or 100x without the whole cryptospace exploding as well? Not really. 0.5/1
Conclusion: Chainlink receives a solid 3.0/4 and may be worth investing a bit of money in.
Similar to what traditional banks do to earn money, Compound Finance is a platform to borrow and lend cryptocurrency assets. Lenders provide their cryptocurrency and receive a certain interest rate in return, while borrowers obviously are the ones paying that interest (plus a little more, which is how Compound makes their money)
Sounds pretty simple, right? That's because it is - and it works, and has been working already for quite some time actually.
But when things started getting really crazy was when Compound launched its custom token COMP. Until then, Compound had just about $100m USD in Total Value Locked - shortly (and we are talking days) after, Compound suddenly had short of $1 Billion USD in Total Value Locked on its platform!
How did that happen? The short story is: suddenly, a lot of people were trying to get rich really, really quick. Compound allowed for users to optimize their yields for getting as many COMP as possible, and as people started earning money, you can imagine the social media hype that followed. But is COMP really something worth investing into? Let's find out.
Compound Investment Analysis
i. Potential of the idea: The concept of borrowing and lending, even in crypto, has already been around forever. Compound was one of the first movers to do this in a decentralized way, though there is increasing competition. We give this a 0.5/1
ii. Team behind the project: Compound's Team is public, with its CEO Robert Leshner being relatively active on social media and appearing on interviews as well. Leshner used to work as a Financial Analyst, and the CTO Geoffrey Hayes is a "technology founder of two startups", though its hard to find much public information about him. Not amazing, but "ok" - 0.5/1
iii. Proven track-record of completed milestones: The platform Compound has been around for quite some time already and works flawlessly so far. Nothing to complain. 1/1
iv. Growth potential for the token: This one is tricky, because the COMP token's only value is governance - a right to vote. It is debatable whether the value of this is higher than zero, but a price of well over $100 with millions of tokens in circulation? Definitely not. 0/1
Conclusion: With a rating of 2.0/4 Compound is an interesting platform to use and receive yield for lending, but investing into the COMP token is a definite no.
Polkadot is a multi-chain platform framework, which is based on a whitepaper by Gavin Wood from October 2016. Gavin Wood was Co-Founder and CTO of Ethereum and is certainly one of the leading technical experts in the blockchain ecosystem, especially with regard to smart contract platforms.
Together with Peter Savan, he founded the Web3 Foundation, a non-profit organization that drives the research and development of Polkadot.
Polkadot has received a lot of attention since its Mainnet launch. However, Polkadot is not really new, there are already more than 3 years of work and meanwhile a relatively large team working on this project.
The Polkadot network protocol allows to transfer arbitrary data - not only tokens - between the connected blockchains (parachains).
Polkadot can exchange data between public networks without access restriction and private networks with access restriction. So it is possible to use data from private and restricted networks in public blockchains.
The focus of Polkadot is on interoperability and scalability. Let's see how Polkadot performs from an investment perspective:
Polkadot Investment Analysis
i. Potential of the idea: Blockchains being stand-alone and not flexible enough to transfer and receive data from other blockchains is definitely a problem, and there will most probably be demand for a solution like this. A solid 1/1 here.
ii. Team behind the project: Polkadot has 3 co-founders, with all of them being involved in the blockchain industry for quite some time already and having a solid track-record. What stands out is that all three are tech-focused and their skills don't seem to be complementary to each other, but still, this is a promising team. 1/1
iii. Proven track-record of completed milestones: Polkadot has already been in the works for years prior to its Mainnet launch, and it's probably safe to assume that the team will continue to deliver. Though 3 years until Mainnet is quite long, they did deliver, and we can give this a 1/1.
iv. Growth potential for the coin: Polkadot has the same problem as Chainlink here: since its Mainnet launch in May 2020, it experienced an enormous hype and now being under the top 10 coins already, definitely everyone in the cryptospace has already heard of Polkadot. Potential, yes, but everyone already knows about it so some of the potential might be included in the price already. 0.5/1
Conclusion: With a rating of 3.5/4, Polkadot looks promising and may be worth investing some money in - but it definitely is no "hidden gem"
Uniswap is a decentralized exchange built on Ethereum for swapping ERC20 tokens. Unlike traditional, centralised exchanges which can easily be regulated and manipulated by governments or other third parties, decentralised exchanges offer a trustless, permissionless gateway to the world of financial markets.
With the DeFi and Yield Farming craze going on, in some days Uniswap - with just about 10 employees at that time - overtook Coinbase, which is one of the largest centralised exchanges in the industry and has over 1000 employees, in daily trading volume.
This definitely shows that there is huge demand for decentralised exchanges in the cryptospace, but of course there is no easy and direct way to invest in Uniswap and profit from this - or at least there wasn’t.
On 16th September 2020, Uniswap announced their custom UNI token, which has seen one of the most respectable and decentralised token distributions ever: Anyone that had used Uniswap prior to 1st September was eligible to receive 400 UNI tokens - worth a whopping $1200 at the day of announcement, so a massive payday for all prior Uniswap users.
In total, 1 billion UNI tokens were distributed, with 60% going out to the community and pretty much all the other 40% to team members and investors, with a 4 year vesting period, however.
But what is the actual value of the token, with all the hype and euphoria put aside?
Uniswap Investment Analysis
i. Potential of the idea: A decentralized exchange built on top of Ethereum with the sole purpose of being able to swap ERC20 Tokens easily and directly is definitely unique, but it has a ton of dependencies, so we give this a 0.5/1
ii. Team behind the project: Uniswap is the first blockchain project of it's founder Hayden Adams and - excused by his young age - actually his first project at all. However, his story proves a lot of determination, and with Uniswap being Open Source and having reputable contributors, we give this a 0.5/1
iii. Proven track-record of completed milestones: Uniswap has been around for 2 years now with continous development and bug fixing - this is definitely a pass. 1/1
iv. Growth potential for the token: Just like Compound's token COMP, UNI is a governance token, its sole value being the right to vote. Again, it is questionable whether the value of this is above 0 - but with millions of tokens circulating, UNI definitely is not near the worth of its current price. 0/1
Conclusion: Uniswap receives a rating of 2.0/4, mainly not because it would be an uninteresting or useless project, but just because its token UNI does not really have a strong use-case to justify its price.
DeFiChain is a non-turing complete blockchain built on top of Bitcoin, designed specifically for the decentralized finance (DeFi) industry.
Every year, there is some kind of scandal or hack around Ethereum and projects built on top of it, because Ethereum is turing-complete and where anything can happen, anything will happen - even if it’s something really bad.
The DeFi blockchain solves this problem by being delibaretly non-turing complete and strictly limited to the functionality it was designed for, meaning drastically higher security. Being built on top of Bitcoin, it also provides simplicity and rapid throughput.
DeFiChain is made for investors in the cryptocurrency market who are looking to make their cryptocurrency work for them and ensure a return on their investment. This means DeFiChain does for you what many people in the cryptospace are there for: make money!
It does so by offering a function set that includes among others:
- Decentralized lending
- Decentralized wrapping of tokens
- Decentralized Pricing oracles
- Decentralized exchanges
- Transferable debts and receivables
- Decentralized Non-collateralized debt
- Asset tokenization
- Distribution of Dividends
So, how does DeFiChain perform from an investment perspective?
DeFiChain Investment Analysis
i. Potential of the idea: Being able to make money on one's cryptocurrency assets is exactly what most of the crypto community is here for, so this idea definitely has huge potential. 1/1
ii. Team behind the project: The Co-Founders of DeFiChain are Dr. Julian Hosp and U-Zyn Chua, who both have a very impressive history. U-Zyn Chua is a Blockchain Architect from the very first days, and has developed one of the first exchanges in Asia, as well as worked on a blockchain project with the Singapore government. Dr. Julian Hosp walked away from a promising medical career to pursue entrepreneurship, and is now the leading cryptocurrency expert in all German speaking countries, shining with vast business and marketing experience. The team is complementary and has an impressive history. 1/1
iii. Proven track-record of completed milestones: Despite not being much older than half a year already, the DeFiChain Foundation has already completed some impressive milestones and even is already deployed live on the Mainnet right now! For comparison: it took Uniswap 2 years to accomplish this. Definitely 1/1. They even are listed on tier 1 exchanges such as Bittrex already, something that few other projects have ever achieved in such a short time.
iv. Growth potential for the coin: Not even being ranked among the top 100 coins by market cap right now, DeFiChains native coin DFI definitely still has huge growth potential and is one of the hidden gems in the current market! 1/1.
Conclusion: With a ranking of all 4/4 points, DeFiChain is the most promising project on this list and definitely worth considering an investment into!
UPDATE: WOW! Since publishing this article a few months ago, DeFiChain has far exceeded all expectations. The Coin DFI has seen a 10x increase, and the team has put up a fully functional decentralized exchange in a very short time (the reason for the price increase). With decentralized tokenization coming in the next few months, and still far from the top 10 coins, still an under-the-radar coin that has now proven itself.