An Overview of Popular DeFi Protocols: Funding and Performance

How It Works

Some of the things leading to Uniswap’s present levels of success and adoption include the fact that it does not rely on any fees to garner income. There are no fees for those who engage in transactions on the platform, and there are no middlemen required to push transactions through. Thus, the company is fully decentralized and all trades are permissionless.

Yield Farming

Any ERC-20 token can be traded and listed on the platform. There is a liquidity pool for virtually every token the company lists. These tokens can be traded by anyone, and all users can contribute to the liquidity pools of these tokens while earning part of a 0.3% provider fee.

Governance

The company employs its own native cryptocurrency known as the UNI token. Simply holding this token in one’s digital wallet allows them to have a say in how the company operates. It also gives them a vote in all upcoming elections or when changes are suggested to the platform.

Funding

Uniswap has announced that it is looking to shell out approximately one billion UNI tokens through 2024. Roughly 60% of these tokens will be given to community members, while just over 21% will be provided to employees of the company. The remaining tokens will be offered to both advisors and investors of Uniswap. Just last September, nearly $2 billion in Ethereum was being stored on the Uniswap platform.

How It Works

Governance

Control of Yearn Finance has been distributed to about nine separate people that are now in charge of the company’s multi-signature wallet. For any changes to occur, they must be approved by six of these nine individuals.

Yield Farming

The company utilizes many lending services including Compound, Dydx and Fulcrum, thereby optimizing lending options to ensure customers always get the most rewards from their money. This is arguably why adoption has grown so steadily in the last several months. The company works by taking all currencies deposited by investors and converting them into what are known as yTokens. These funds are then regularly rebalanced to make sure customers always have access to the arena’s most profitable lending services.

Funding

All tokens have been distributed to users that now hold a stake in the governance of the YFI platform. They use these tokens to vote on protocol changes and cash in on processing fees, though according to YFI documents, further coins can be minted. In September, at a time when bitcoin was losing $2,000 off its price, the YFI token hit its all-time high of more than $40,000 per token, making it the first altcoin in the history of crypto to surpass BTC.

How It Works

Project Serum is the crypto world’s latest decentralized exchange (DEX). Unlike other protocols involved in decentralized finance, Project Serum is built utilizing a blockchain unrelated to Ethereum. Serum was in testing up through August of this year, but has since been unveiled to the public for trade use.

Governance

Users can start a Serum node by staking ten million SRM and one MegaSerum (MSRM). Nodes are often used to suggest changes to Serum’s present rules. To suggest a change, a community member must submit 50,000 worth of SRM. This is taken from the node’s asset pool.

Utility

The SRM token is often used to pay for fees on the company’s platform. Just by holding SRM in their online accounts, customers can experience 50% lesser fees on all future trades, making the company similar with Binance, the world’s largest and most popular cryptocurrency exchange, and how it utilizes its native BNB token. Users who hold SRM can also participate in the platform’s many token burns and receive portions of any related fees.

Funding

Distribution of SRM tokens is as follows: approximately 20% of the total goes to team members and advisors of Project Serum. 22% of the tokens go to project contributors, while 27% is locked away in a partner and collaborator fund. Another 27% goes to an ecosystem incentive fund, while the remaining 4% of tokens go to locked seed and auction purchasers.

How It Works

Governance

Users can participate in Sushi’s governance model by submitting what’s known as a SushiSwap Improvement Proposal (SIP) explaining the changes they’d like to see happen on the platform. Sushi holders are then given access to the proposal for further study. They then vote on the proposal using their tokens.

Yield Farming

Sushi allows users to deposit their tokens into a liquidity pool. These funds are then lent out and give original owners a chance to earn interest on their money. Virtually anyone can provide liquidity and garner SUSHI tokens, the company’s native cryptocurrency, in return.

Funding

As of early September, the company hosts approximately $1 billion in locked liquidity, making it one of the larger yield farming platforms in the DeFi space. Thus far, just over 76% of the company’s assets have been distributed to stakers of supported liquidity pools. For every block that’s mined, about 100 Sushi tokens are created and provided to stakers.

Governance

Decisions on the direction of the project are made by users who hold COMP tokens, the governance token for Compound. Interest rate and liquidity caps as well as fees can be determined by voting, as can any other feature of the platform. The amount of COMP gained is related to the amount of interest being paid out on the platform. Users can use the token to delegate voting rights to the address of their choice, including to third-parties such as known DeFi experts.

Yield farming

Yield farmers could, for example, stake USDC, borrow 75% USDT, and then lend their borrowed USDT for a net profit in COMP tokens. Yield farming typically involves leveraging the staked and borrowed assets for maximum yields. The practice of leveraging assets and then lending them out, or borrowing leveraged assets, is reminiscent of the 2008 banking crisis, during which the trade of leveraged credit-default swaps led to an economic bubble and subsequent collapse.

Funding

Kyber Network enables cryptocurrency transactions between various platforms and ecosystems, such as Enjin, MEW, Easwap, KyberSwap, and imToken.

Governance

Kyber Network has partnered with StakeWithUS, a blockchain firm that provides staking tokens and services. KNC token holders will be able to delegate tokens and votes to ATLAS, a staking pool operated by StakeWithUS, once the Katalyst update is live. Like most DeFi governance tokens, KNC is issued on the Ethereum network as an ERC-20 token.

Funding

Other backers include Hyperchain Capital, Pantera, Fenbushi Capital, Kenetic Capital, FBG, Danhua Capital, Hashed, and Signum Capital.

SNX

The SNX token allows users to mint synthetic assets (Synths) by staking SNX as collateral. SNX can be staked as collateral to create asset (making this project distinct from the Maker network. Oracles provide outside info on fiat currencies, and Synthetix aims to include stock market information soon.

Governance

Governance is partially available through SNX tokens. However, while users can vote on governance issues, cSynthetix is not fully decentralized at the moment. As with Compound, the team has announced that decentralization is in progress .

Funding

These DeFi protocols are not without flaws and risks attached. Lack of decentralization weakens the use case for the time being, as does involvement in the extreme speculation surrounding yield-farming. However, their long-term potential is undeniable, and their connection to the Ethereum project is likely positive for Ethereum fundamentals. A note to bear in mind is that Eth 2.0 staking might reduce the cos t of DeFi transactions as well as the speed. As such, the success of Ethereum and DeFi is intrinsically linked. DeFi is the most concrete evidence of a real-world use case for Ethereum beyond speculative trading, and the upcoming Ethereum update may yet propel DeFi to even greater heights.

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