Most of us are either underbanked or unbanked. Do you think I’m exaggerating?
Let’s take a look.
2 Billion people around the world do not have a bank account. These are people that live in areas where banks don’t have a presence or daily use, or they have been outright rejected by banks as they are not profitable clients. Many countries have only 10-30% of their population within the banking system. The rest live their lives without access to the banking services that we’ve all taken for granted all our lives.
This is a statistical fact.
Now, how about the underbanked. This is a bit more of a nuanced argument, but hear me out. If you’re reading this blog, you most likely have one or multiple bank accounts, have been used to using debit cards and credit cards to buy things online and in physical stores, and have probably traveled to places where you had to use other currencies. These are basic banking services that most of us in developed countries use on a frequent if not daily basis, and we take them for granted.
However, when was the last time you stopped to wonder why every card transaction suffers a fee of 3-8%? And what about remittances? For those millions of workers who move to other countries in order to be able to sustain their family back home, fees for remittances account to around 9-11% every time they send money to their loved ones. These fees have not changed in 100 years. Is this normal, given the technological advances we’ve made in the meantime? I think banks and associated financial institutions have been doing a lousy job…
Still not convinced that you’re underbanked? How about the excessive KYC/AML procedures that dog every account opening with a bank? Or how about the open discrimination practiced by banks against individuals from certain countries (I know about this first hand) or against businesses operating in industries that the governments stated they do not like or support?
Or let’s talk credit. Today’s major banks only give decent loans for buying real estate (again, because that’s what the government wants you to do). They will fleece you on credit card interest rates, and good luck getting a loan to make an investment or to start a new business. How about offering assets beyond real estate as collateral?
DeFi changes this.
It decentralizes finance and banking. The promise is to disintermediate the banks and get rid of all the problems I just mentioned. In this article I’ll show you some of the use cases of DeFi and the platforms that you can use.
As someone with an unbounded interest in software and finance, DeFi is a natural rabbit hole for me to dive into. It’s a vast world, although it’s still in its infancy. Over time, I hope to dedicate a lot more time to research and investing within this space.
While in the early days of Bitcoin, most of the talk centered around how it works and its future potential, nowadays it seems to have consolidated its position as a store of value, and most of the news and discussion focuses around price action, regulations and adoption. While that is also interesting, DeFi is more aligned to my core interests and also kind of feels how the Bitcoin community felt in the early days.
Speaking of community, most of the discussions around DeFi seem to be happening within the Discord and Telegram channels of the many projects that dot the DeFi landscape. Twitter and YouTube are also important places to be for any DeFi enthusiast.
This post will serve as a repository for my overall view of the space, and eventually, I expect that I will write about certain projects separately as my knowledge levels up.
Best DeFi tools
- DappRadar – Track, analyze and discover decentralized applications.
- Defiyield – Trade and Swap assets across different blockchains. Add liquidity to earn yield. Also includes the largest database of DeFi project audits and an impermanent loss calculator.
- DeFi Rating – a simple dashboard for tracking DeFi positions in top protocols like Synthetix, Set Protocol, dYdX and Compound. Easily analyze and manage all your DeFi assets in one-stop-shop interface.
- Defillama – DeFi analytics
- Zapper – a simple dashboard for DeFi. Easily track and visualize all your DeFi assets and liabilities in one simple interface.
- Zerion – DeFi dashboard/portfolio
- Nansen – Ethereum wallet analytics.
- Furucombo – a tool built for end-users to optimize their DeFi strategy simply by drag and drop.
- Ethereum to Polygon Bridge – useful for moving assets to Polygon and thus paying lower fees.
My favorite DeFi projects
I’ve tried to group them into a few main categories, although some projects span multiple categories.
- Uniswap – a decentralized exchange. Together with Sushiswap, currently the best place to trade tokens in a decentralized manner.
- SushiSwap – swap, earn, stack yields, lend, borrow, leverage all on one decentralized, community driven platform.
- PancakeSwap – #1 AMM and yield farm on Binance Smart Chain.
- Bancor – another DEX. I find it particularly interest due to its liquidity pools that offer impermanent loss protection.
- Curve – a decentralized exchange that’s optimized for assets with the same relative value, for example USDC or Tether, or evcen WBTC and renBTC. Better than Uniswap for such trades.
- Perpetual Protocol – lets you trade a wide range of assets, including short selling, with up to 10x leverage. In addition, you can earn fees by providing liquidity or staking protocol tokens. All this can be done programmatically, or via web3 interfaces.
- 1inch – a DEX aggregator that works out the best crypto prices across decentralized exchanges and multiple blockchains (Ethereum, Binance Smart Chain and Polygon).
- Matcha – finds you the best prices across exchanges and combines them into one trade.
- Kyber – connects liquidity from diverse sources to provide the best rates for takers such as DApps, Wallets, DEXs, Aggregators, and users.
- Paraswap – Best DEX prices for DeFi Traders & dApps.
- Aave – an open-source and non-custodial liquidity protocol for earning interest on deposits and borrowing assets.
- Alchemix – self-repaying loans.
- Compound – a lending protocol enabling users to lend and borrow popular cryptocurrencies like Ether, Dai and Tether.
- Maker – a permissionless lending platform responsible for the creation of DAI, the first decentralized stablecoin, built on Ethereum.
- Venus – a decentralized marketplace for lenders and borrowers with borderless stablecoins, running on the Binance Smart Chain.
- Yearn – a suite of products in Decentralized Finance (DeFi) that provides lending aggregation, yield generation, and insurance on the Ethereum blockchain. The protocol is maintained by various independent developers and is governed by YFI holders.
- Alpha Homora – DeFi’s first leveraged yield farming product.
- Synthetix – lets users create synthetic versions of traditional assets (like stocks and commodities) on the Ethereum blockchain.
- Opyn – DeFi’s options protocol.
- Ribbon – generate yield through automated options strategies.
- Mirror – allows the creation of fungible assets, “synthetics”, that track the price of real-world assets.
- Pods – enables the easiest way to hedge crypto assets in Ethereum. The Pods Protocol is a decentralized non-custodial Options Protocol that allows users to buy, sell and provide liquidity using the new Options AMM.
- BarnBridge – A fluctuations derivatives protocol for hedging yield sensitivity and market price.
- Nexus Mutual – most well-known insurance system in DeFi. Get covered against smart contract failure & exchange hacks.
- InsurAce – a leading decentralized insurance protocol, providing reliable, robust and secure insurance services to DeFi users, allowing them to secure their investment funds against various risks.
- Harvest – yield farming pools that automatically get you the highest yields.
- Enzyme – a decentralised asset management infrastructure built on Ethereum. Using Enzyme Smart Vaults, individuals and communities can build, scale and monetise investment (or execution) strategies that employ the newest innovations in decentralised finance.
- DHedge – join in funds managed by third parties or create your own fund.
- Lido – simplified and secure staking for digital assets.
- Terra – a financial ecosystem that includes a stablecoin facilitator, synthetic assets, savings accounts and more.
- Frax – the Frax Protocol introduced the world to the concept of a cryptocurrency being partially backed by collateral and partially stabilized algorithmically.
- Empty Set Dollar – an algorithmic stablecoin built to be the reserve currency of Decentralized Finance.
Taxation of DeFi
It is extremely important that you understand how DeFi is taxed and that you have proper tools that can help you out. Read my article on the best crypto tax tools for more information and some suggestions. My favorite tool is Cointracker.
There’s a lot of rubbish and very little books with substance on the topic of DeFi. It’s a field that is developing rapidly so things quickly get out of date, but these books below are recommended.
The “How to DeFi” series is the best introduction to all the facets of DeFi, while for those who want to dig deeper into the various concepts and terminologies you’ll see bandied about, Lisa Tan’s book is essential.
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- Bankless – an extremely popular site and community around DeFi, Ethereum and NFTs
- DeFi Slate
- DeFi Rate – explore interest rates from the top cryptocurrency lending protocols and crypto banks.
- Decrypt – news and guides.
- The Defiant – news.
- DeFi Pulse – DeFi rankings.
- Yield Farming 101
- DeFi 101: Generating Yield
- DeFi 201: Intermediate-Advanced Strategies for Earning Yield on Crypto
- Guide to becoming a DeFi power user
Finally, I should also note that I’m seeing a lot of bullishness around DAOs, so these seem to be the next hot thing. It would pay to keep an eye on any DAO-related projects that come about in the next few months.