The decentralized finance (DeFi) sector has been sitting in the backseat from a frenzy in the summer of 2020 to the first quarter of 2021.
Investors are currently debating whether the cryptocurrency sector is in a bull or bear market, which means it is a good time to check the state of DeFi and identify which protocols could be setting new trends.
Below, we take a look at the top-ranked DeFi protocols and a look at the strategies used by users of these protocols.
Stablecoins are the Foundation of DeFi
Stablecoin-related DeFi protocols are the cornerstone of the DeFi ecosystem and Curve is so far the go-to protocol when it comes to stablecoin staking.
Data from Defi Llama shows that four of the top five protocols in terms of total value locked (TVL) relate to the creation and management of stablecoins.
It is important to note that while these protocols have emerged on top when it comes to TVL, the value of their native tokens has dropped significantly from their 2021 all-time highs.
The main takeaway is that participating in the stablecoin aspect of the DeFi market through staking and farming has offered consistent returns, while also earning governance tokens for these platforms as an added bonus to help mitigate the decline in the token values.
Today, stablecoins play an integral role in the overall smooth running of DeFi, which continues to expand as new protocols like Frax Share and Neutrino rise to the ranks of TVL amid the growing number of interconnected Blockchain networks.
Lending and Borrowing: the Core of DeFi Value Proposition
Lending platforms are another key component of the DeFi ecosystem and one of the main features that investors can interact with even during a bear market. AAVE and Compound are the current leaders with respective TVLs of $12.09 billion and $6.65 billion.
Like other stablecoin protocols, AAVE and Compound saw the value of their native tokens peak in 2021 and both have been on a prolonged slide for months.
AAVE’s TVL growth outpaced Compound largely due to its cross-chain integration of Polygon and Avalanche, which increased the number of supported assets and allowed users to avoid high gas fees on the Ethereum network.
Long-term, risk-averse cryptocurrency holders can benefit from simply lending their tokens for a modest return.
Liquid Staking Adds More Utility to DeFi
The growing popularity of liquid staking is also adding new utility to decentralized finance. Liquid staking protocols like Lido Finance, which originally started as an Ethereum staking solution but has since expanded its support to Terra (LUNA), Solana (SOL), Kusama (KSM), and Polygon (MATIC).
Data from Defi Llama shows that Lido’s TVL hit a new all-time high of $14.96 billion on March 10, as the addition of new assets continues to attract more value to the protocol.
On Lido, users can stake Ether and Solana and receive stETH or stSOL, which people can use as collateral in AAVE to borrow stablecoins. These assets can be used to trade or farm, thus increasing the total return earned on the original asset staked.
Other notable liquid staking protocols are the Eth2 staking provider StakeWise, the Cosmos-based pStake protocol, and Stader Labs.
By Audy Castaneda
