Top Blockchains for DeFi
If you are interested in Blockchain-affairs, you might have overheard the anticipations that Blockchain will do to the financial system what the Internet did to Media. The thought was initially put forward in an article published in Harvard Business Review magazine.
Will Blockchain take the Financial sector by storm? Well, the exuberance of fintech investors clearly affirms that Blockchain is not a fad. We can expect to have better clarity on this in the near future because Blockchain and its layers, just like the Internet, will take time to transform the global financial systems in the way everyone is expecting.
The existing financial system is complex, and that complexity creates risk. Fintech visionaries consider that allowing financial products to appear on a public blockchain network that a central bank or intermediary does not regulate can reduce the systematic risks in the current financial system. Basically, they envision decentralized finance system that is free from regulations of any centralized body.
Decentralized finance finds wider applications through innovations like crypto loans, P2P lending, decentralized exchanges, etc. The majority of the DeFi dApps currently available are built on the foundation of Ethereum, the world’s second-largest crypto blockchain. However, with DeFi becoming popular in shaping the future of the finance industry, almost every emerging blockchain protocol is boosting its DeFi ecosystem. The architecture of new-age blockchain protocols like Solana, Cardano, Polygon supports the development of new breeds of automated and decentralized financial dApps/services that are powered by smart contracts and can strip traditional intermediaries like banks.
Talking about DeFi development, in this article, we will discuss the following five blockchain platforms best for DeFi development, other than Ethereum. The list is not in any order of preferences.
An overview of DeFi
DeFi or Decentralized finance is one of the most popular use cases in the blockchain ecosystem. Put simply, DeFi applications are decentralized financial software built with blockchain technology. DeFi has raised to prominence for showcasing the potential to make financial applications and services more open, transparent and accessible to all, even the unbanked population. Read more about DeFi.
DeFi developers are building or envisioning various financial products such as stablecoins, money markets, non-custodial exchanges and oracles. Going forward, we can expect to see a new range of DeFi products like Insurance platforms, Yield aggregators, DEX aggregators, No-loss lotteries, Permissionless options trading, credit risk protocols for lending and borrowing and fixed interest rate loans.
The DeFi development uses a technology stack to mix and match projects and build high-value applications. For our understanding, we can consider that the DeFi tech stack comprises three layers:
- The Application Layer – The frontend that is visible to the users
- The Protocol Layer – The application protocol that DeFines the specific sets of rules
- The Base Layer – The blockchain protocol that allows value and data to get recorded and transferred across the chain.
Top Blockchain protocols for DeFi
Even if we don’t say that Ethereum is all about DeFi, it is pretty close. Technically, Bitcoin was the first DeFi application that allowed one to own and control value over a decentralized network and send it anywhere around the world. Building on this concept, Ethereum scaled up DeFi, nurturing it to grow in the path of becoming a decentralized global financial system that gives end-users control and visibility over their money. Through its DeFi products and solutions, Ethereum intends to give its users access to alternatives to their local currencies or banking options and exposure to global markets.
Ethereum’s DeFi solutions provide decentralized alternatives to most financial services, such as Sending money around the globe, trading crypto tokens, borrowing funds with/without collateral, accessing stable currencies and many others. Above and beyond that, Ethereum generated opportunities for creating a completely new range of financial products altogether. It expanded DeFi by making money programable that allowed users to do things with cryptocurrencies that they couldn’t do with Bitcoin, like scheduling payments, investing in index funds, lending and borrowing, and more.
Ethereum as a DeFi development platform is developers’ hot favorite to build dApps for crypto-based financial services like lending, borrowing, private payments and earning interest.
Ethereum-powered DeFi projects
Aave is a decentralized non-custodial liquidity protocol where users can participate as depositors or borrowers. Depositors provide liquidity to the market to earn a passive income, while borrowers can borrow in an overcollateralized (perpetually) or undercollateralized (one-block liquidity) fashion.
Aave is perhaps the most popular DeFi application powered by Ethereum. It is quite an elaborative application, representing DeFi at its best form, perhaps. Aave is an open-source and non-custodial liquidity protocol that allows users to participate as depositors or borrowers. On the Aave platform, borrowers can borrow funds in overcollateralized and undercollateralized fashion. Depositors’ role is to provide liquidity to the market, and in return, they get to earn a passive income.
Aave is often referred to as the cryptocurrency version of the bank. It is different from other crypto lending platforms because instead of matching bowers and lenders 1:1, the Aave platform allows the depositors to deposit their funds in liquidity pools. From there, the borrowers can borrow. Aave protocol is implemented as a set of smart contracts on the Ethereum blockchain that guarantees the safety of transactions without involving any middleman.
Aave projects stable rate loans to Lenders, variable rate loans to the borrowers. It supports uncollateralized flash loans through dApps built upon the protocol.
Another Ethereum powered DeFi protocol that enables developers to unlock a universe of open financial applications is Compound. It is a decentralized interest rate protocol that allows digital asset holders to lend and borrow crypto against collateral. Depositors maintain the platform’s liquidity by adding assets, and they can immediately start earning compounding interest. The interest rates get adjusted automatically based on supply and demand. While 90% of the interest paid goes to the suppliers, the remaining is maintained as reserves.
Wide-Ranging DeFi dApps
There are a plethora of dApps built n Ethereum catering to the finance sector. The popular sub-categories of Ethereum DeFi apps are Lending & Borrowing (e.g., Aave and Compound), Token Swaps(e.g., UniSwap and Matcha); Trading and Predictions Market (e.g.: Polymarket and dYdX); Investments(e.g., Token Sets and Index Coop); Payments(e.g., Tornado Cash and Sablier); Crowdfunding (Gitcoin Grants); Insurance( Nexus Mutual and Etherisc) and Portfolio apps like Zapper.
Solana is another major blockchain network that aims to bring blazing speed, scalability, and low fees to Decentralized Finance. Many new DeFi projects have established themselves on Solana, exploding its DeFi ecosystem. Still, because of the high expense of using DeFi on Ethereum, considerable DeFi market share has shifted to layer 1 chains like Solana.
Solana ticks all the boxes for a DeFi-focused chain. It prevents front running through fast block times and the Proof-of-History consensus mechanism. It avoids congestion and keeps transaction costs low through its node scalability. Solana is right on the track fostering its thriving DeFi ecosystem. Asset Management Tools, Decentralized exchanges, Margin Trading and Decentralized Lending, all types of DeFi projects, are being developed on Solana, vying to become its DeFi blue chips. Read more about Solana here.
Potential Blue chip DeFi projects on Solana
Port Finance and Solend
These two Solana-based projects are designed to act as decentralized banks similar to the very popular Ethereum projects Compound and Aave. As of 2021, Port Finance is the 19th largest dApp on Solana with a total value locked (TVL) of around $122 million according to DeFi L lama. Port runs a liquidity mining program, allowing users to earn the protocol’s governance token (PORT) along with interest paid out for their deposited assets.
Sound is another Solana’s DeFi bank that allows users to borrow against a more diverse range of assets.
Similar to Ethereums’ stablecoin-focused decentralized exchange Curve Finance, Saber is the Solana DeFi protocol where users can peg assets such as stablecoins or wrapped assets efficiently with low levels of slippage. Unlike Ethereum liquidity pools, Saber pools do not require users to deposit equal amounts of both assets.
Equivalent to Ethereum’s Marker DAO, Solana’s Parrot Finance is a platform for users to lock up their assets and mint a stablecoin (PAI) in return. Although Parrot currently has a cap on the amount of PAI that can be minted, these restrictions are likely to be lifted as the platform grows and demand stabilizes.
With Alonzo upgrade on Sept. 12, 2021, Cardano went live with smart contracts opening its ecosystem to a range of promising dApps. Already developers are moving to Cardano to use its new smart contract functionality for developing exciting dApps projects.
Cardano was founded in 2015, and its mainnet went live in 2017. For Cardano, the objective was to build a network that overcomes the interoperability and scalability shortcomings in 1st and 2nd generation blockchains. Cardano focuses on becoming the most reliable platform for crafting secure and scalable dApps for real-world uses cases. It aims to deliver economic identity to the billions through decentralized applications that help manage identity, value and governance.
For building and scaling the network, the Cardano team took the slow and cautious approach of peer-to-peer review for academically proving each step of development.
Some Cardano based Projects for DeFi
Developed by a team of Cardano, Waves and Chainlink, ERGO DEX is a smart contract platform built for DeFi dApps. ERGO DEX is a non-custodial exchange that allows users to share liquidity and trade interchangeably on any exchanges built either on the ERGO or the Cardano network.
Empower is a Cardano project that aims to leverage the strength of decentralized finance to address the shortage of affordable housing in Africa. The platform intends to break the housing supply vicious cycle that persists for factors like lack of funding, high cost of capital, high cost of building, lack of supply of affordable housing and others.
Meld is a decentralized protocol that incorporates fiat loan capabilities into the crypto ecosystem. It facilitates the development of DeFi products that can level the world’s financial playing field by creating opportunities for the bottom 97% of its population.
The Polkadot ecosystem comprises the Polkadot relay chain at the base layer and its network of parachains at layer 1. Parachains are the heterogonous blockchains build over Polkadot. DeFi projects are being built on the native Polkadot chain as well as on the parachains. Polkadot has powerful features to support DeFi projects, and interoperability is certainly the most prominent one. Polkadot uses cross-chain message passing (XCMP) to facilitate communication or interoperability between parachains or the DeFi projects developed on them. Even, DeFi built on Ethereum and Bitcoin can communicate with the Polkadot ecosystem through bridges.
At its core, Polkadot is all about interoperability. It is a layered network of chains. The relay chain is at the base layer, and it governs the consensus mechanism and the shared security for all the layer one chains, known as parachains and para heads. All parachains connected to the Polkadot Relay Chain benefit from the economic security provided by the Relay Chain validators.
Parachains are naturally interoperable with each other. They can function as complete independent chains for they can have their own native tokens, governance can be built as a public or private network or as a development platform for others to build dApps upon it. Polkadot offers complete flexibility to the parachains, with only one condition that they have to oblige by the native consensus mechanism of Polkadot. Read more about Polkadot.
Polkadot as a Unique Ecosystem for DeFi
An increasing number of developers are building DeFi solutions on Polkadot using Substrate, Polkadot’s development framework. For DeFi development, some teams are building their project-specific native parachains while some teams are deploying their infrastructure on top of the existing DeFi chains within the Polkadot ecosystem. There are two ways to build on top of existing parachains. Teams can choose to either build runtime modules and integrate them with the parachain or build on top of a parachain that supports smart contracts.
Polkadot is one of the most adopted blockchain ecosystems for developing liquid staking solutions. Liquid staking is a sub-category of DeFi through which anyone with a staking token can get immediate liquidity by obtaining a tradable, synthetic token without a lockup period.
Polkadot not just supports the existing DeFi concepts but also creates new concepts altogether, like decentralized sovereign wealth fund (dSWF). Listed below are some of the current Polkadot-based DeFi projects
- Acala – a DeFi hub through which users can send and receive USD across any blockchain connected to Polkadot.
- Staff – allows users to stake their staking tokens and obtain an alternative token (token) for trading and exchanging without waiting for the un-bonding period to complete.
- Bifrost – a parachain designed for staking liquidity. It allows users to deposit their staking tokens and mint vTokens
- Equilibrium – a cross-chain money market that combines synthetic asset generation & trading with pooled lending.
Another Blockchain network that is riding high on DeFi sentiments is Avalanche (AVAX). It is a smart contract-capable blockchain platform that focuses on low costs, transaction speed, and eco-friendliness. Avalanche is one of the fastest, open, programmable smart contracts platforms apt for building solutions for DeFi, debt financing, asset issuance, and digital collectibles. Read more about Avalanche here.
Avalanche is compatible with Ethereum’s assets, apps, and tooling and grants the benefits of higher throughput, speed, and lower fees. To facilitate seamless transfer of assets with Ethereum, Avalanche is also building a bridge to connect with the Ethereum network. Various DeFi projects such as SushiSwap, Reef, TrueUSD, bZx, and Securitize are integrated into Avalanche blockchain.
Avalanche protocol scores on the finality feature, which is significant, especially for developing decentralized financial applications. While Ethereum achieves finality in about one minute, Avalanche achieves finality in one second.
Avalanche is composed of three blockchains:
Exchange Chain (X-Chain)
The Exchange Chain (X-Chain) creates and transacts Avalanche assets, where fees are paid in AVAX.
Contract Chain (C-Chain)
The Contract Chain (C-Chain) represents the smart contract feature of Avalanche and allows developers to build decentralized applications while leveraging the platform’s scalability and security benefits. The C-Chain is EVM (Ethereum Virtual Machine) compatible. Thus anyone can deploy Ethereum smart contracts on Avalanche. It means, even existing Ethereum DeFi apps as Aave can easily deploy a version of their product on Avalanche.
Platform Chain (P-Chain)
P-Chain allows the creation of L1 or L2 blockchains, which are referred to as subnets. The P-Chain manages all the Avalanche subnets by keeping track of validators. Even subnets are also responsible for validating the P-Chain.
Another blockchain establishing itself as the rising star of DeFi platforms is Polygon. Polygon, earlier known as MATIC, has experienced intense growth in 2021 and seems to be emerging in a big way to compete with major blockchains to host a bigger slice of the DeFi ecosystem. The total gross value locked (TVL) in the Polygon smart contracts that DeFi protocols operate has grown astronomically, registering a growth of no less than 4,178,708%.
Polygon’s success can be attributed to the fast and cheap transactions on the network. For developers, running a Defi dApp on Polygon is hundreds of times cheaper than it is on bigger networks like Ethereum. Also, it is more time-effective.
With Polygon picking up pace, major and popular DeFi platforms like SushiSwap (CRYPTO: SUSHI), Aave (CRYPTO: AAVE), 1inch (CRYPTO: 1INCH) Curve (CRYPTO: CRV) and others are networking with Polygon. In the crypto space, Ethereum is still the undisputed home of DeFi. But users look for alternative protocols as the Ethereum network gets high traffic and tends to get slow and expensive. Polygon is a dear choice for such developers because it functions as a cheaper and faster twin platform for building and connecting Ethereum-compatible blockchain networks and applications.
DeFi Development by LeewayHertz
LeewayHertz is a blockchain development company that specializes in building DeFi solutions for enterprises and startups. Our team of developers constantly tap on the new upgrades and advances across different blockchain protocols like Cardano, Solna, Polygon, Avalance, Polkadot, and others and successfully deliver competitive development services and solutions. We build DeFi projects from scratch and also help our clients integrate decentralized finance into their existing systems. Our service portfolio includes:
DeFi dApps Development
We develop DeFi applications on peer-to-peer networks where nodes’ consensus has more control.
DeFi Smart Contracts Development
We develop autonomous smart contracts that help verify or execute crypto-related fund transactions, agreements or settlements without involving third parties.
DeFi Wallet Development
We are highly security-focused for developing DeFi wallets to ensure traders have complete control over their funds and data without depending on a third party.
DeFi Lending Platform Development
We develop features-rich DeFi lending platforms for users to supply, lend, borrow and lock their funds over a peer-to-peer network through smart contracts.
DeFi Token Development
We have expertise in building secure, payment, utility and equipment tokens on different blockchain platforms.
DeFi Exchange Development
To help facilitate the decentralized trading of DeFi tokens, we build DeFi exchanges that are not controlled by any central authority or intermediaries and provide complete control over privacy and data.
If you are looking for any DeFi development services, please connect to our Defi Developers.
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