Decentralized Finance (DeFi) is tipped to be the next big thing in the cryptocurrency and blockchain technology arenas, and here we will analyze the best DeFi crypto coins on the market.
Put simply, the phenomenon refers to projects that aim to provide traditional financial services – such as loans, savings accounts, and asset exchanges, without requiring a third-party intermediary.
We look at the top DeFi protocols to pay close attention to in 2023.
Uniswap has dominated the DEX and AMM space and can take the lead this year. Many competitors have emerged in the past years, but many have taken a beating in the bear market (Astroport, Serum, Sushi, Osmosis). Another critical factor is the protocol treasury.
Uniswap has an immense treasury despite being 100% in $UNI which has depreciated significantly from the highs.
Another notable aspect is the debated 'fee switch,' which concerns revenue getting distributed to $UNI holders. While this is not guaranteed, as there also might be regulatory headaches in relation to this, a fee switch could impact $UNI very positively.
With respect to AMMs, Trader Joe is another protocol with exciting times ahead. The protocol launched on Arbitrum in December and will expand cross-chain further throughout the year.
Moreover, Trader joe launched its highly anticipated liquidity book, which introduced concentrated liquidity pools differently than classic UNI V3. One difference is the ability for non-uniform distribution of liquidity.
2022 was notable for the strong narrative around decentralized perpetual exchanges, including GMX, Gains, and a variety of forks. This has raised the question of whether decentralized options are next in line.
Options are, by nature, more complicated, however.
Besides, protocols that can deliver this product in a fashion that is easy to use could see a significant inflow of liquidity this year.
Dopex is a platform that has achieved this with multiple products and more on the horizon.
They are currently on Optimism, but recently a governance proposal to launch on Arbitrum and use GMX perps as the source of liquidity was approved. Despite a decrease in token price, daily fees are up significantly from earlier this year and in a modest uptrend.
An incentive change has resulted in nearly no $LYRA being emitted for rewards to protocol users. As such, having solid tokenomics, Lyra is also a sound product.
Another narrative that kept coming up throughout my research was liquid staking derivatives (LSD). LSD tokens allow investors to earn a staking yield while using the underlying token elsewhere in Defi. Of most L1s, ETH has the lowest staking ratio of 14%.
This is likely related to the fact that ETH cannot be unstaked yet. However, the Shanghai hardfork will allow this and is scheduled for March. While we could see initial unstaking, this could increase growth for various liquid staking solutions in the long term.
Rocket Pool is a prime candidate to grow from this narrative because of its relative size, recent growth in popularity, and several differentiators.
Final Thoughts
Defi coins – and decentralized finance in general, is a booming marketplace still in its infancy. As such, now could be the time to buy some Defi coins for your portfolio. However, do not forget that Defi coins are highly speculative and volatile – so do your research before proceeding.
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