Crypto 101 What you should know about DeFi crypto coins

Different technologies are being introduced consistently in the crypto industry which increases the trust of new and seasoned investors. Thanks to the introduction of Ethereum (ETH) and the rise of smart contracts, decentralised finance (DeFi) was created and is seeing fast adoption. 

DeFi is a system of financial applications built on blockchain technology that aims to create a more open, transparent, and accessible financial system. The key characteristic of DeFi is that it operates without the need for intermediaries such as banks to facilitate transactions and provide financial services.

Thanks to the introduction of DeFi, many projects in the sphere have started their own tokens. There is now a category of cryptos known as ‘DeFi tokens’, the hottest new digital asset everyone is talking about. There is a lot to learn about DeFi cryptos whether you are completely new to the world of cryptos or a somewhat seasoned investor. 

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What are DeFi crypto coins?

While DeFi stands refers to the new class of financial apps built on blockchain tech, DeFi tokens refer to the various crypto used within the DeFi ecosystem. This includes both native tokens of specific DeFi protocols and other cryptos used as collateral or for liquidity provision.

These tokens play a crucial role by providing users with a range of benefits and purposes. These coins are often used for governance, allowing holders to participate in the decision-making process for the protocol. They can also be staked to earn rewards, used to provide liquidity, or used as collateral for loans and other financial products.

What are the uses of DeFi tokens?

As mentioned above, DeFi tokens play an important role in the ecosystem. Here are some of the main of their main uses:

Governance

Many DeFi protocols have a decentralised governance structure, meaning that token holders have a say in the decision-making process with the direction of a project. By holding DeFi tokens, users can vote on changes to the protocol, such as upgrades or new features. This gives users a voice in the development and evolution of the DeFi ecosystem.

Liquidity provision

DeFi tokens can be used to provide liquidity to decentralised exchanges and lending platforms. By providing liquidity, token holders earn a share of the trading fees or interest paid by borrowers. This provides a way for token holders to earn a passive income stream while also helping to support the DeFi ecosystem.

Collateral

Many DeFi tokens such as Compound (COMP) and Aave (AAVE) allow users to use their tokens as collateral for loans or other financial products. This allows users to access liquidity without selling their tokens, which can be useful in situations. For instance, it is ideal to borrow money against your crypto holdings if you believe that the token's value will appreciate over time.

More DeFi services

With a wallet and native crypto from a blockchain, you have access to most DeFi protocols which allows you to use more of its services. One of which is buying and selling them for a profit or use them in other applications. 

This allows investors to speculate on their price movements. While this can be risky, it also provides an opportunity for users to profit from the growth of the DeFi ecosystem. Besides this, some DeFi protocols also allow users to use their tokens as collateral to earn additional rewards through staking. 

This involves locking up tokens for a set period of time, which helps to support the network by contributing to security, validation, and transaction processing. By staking their tokens, users can earn rewards while also helping to secure and improve the DeFi ecosystem.

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What are the best DeFi crypto to invest in

When investing in crypto, it is always important to do valuable research. To help give you an idea of which is the best DeFi crypto to invest in, here is a list of the top 5 ones based on performance and data:

Uniswap (UNI) 

Uniswap is a decentralised exchange that allows users to trade cryptos without an intermediary. Its native token, UNI, is used for governance and allows users to participate in decision-making processes for the protocol. Uniswap has seen tremendous growth in 2021 and is currently one of the largest decentralised exchanges in terms of trading volume.

Avalanche (AVAX)

Avalanche is a blockchain platform designed for decentralised finance (DeFi) applications. AVAX is its native token. Known as a competitor of ETH, it prioritises fast transaction speeds and scalability. This is thanks to its consensus mechanism known as Snow, which enables fast, secure, and low-cost transactions. It also supports the creation of new blockchain assets and smart contracts, making it a popular choice for developers building DeFi apps.

Love Hate Inu (LHINU)

Launched back in 2021, Love Hate Inu is considered one of the best DeFi to invest in. It is a meme-inspired token on the Binance Smart Chain. The project aims to provide a fun and engaging way for people to participate in the crypto market. 

Its native token, LHINU, is used for governance and utility within the project's ecosystem. The token has gained some attention among meme coin enthusiasts, but as with any crypto investment, it is important to do your research and exercise caution.

Chainlink (LINK)

Known as a decentralised Oracle network, Chainlink provides off-chain data to smart contracts on the blockchain. In the DeFi space, Chainlink is used to securely connect external data sources to smart contracts, providing more accurate and reliable data for decentralised apps.

By using Chainlink, DeFi protocols can access real-world data such as price feeds, weather data, and other relevant information. The LINK token is used as a payment method for the Chainlink network and is also used for staking and governance.

Lido DAO (LDO) 

Lido DAO is another DeFi project that operates as a staking infrastructure for Ethereum 2.0. This enables its users to stake their ETH tokens and earn rewards in exchange. 

Its unique approach involves wrapping ETH into a token called stETH, which can be used to participate in the ETH network while also earning staking rewards. LDO is used as a governance token within the Lido DAO ecosystem, giving holders a voice in the decision-making process. 

Aave (AAVE)

A popular DeFi token is Aave. It is a decentralised lending and borrowing protocol that allows users to earn interest on their crypto assets. Its native token, AAVE, is used for governance and allows users to participate in the decision-making process for the protocol. Due to its strong track record and innovative features such as flash loans, it continues to be a top choice for DeFi investors.

Compound (COMP)

Last on the list is Compound, another protocol that allows users to borrow and lend cryptos which helps generate interest on their holdings. Compound operates as an algorithmic, autonomous interest rate protocol. 

This means that interest rates are determined by supply and demand for each crypto in the market. The platform also has a governance token, COMP, which is used for voting on changes to the protocol, proposing new improvements, and participating in governance decisions. 

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Where to buy DeFi crypto?

There are tons of different exchanges where you can buy and trade DeFi tokens. If you play casino games on Gamdom, you might have encountered some of them before. Some of the most popular ones are:

• Uniswap: Considered to be one of the most popular decentralised exchanges built on the ETH blockchain, Uniswap is where users can trade DeFi tokens without an intermediary.
• Huobi: Known as a global crypto exchange that offers a large selection of DeFi tokens, users at Huobi can also have access to various trading tools and services.
• CowSwap: CowSwap is another reliable global crypto exchange that operates on the Binance Smart Chain. It offers to trade for various DeFi tokens such as AVAX, Gnosis, and many more.
• Kraken: One of the most well-known exchanges in the world, Kraken offers a range of DeFi tokens for trading, including some newer projects.
• ParaSwap: Best for low-cost swaps, ParaSwap offers support to blockchains such as ETH, AVAX, and more. If you are looking for smaller transaction fees, go check them out.
   

Are DeFi coins a good investment?

Like any investment in the crypto space, DeFi tokens come with a certain level of risk and possible high-potential reward. This is because DeFi is a relatively new and rapidly evolving space. As a result, its value can be highly volatile. 

Additionally, the prices of DeFi tokens can be affected by various factors. This includes market sentiment, regulatory changes, and the overall adoption and development of the DeFi ecosystem. With this, it is important to do your research and carefully consider your own risk tolerance, investment goals, and financial situation before making any investment decisions. 

It also can be helpful to consult with an investment professional and to stay informed about the latest news and developments in the DeFi space.

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Words by: Raphael Latorre