Decentralized Finance (DeFi) is currently the most significant trend and the biggest category of decentralized applications built on the Ethereum Network. The Total Value Locked (TVL) is used to quantify the number of funds deposited into the various DeFi protocols. Depending on the protocol’s type, the amount of funds deposited serves a different purpose. However, TVL is an excellent measure to understand how big a protocol has become. In this article, you can find the top 10 DeFi protocols on Ethereum by Total Value Locked, coupled with a brief description of each protocol.
Top 10 DeFi protocols on Ethereum by Total Value Locked
|Protocol Name||Category||Total Value Locked (Billions)|
|Curve Finance||Decentralized Exchange||15.5|
|MakerDAO||Collateralized Debt Position||15.2|
|Convex Finance||Yield Optimizer||12.9|
A brief overview of the top 10 protocols
1. Curve Finance
Curve Finance, which goes with the ticker $CRV, is a Decentralized Exchange (DEX) optimized for low fee swaps and low slippage between assets of equal value. Such assets can be different tokens pegged to the dollar, such as USDC and USDT, or two tokens pegged to Bitcoin, such as wBTC or hBTC. Curve Finance is an Automated Market Maker (AMM) that relies on liquidity pools, where liquidity providers deposit their tokens and earn rewards or interest. The liquidity provided is then used for exchanging one asset for another. Curve Finance model is called Stableswap, as it is extremely useful for exchanging stablecoins.
MakedDAO is a DeFi Lending platform, and it is built on the Ethereum Network. MakerDAO is also the platform that issues DAI, the stablecoin pegged to the dollar value. As a lending platform, MakerDAO facilitates collateral-backed loans, without the need for an intermediary. In essence, it allows people to borrow crypto from the protocol on the Ethereum Network. The Maker (MKR) token is a governance token that allows token holders to participate in various protocol-related decisions.
3. Convex Finance
Convex Finance is a yield optimizer platform built on top of Curve Finance Stableswap. Convex Finance allows liquidity providers of Curve Finance to optimize their strategy and boost their CRV rewards and achieve higher returns. The platform is built by an anonymous team, and it charges no withdrawal fees. However, there is a complex performance-related fee structure, where the various protocol participants share the protocol’s fees.
Wrapped Bitcoin (wBTC) launched in 2019, is Bitcoin that has been converted into a format (technical) understandable by Ethereum Network, the ERC-20 token. wBTC is an ERC-20 token on Ethereum backed one-to-one by Bitcoin (BTC). Hence, each wBTC is always equal to one Bitcoin (BTC). wBTC is an essential concept on the Ethereum Network, as it allows users to use Bitcoin in various Decentralized Applications (dApps) and, in particular, Ethereum’s Decentralized Finance (DeFi) ecosystem. Uses vary, from trading Bitcoin for other assets, using BTC as collateral to get a loan, etc.
Compound is a blockchain-based decentralized Lending and Borrowing protocol on the Ethereum Network. Compound allows anyone with crypto to lend and borrow without performing any credit check or the need to deal with any financial intermediary. Lenders and Borrowers can deposit their money in the protocol to earn interest or use them as collateral to get a loan. The native token of the protocol, COMP, similar to other significant protocols, is a governance token that gives token holders the right to participate in governance decisions.
Uniswap is the most popular Decentralized Exchange (DEX) and Automated Market Maker (AMM) on the Ethereum Network. It used Liquidity Pools (LPs) to make the market without relying on the traditional Order Book structure found in Centralized Exchanges (CEX) and without any central facilitators. Uniswap depends on incentivized structure for liquidity providers to participate in the protocol, rewarding them with the fees collected from the protocol. Uniswap is the exchange that proved the AMM model can be an effective way of trading digital assets in a decentralized and permissionless environment. Many other exchanges follow the Uniswap model on Ethereum or other networks.
Aave, is the third Lending and Borrowing platform on the list, proving the importance and the popularity of the lending protocols among DeFi users. Like the other two on the list, Aave users can take out a loan by providing digital assets as collateral. Aave allows lenders to deposit their funds into the various liquidity pools in exchange for rewards in the native tokens, while others can borrow digital assets through over-collateralized loans. Aave is also the protocol introduced “Flash Loans”. Flash Loans allow anyone to borrow a massive amount of funds without any collateral, as long as the principal is repaid within the same Ethereum transaction block. Aave’s native token, which carries the name of the protocol, is a governance token.
Hex was launched in 2019 by founder Richard Heart. Hex is an Ethereum-based protocol that coins itself as the first blockchain certificate of deposit. As with traditional Certificates of Deposit, where users can get higher interest rates by agreeing to leave their assets untouched for an extended period of time, Hex holders can stake their tokens for a pre-specified amount of time to earn high interest. Worth noting that there was a lot of criticism for the protocol, characterizing it as a scam, despite its tremendous growth.
Lido is a liquid staking protocol built on the Ethereum Network that allows users to stake their tokens while remaining liquid. Usually, when you stake your tokens to secure the network, your staked tokens are locked, and you cannot use them. Lido removes this limitation by providing Stakers with a number of tokens equal to the one staked, pegged to the staked token. For example, if you stake 2 ETH, the protocol will provide you with 2 stETH. Then you can freely use your stETH tokens in the various DeFi protocols and generate additional yield, while you are earning staking rewards from the base token.
InstaDApp is an infrastructure project that brings various DeFi protocols together in what they call a Smart Layer. Simply, Smart Layer consolidates functionality from various DeFi protocols found on the underlying blockchain network into a single place. Then, developers and users can combine them to build more complex strategies. This structure allows InstaDApp users to access the full potential of Decentralized Finance.