Such impressive growth has been driven by a small handful of big DeFi platforms. Lending platform Maker accounts for around $1.18 billion (or nearly 30%) of all total value locked in, while rival lending platforms Compound, Aave and InstaDApp aren’t too far behind. Derivatives platform Synthetix is another big player, as is automated portfolio manager Balancer.
These are among the most popular DeFi services, but while they offer the trader exciting (if not sustainable) opportunities, their complex features may be difficult for newcomers to understand. In this article, we take a closer look at these platforms, explaining how they work and how exactly you might make money from them.
With $1.18 billion locked in and around 2,700 weekly users Maker is arguably the biggest DeFi platform around right now. It’s a decentralized lending platform, which issues its native Dai (DAI) stablecoin to users in exchange for Ethereum (ETH) or other ERC-20 tokens deposited as collateral. It also lets users save DAI and earn interest on their savings.
One of the benefits of Maker is that it lets anyone take out a loan in DAI, provided they have enough collateral to put down. Maker lets users borrow DAI worth up to 66% of their collateral. If the value of their collateral falls below 66% of the value of DAI, users positions will be liquidated to cover the loss of value, while they will also face a liquidation penalty.
Once they have DAI in their possession, users are able to lock their DAI into Maker’s Dai Savings Rate contract. Or they can lock DAI into one of the many other DeFi lending platforms, which may offer varying and sometimes generous interest rates.
Compound currently has around $726 million locked in and sees roughly 2,700 users per week. It is another lending platform, although it works a bit differently from Maker.
Regardless of whether they’re lending or borrowing, users deposit funds with Compound and receive the platform’s native cryptocurrency, cTokens, in return. The type of cToken they receive varies according to the underlying cryptocurrency they deposit, so that if they deposit ETH, they will receive cETH in return. Compound currently supports BAT, DAI, SAI, ETH, REP, USDC, WBTC, and ZRX.
If users are lending, they will receive interest on their cToken. A CoinMarketCap analysis from June found that Compound was offering around 68% interest for lending basic attention token (BAT), while offering as high as 19% for 0x (ZRX) and 14% for wrapped bitcoin (wBTC).
Conversely, borrowers will pay interest. Both types of user need to ensure that the value of the underlying cryptocurrency they’ve deposited doesn’t drop below a minimum (which can vary depending on the cryptocurrency). If it does, their funds may be liquidated to cover costs.
Originally known as Havven, Synthetix has around $495 million in total value locked in and boasts around 3,700 users per week. It is a decentralized derivatives platform, and offers users the opportunity to trade real-world assets as ERC-20 tokens.
Synthetix requires users to deposit tokens such as ETH or its own SNX as collateral. Once they have collateral in their accounts, users can then mint Synths, which are freely tradeable ERC-20 tokens that represent some real-world asset, including cryptocurrencies, fiat currencies and commodities (such as gold). These Synths track the price of the asset they represent, with users holding onto Synths in expectation that their prices will rise.
Synthetix also plans to let users create Synths for stocks such as Tesla (TSLA) and Apple (AAPL), as well for stock market indexes such as the Nikkei. As of writing, the SNX or ETH users have to deposit as collateral must be worth much more than the value of the Synths they’ll receive, with the precise amount varying according to the Synth.
Aave is another lending platform. It currently has around $478 million total value locked in and sees 2,500 users per week.
What separates Aave from other DeFi lending platforms is that it provides its own ERC-20 aTokens at a 1:1 ratio to the cryptocurrency a user deposits. That said, if users wish to borrow against the crypto they deposit (rather than lend), they may need to over-collateralize, depending on the cryptocurrencies they deposit. One exception to this are the “flash loans” Aave offers, in which users borrow and repay loans in the same transaction.
If lending, Aave lets users earn interest on the amount they lend. The interest rate varies according to the underlying cryptocurrency involved. As of writing, DeFi Rate indicates that lenders received a 30-day average interest rate of 8% for lending DAI, as well as a 4.26% rate for Binance USD (BUSD).
As with other lending platforms, borrowers funds may be (partly) liquidated if their collateral falls below a certain proportion of the amount they’ve borrowed. Fees are also applicable in addition to borrowing interest rates.
In contrast to other entries on this list, InstaDApp isn’t so much a DeFi platform as a DeFi app. It currently has around $259 million locked in, but rather than offering a self-contained platform of its own it essentially functions as a kind of bridge between other DeFi platforms.
InstaDApp is built on top of other DeFi platforms such as Compound and Maker. It lets users simplify DeFi transactions, enabling them to combine multiple actions (such as lending and borrowing) into a single process. Another one of its most notable features is that it allows users to move their debts from one DeFi platform to another.
By using InstaDApp, DeFi enthusiasts can streamline their operations and make managing and trading their crypto easier. It also harnesses liquidity pools such as the Kyber Network to help users gain leverage, so that they can trade more aggressively.
Balancer is a decentralized exchange and automated market-maker, with $267 million currently locked into its platform. Its automated portfolio management tool works as a kind of inverted index fund, with users depositing cryptocurrency into a pool and collecting fees from traders, who rebalance user portfolios by following arbitrage opportunities on other platforms.
Fees collected from traders are paid to depositors in the form of BAL, Balancer’s native token. Effectively, users ‘loan’ cryptocurrency to a liquidity pool, and then earn BAL as a kind of interest. The amount of BAL earned by liquidity providers varies according to the particular cryptocurrency they deposit.
Aside from its automated market-making pools, Balancer also offers a decentralized exchange in which users can easily swap ERC-20 tokens, without having to deposit any funds into a centralized account.