Decentralized finance (DeFi) is an umbrella term for various apps that cut the middleman out of financial services, such as lending, borrowing, trading, and earning interest. However, it is in its infancy and carries additional risks. There are some DeFi specific tokens that are worth keeping an eye on.
Terra (LUNA)
A stablecoin whose value is pegged to a non-crypto commodity like gold or a fiat currency like the U.S. dollar
- Keeps its peg by using a smart contract to issue or buy coins
- Uses the LUNA token to increase or reduce the supply
Clover Finance (CLV)
All about interoperability
- Can work across different crypto platforms
- Supports applications and assets from other top networks including Ethereum, Solana, and Binance Smart Chain
- Aim to solve the common DeFi problem of accessibility
- Too hard to understand, transaction fees are prohibitive, and risks are difficult to evaluate
Decentralized finance is not for the faint of heart
The DeFi industry is rife with scams and fraud.
- Over $10.5 billion was lost to DeFi scams last year — a 600% increase on the year before — a reason why billionaire investor Mark Cuban thinks banks should be scared of DeFi.
- There’s a risk of faulty programming and increased regulation.
Aave
A decentralized lending platform where people can borrow, lend, and earn interest on crypto assets
- Similar to what a traditional bank does with money you deposit
- There’s a risk older DeFi cryptos will be overtaken by new products, but Aave remains top of the list in terms of total value locked
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Chainlink (LINK)
Oracles collect the data that feeds smart contracts. Without them, the smart contract wouldn’t know when it should trigger.
- Many leading DeFi platforms use Chainlink’s oracle data. But so far, this behind-the-scenes workhorse has not captured investor interest.
