4 DeFi Cryptocurrencies to Watch in 2022

Decentralised Finance, or DeFi as it is more commonly known, is a relatively new term that encompasses a variety of peer-to-peer financial products built on the blockchain. Unlike banks, stockbrokers and centralised exchanges, decentralised finance is all about becoming financially independent and being in control of your own money.

In DeFi there is no central entity looking out for you or influencing where you can or can’t use your money. You are in complete control of your assets, and you can decide how and when to use them on your own terms. This freedom has spurred the creation of many new and innovative financial products that could never have existed previously.

Which Cryptocurrencies fit into the DeFi category?

DeFi is a very broad term and in a sense, almost all cryptocurrencies fit into the DeFi category one way or another. The question is more about how well they fit in and whether they truly are decentralised. One way to determine if a cryptocurrency falls into the DeFi category is whether it offers a financial service that is entirely peer-to-peer.

For example, Bitcoin offers a method of peer-to-peer value transfer, with no need for a bank or financial intermediary to facilitate the transaction. Or Ethereum, which allows developers to build blockchain applications, as well as enable transactions, with no intermediary required for approval.

Moving away from well-known cryptocurrencies like Bitcoin and Ethereum, we start looking at more complex financial products. We can find DeFi platforms offering token swaps, loans, leveraged trading, on-chain futures and options, and a whole host of other mind-blowing decentralised applications that benefit from being cheap and efficient.

What are the most promising DeFi Cryptocurrencies?

One of the most exciting aspects of DeFi for investors is the potential for both capital appreciation as well as high levels of yield from their investments. Projects with the possibility of both passive income and an increase in the underlying asset value look like the most promising DeFi plays for investors moving forward.

1. Curve Finance

Curve Finance is a decentralised exchange that allows low fee trading of different crypto assets and currently has the most liquidity of any DeFi project. Curve focuses on stable-coin swaps and aims to become the most efficient blockchain trading service in the crypto ecosystem. Stablecoins are tokens that are ‘pegged’ to a non-crypto asset, commonly $1US or other fiat currencies. For this service, Curve charges a small 0.04% fee on every swap. Curve’s native token $CRV can be staked on the platform to earn a share of these fees.
Every day, over US$6 Trillion dollars is traded in traditional forex markets. If Curve can take a slice of this, the fee revenue for the $CRV stakes will be substantial. Holding a token that pays a dividend is a great way to earn some passive income.

2. Cosmos

Cosmos is a project working to develop a network of independent blockchains that can interoperate with one another. Other blockchains such as Bitcoin and Ethereum have run into issues with high fees and slower transactions during times of high traffic. Cosmos is working to solve this problem by allowing developers to create their own independent blockchain for their specific applications. This means that high levels of use on one application will not affect the transactions for another.

By addressing this issue of scalability, Cosmos makes DeFi applications more accessible with highspeed transactions and low fees whilst retaining the security of a decentralised blockchain. Cosmos’ native token $ATOM can be staked for a share of the fees generated, which is a nice way to earn some passive income. As adoption increases, the fees distributed to $ATOM stakers increases too.

3. Frax Finance

Frax Finance is an ecosystem built around a stablecoin known as $FRAX. $FRAX is partially backed by other assets held in the Frax Finance treasury as well as being algorithmically managed to maintain its US$1 peg. Anyone can create $FRAX by supplying accepted assets to the treasury.

The governance token $FXS is required to mint the Frax stablecoin. This creates demand for the $FXS token, putting upward pressure on the price. Investors can also stake their $FXS tokens on the Frax Finance platform to earn a share of the fees from the ecosystem. This is another great way to earn passive income from your crypto. As adoption and use of the $FRAX stable coin increases, not only will the fee payouts increase but the
$FXS supply will fall, increasing scarcity and demand.

4. Dopex

Unlike the other projects above, this project is not in the top 100 and is not available on centralised exchanges. If you are looking for a project with serious potential that hasn’t caught the attention of the crowds just yet, Dopex is one to watch. Dopex (Decentralised Options Exchange) is a project working on delivering crypto options to the crypto world in an easy-to-use manner.

The traditional equities markets have seen an average of 39 million options contracts traded daily throughout 2021, up 35% from 2020. Comparatively, even top crypto options exchanges are lucky to see more than 30,000 contracts traded a day. Despite this, the number of contracts traded has been growing at an increasing rate over the last couple of years and it is plain to see the potential upside for crypto options moving forward.

Dopex is working to bring options to investors in an easy to use and efficient manner. Since the platform’s inception, trading volume has grown consistently month on month, increasing platform revenue and pushing the Dopex tokens up in price. By cutting out the middleman, Dopex provides cheaper contracts and has made it simple for investors to use and profit from options trading. Users can use the Dopex platform to earn yield on their assets, as well as hedge positions and profit from market movements. Dopex’s native tokens $DPX and $rDPX serve unique purposes on the platform. $DPX will eventually give investors a share of the platform revenue whereas $rDPX will have a range of utilities, including the ability to mint synthetic assets, such as stable coins.

Are DeFi cryptocurrencies a good investment?

Over the past couple of years, DeFi has been a hot topic in crypto, and rightfully so. The total value of crypto assets in DeFi has exploded from approximately US$10 billion at the start of 2020 to over US$100 billion at the November 2021 peak.

Recent global events and the announcement that the US Federal Reserve will be throttling back economic stimulus to fight inflation has caused a downturn in the markets and the value locked in DeFi has dropped below its peak to approximately US$60 billion. However, with the high level of innovation, the allure of high returns and the potential for passive income, it is hard to see DeFi being forgotten moving forward. The future looks bright for this innovative space to head to new highs once again.

How do I get access to DeFi cryptocurrencies?

To get access to DeFi you must go beyond the comforts of centralised exchanges and venture into Web3 wallets such as Metamask. These wallets give you full control over your funds and allow you to interact with the smart contracts which power DeFi. By taking control of your finances in this manner you can now participate in the DeFi ecosystem. You can buy tokens that cannot be bought on centralised exchanges through DeFi protocols such as Curve Finance and Uniswap or lend and borrow money using peer-to-peer apps like Aave. Some of the projects mentioned above can be purchased on major exchanges, however, in most cases, the better opportunities are found by venturing outside your comfort zone and taking your finances into your own hands.

As with all things in crypto, it is important to be very careful not to interact with any suspicious sites and as the sole manager of your investments, you must take care to use strong passwords and store hard copy backups in secure locations. The crypto space is still in its infancy so there is the potential for high volatility, both up and down. Make sure you do your own research before you invest and only put in what you can afford to lose.

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