Summary: The rapidly expanding sector of Decentralized Finance (DeFi) has revolutionized the blockchain and cryptocurrency landscape by offering increased accessibility and inclusivity. Through DeFi, individuals with internet access can utilize decentralized, permissionless financial services. This practical application has spurred consistent growth in user numbers and activity, translating into higher revenues and valuations for DeFi protocols.
To assist you in discovering the top DeFi investments for 2023, we present our selection of 7 outstanding projects available across multiple Layer 1 and Layer 2 blockchains:
- Ethereum - Best Overall DeFi Investment
- Uniswap - Best DeFi DEX
- AAVE - Best DeFi Lending Platform
- GMX - Best DeFi Futures Trading Platform
- Curve Finance - Best Stablecoin DEX
- Lido Finance - Best DeFi Liquid Staking Derivative
- Stargate Finance- Best DeFi Bridge
TopDeFi Projects
In a thorough assessment designed to highlight exceptional DeFi crypto projects, over 15 distinct tokens intimately involved in facilitating decentralized finance were carefully examined. Primary factors taken into account included current adoption, total potential market, DeFi token economics, the prowess of the development team, and the scalability potential. After this methodical evaluation, a list of the top seven DeFi crypto projects has been assembled, each demonstrating considerable clout within the realm of blockchain technology.
1. Ethereum ($ETH)
Ethereum is the best overall DeFi investment for 2023 because it is the underlying blockchain platform for the vast majority of DeFi protocols. This means that many DeFi protocols are built on and run on the Ethereum blockchain, and use Ethereum's native token, Ether (ETH), as a means of payment and value transfer.
As the use of DeFi protocols and the overall DeFi ecosystem grows, the demand for Ethereum and its native token, Ether, is likely to increase. This is because Ethereum is needed to pay for the network transaction fees (gas) required to use DeFi protocols. This results in ETHtokens being burned and ultimately a reduction in supply of Ether that can cause rapid growth in price.
2. Uniswap ($UNI)
Uniswap is the largest decentralized finance (DeFi) exchange available on Ethereum, Polygon, Arbitrum, Optimism and other Layer 2 networks. The UNI V3 DEX trades over $1 billion in daily volume, making it one of the highest revenue accruing DeFi applications. The platform has also expanded to include an NFT Marketplace that is set to compete with OpenSea & LooksRare.
Uniswap's UNI token is an ERC-20 token that gives users access to a wide range of DeFi services on the platform such as liquidity mining, governance and insurance. The UNI token also provides holders with additional benefits including voting rights for Uniswap’s future direction and eventually will provide revenue share for holders.
3. AAVE ($AAVE)
AAVE is the largest multi-chain money-market that allows users to lend and borrow a wide variety of cryptocurrencies in a non-custodial manner. The platform has over $6 billion in total value locked (TVL) and offers a wide range of DeFi services such as high-yield savings, flash loans and tokenized real world assets.
Another advantage of AAVE is that it currently offers native $AAVE token staking where users can stake their coins to earn 8% APY. Their lending & borrowing protocol is widely available and is currently on Ethereum, Avalanche, Polygon, Arbitrum and other networks.
4. GMX ($GMX)
GMX is a multi-chain derivatives platform on Avalanche, Arbitrum and BNB Chain that allows users to trade futures, perpetual contracts and options with up to 25x leverage. The platform has over $400 million in TVL and offers over 20 trading pairs for cryptocurrencies such as Bitcoin, Ethereum, Solana, Cosmos (ATOM), Uniswap, Chainlink (LINK) and much more.
The GMX platform is one of the most popular investment in 2023 because the protocol is the 3rd highest fee earning cryptocurrency or blockchain available in the space (including Layer 1's like Bitcoin). The high fees come from the high trading volume on the platform, which results in staking rewards for GMX stakers in excess of 30% APY paid out daily.
5. Curve Finance ($CRV)
Curve Finance is considered a strong investment opportunity in the DeFi space because it is a decentralized exchange (DEX) that specializes in stablecoin trading. Stablecoins in DeFi is considered to by the highest total addressable market, which means that a protocol that specializes in stablecoin trading can capture the most market share.
One of the main advantages of Curve is its low slippage and high liquidity, which is achieved by using a unique liquidity provision mechanism called "constant product market maker" (CPMM) that allows for easy trading of stablecoins, even if there is no order book. This means that users can trade stablecoins with minimal price impact and high efficiency. It also offers a high yield on its liquidity pools, making it an attractive option for yield farmers.
6. Lido Finance ($LDO)
Lido Finance ($LDO) is a liquid staking derivative for Ethereum, Solana and Polygon that enables users to earn yield on staked assets without needing to commit their capital for long periods of time. Lido is currently the largest DeFi protocol by total value locked (TVL) with over $8 billion in assets on the platform.
The Lido protocol allows users to leverage their staked coins without needing to sell them, by essentially wrapping the asset and providing a derivative that is collateralized by the underlying asset. This means users can access funds when they need it and earn yield while they wait.
7. Stargate Finance ($STG)
Stargate Finance ($STG) is the largest and most trusted cross-chain bridge that allows users to transfer assets between a variety of Layer 1 and Layer 2 networks including Ethereum, BNB Chain, Fantom, Arbitrum, Optimism and many others. The platform is expected to continue to grow in usage and revenue as more L1 & L2 chains pop up and the demand for interoperability increases.
The STG token itself holds a lot of utility within the protocol, granting voting rights, revenue rights and more to holders. The token also gives users access to yield farming, staking pools and liquidity mining opportunities. Overall, STG is an excellent investment opportunity for those looking at long-term value growth on a small market cap DeFi token.
Why is DeFi a Good Investment Opportunity?
Decentralized finance (DeFi) is considered a good investment opportunity for several reasons:
- Accessibility and inclusion: DeFi enables anyone with an internet connection to access financial services, regardless of their location or financial status, which can lead to a more inclusive financial system.
- Security and Transparency: DeFi platforms are built on blockchain technology, which provides increased security and transparency. Smart contracts, which are self-executing contracts with the terms of the agreement written directly into code, ensure that the rules and penalties around an agreement are clear and transparent.
- Yields: DeFi can offer higher yields on investments due to the decentralized nature of the platforms and the ability to earn interest on assets through lending and borrowing protocols.
- Innovation: DeFi is a relatively new and rapidly evolving space, and it has the potential to bring new and innovative financial products and services, which can lead to new investment opportunities.
- Interoperability: DeFi protocols are designed to be interoperable which means that they can interact with one another, this leads to more efficient and cost-effective solutions.
However, as with any investment, it's important to do your own research and understand the risks involved before investing in DeFi. Additionally, the DeFi ecosystem is highly dynamic and ever-evolving, new projects and protocols can rise in popularity quickly and it's important to keep an eye on the market and the development of the project.
Risks of DeFi Investing
Investing in decentralized finance (DeFi) comes with its own set of risks, as with any investment. One of the main risks is the high volatility and lack of regulation in the crypto market, which can lead to sudden and significant changes in the value of DeFi protocols and tokens. Additionally, there is a risk of hacking and security breaches, as many DeFi protocols are built on smart contract technology and are vulnerable to code errors and malicious attacks.
Another risk is the lack of oversight and protection for investors. As DeFi protocols are decentralized, there is no central authority to ensure the integrity of the platform or protect investors in case of fraud or mismanagement. Additionally, some DeFi protocols may not have been fully audited or tested, which can increase the risk of security vulnerabilities or bugs.
Bottom Line
In conclusion, Decentralized Finance (DeFi) presents a novel and expanding frontier of investment opportunities, bringing unparalleled accessibility, inclusivity, security, transparency, and innovative financial products. Our comprehensive review identifies the top seven DeFi projects for 2023: Ethereum, Uniswap, AAVE, GMX, Curve Finance, Lido Finance, and Stargate Finance, each offering unique strengths within the DeFi ecosystem.
Nonetheless, potential investors must approach DeFi with a well-informed perspective, understanding the associated risks including high volatility, potential security breaches, and lack of regulatory oversight. It is vital to conduct thorough research and keep abreast with the rapidly evolving market dynamics of the DeFi world to make sound investment decisions.
