Over the past year, the number and variety of digital assets operating in the decentralised finance (DeFi) niche has grown significantly, as more and more creative uses of blockchain and DeFi technology are uncovered.

As a result, there are now hundreds of DeFi-focused digital assets. This can be confusing for those looking to make sense of this space, as many of these tokens perform repetitive functions and some have little or no real value.

To set the record straight, we take a look at five of today’s most popular DeFi assets and find out what these tokens can do for you and how they fit into the current DeFi landscape.

What is a DeFi coin?

A DeFi coin is a cryptocurrency coin or token that is used to participate in the DeFi economy. Specifically, a DeFi coin is a cryptocurrency that is used in decentralised exchanges, liquidity pools, income farming, lending, asset management, digital wallets and NFT. As there are many DeFi services on the market, this also means that there are an equivalent number of DeFi coins and tokens.

The difference between a DeFi coin and a DeFi token

The difference between a coin and a token is that a DeFi coin runs on its own blockchain, hence it is a native asset, while a DeFi token is a cryptocurrency token built on an existing blockchain using a standard such as ERC (for Ethereum blockchain), BEP, TRC, OMNI, SPL, etc.

To set the record straight, we take a look at five of today’s most popular DeFi assets and find out what these tokens can do for you and how they fit into the current DeFi landscape.

Wrapped Bitcoin (WBTC)

Created by BitGo in 2018, Wrapped Bitcoin (WBTC) is a simple ERC-20 token that represents Bitcoin on the Etherium blockchain.

To get Wrapped Bitcoin, you need to deposit native Bitcoin (BTC) into a wallet controlled by one of several WBTC sellers. These sellers will then work with authorised custodians to issue an identical amount of WBTC in the form of ERC-20 tokens and transfer them to you.

These ERC-20 tokenised bitcoins can be transferred as regular Ethereum tokens and used to interact with various Etherium DeFi-protocols and decentralised applications. In addition, they can be converted back into an equivalent amount of BTC through a simple deployment process.

Uniswap (UNI)

Uniswap (UNI) is a native management token from the decentralised exchange Uniswap. UNI token holders can influence the operation of the Uniswap protocol by creating and voting on governance proposals.

The first governance proposal, aimed at lowering the governance proposal and quorum threshold, was recently rejected despite an overwhelming vote in support of the change – ironically due to the failure to meet the minimum quorum threshold.

If you used Uniswap before 1 September 2020, you may have noticed that you received an unexpected eirdrop of 400 Uniswap tokens (UNI) to your Etherium wallet. At its peak, this eirdrop was valued at more than $3,000, and more than 300,000 wallets qualified, making it one of the most expensive eirdrops of all time.

DAI (DAI)

DAI is a type of digital asset known as a Stablecoin. As the term implies, this means that DAI is designed to remain stable at USD1 per coin, free of the volatility that is common to most other digital assets.

Unlike other stackcoins like Tether (USDT) and USD Coin (USDC), DAI is not directly backed by USD held in a bank account. Instead, you receive DAI by investing Ethereum (ETH) in a smart contract with a Collateralized debt position (CDP). After making a deposit, you can borrow up to 66% of the dollar value of your deposit in DAI tokens. To get your ETH back, you need to pay back the DAI you borrowed plus a small amount of interest.

DAI offers low minimum deposit amounts, and because DAI is not backed by real money, you don’t need to go through the KYC process to acquire it. But you do run the risk of possible liquidation and the occurrence of unforeseen events.

Chainlink (LINK)

Chainlink is a network that provides data input and output for various blockchains, enabling smart contracts to obtain reliable information from external sources and helping smart contracts to transmit data securely to non-blockchain platforms.

This is achieved through a decentralised network of oracles. These can be used to transfer data from the real world to smart contracts, allowing them to react to any changes or perform certain functions based on the data received. For example, a smart contract could receive data about the current BTC to US dollar exchange rate to help a broker of digital assets determine prices.

The LINK token is a proprietary digital asset of the Chainlink ecosystem and is used to pay nodes (also known as oracles) for collecting data and as collateral for managing the node. Such a pledge can be penalised if the node provides poor data. This helps to guarantee the reliability of suppliers.

Aave (AAVE)

Aave (AAVE) is a native non-custodial DeFi-protocol token for Aave lending and borrowing.

Through Aave, you can lend various ERC-20 tokens by depositing funds into lending pools. This includes pools for Stablecoins like DAI and True USD (TUSD), as well as more volatile digital assets like Ethereum (ETH), Yearn Finance (YFI) and Wrapped Bitcoin (WBTC). By investing in these loan pools, you earn a variable interest rate. Interest is paid by borrowers, who must also provide more than 100% of the loan amount as collateral before they can take out a loan.

Launched in July 2020, AAVE is a multifunctional token that can be used to reduce fees and participate in the management of the Aave protocol. They can be obtained by exchanging old LEND tokens for AAVE at a 100:1 ratio or simply using the Aave platform for credit or loans.

What are the best DeFi coins to buy?

Investing in DeFi is a risky venture for many investors, even for experienced crypto traders. However, despite the risks, it is undoubtedly an interesting ecosystem to invest in, generating returns that cannot be realized in traditional markets. PancakeSwap (CAKE), which is up more than 3000% and Serum (SRM), which is up more than 600%. But the numbers since the beginning of the year don’t give investors the full picture; nevertheless, even with the three-month period, many DeFi tokens are still bullish. For example, some of DeFi’s best coins to invest in recently include Uniswap (UNI), Sushi (SUSHI) and dYdX (DYDX).

Conclusion

DeFi is a really exciting financial ecosystem for investment. This is because it has many market subsets with different services and offerings such as lending, loans, steaming, income farming, NFT, wallets, etc. Many DeFi cryptocurrencies have also grown significantly last few years. What’s even more inspiring is that the market for DeFi coins and tokens is only growing, and the value of many DeFi projects is also increasing. For investors looking to gain access to DeFi, many of the above projects could be a good starting point for research.