A review of top DeFi projects: Maker, Compound & YFI

, Author: Julia Magas, translation: Olivia, reproduced by Odaily with authorization.

In 2020, due to the economic crisis caused by the spread of COVID-19, the world's financial system is facing more and more problems. Quantitative easing monetary policies implemented by the authorities of major countries lead to a decline in the value of the currency and a loss of public confidence in the currency. At the same time, profit margins on bank deposits have fallen to rock-bottom levels.

At the same time, alternatives to traditional banks are now gaining popularity. These include decentralized financial products: cryptocurrency exchanges, wallets, and lending, trading, and deposit services. Their most notable advantages are high-interest deposit rates that can bring holders huge profits in just a few months, and instant loans that can be borrowed without documentation or customer verification.

Although the demand for DeFi products is growing significantly, inexperienced users may find it difficult to get a hold of emerging decentralized solutions in action. An analysis of the leading DeFi services on the market reveals the difficulties novice users may face and the true implementability of decentralized finance.

MakerDAO: Trade, Lend, and Save

MakerDAO is the earliest DeFi protocol on the market. It allows users to borrow, trade, and earn savings using its native DAI stablecoin, which is pegged one-to-one to the U.S. dollar. MakerDAO tends to be reminiscent of banks because it makes loans secured by cryptocurrencies but requires no documentation, checks or a strong credit history. Users can stake with ETH or any of the 10 cryptocurrencies accepted by the platform and get a certain amount of DAI.

After the loan, DAI can be used for any purpose, but mainly for investment. If you want to repay the loan, you need to return the same amount of DAI you received before, plus a little interest. If during this time, the price of ETH increases, the user profits because the amount of collateral denominated in ETH increases in terms of its USD price.

How easy is it to take out a mortgage on MakerDAO? To borrow assets, users only need to have an active crypto wallet with MetaMask, Ledger, Coinbase, Trezor, WalletConnect or D'cent and a balance of at least $40. But the total loan amount is always limited by the 150% collateralization ratio. In other words, the loan amount cannot exceed 66% of the collateral. Simply put, the borrower can get 66 points for depositing 1 yuan.

Overall, the platform is easy to use, although searching for the right tool can be a little difficult due to the cluttered UI and constant redirects to mirror pages. For example, platform services are located on the Oasis dapp, while deposit rates are only displayed after connecting the wallet and completing the registration transaction.

This makes usability low as there are only two currencies available for deposits, namely DAI and ETH. Beyond that, MakerDAO is clear and straightforward to any user who has previously interacted with a crypto exchange.

Aave: Unsecured Instant Loans

Aave allows users to take loans as collateral in cryptocurrency and offer crypto to earn interest. The interface design is more reasonable and clear, the website is unified and streamlined, and supports more than 10 wallets.

Aave has 19 currencies to choose from, and provides flash loans without any collateral, but it needs to return the loan and pay interest in the same block. Such an operation can only be participated by experienced arbitrage trading masters, who know how to make money by taking advantage of the difference in currency exchange rates in the short term.

Guaranteed loans do not seem to be as attractive as flash loans, because their collateral ratio is relatively low, only 50%-75%, which is two to four times lower than that of other DeFi loan software.

Borrowers at Aave, however, have the freedom to choose between a stable or variable rate. The stable interest rate will not change in the short term, but it can be adjusted according to market dynamics in the long term. Floating rates are based on supply and demand within the Aave platform. The first option is best for planning interest payments, while the second is best for flexible yield management, as changes in variable rates can significantly affect the condition of the loan over time. Switching between interest rates is an effective financial planning method.

The loan has no fixed repayment period, but if repayment is delayed, interest will increase, and eventually liquidation will sell the collateral. Therefore, it is important to monitor the liquidation threshold. Deposited funds can also be withdrawn or transferred to loan collateral as required.

Aave provides the conditions to make deposits and earn money. Support for 20 coins and high interest rates make the platform attractive to a wide range of users. For example, the annual rate of return on BAT is as high as 40%, while the rate of return on U.S. bank deposits is only 1%.

Aave adheres to the philosophy of providing choice, not only in terms of products, but also in terms of working with different audiences. Aave’s Discord channel can be provided in 11 different languages ​​and provides technical support options.

Compound: The project lives up to its name

The Compound platform rewards its users for making and receiving loans. To get the most bang for their buck, users will often deposit money on the platform, take out loans, and put it back as a deposit.

Compound got a second life after it started rewarding lenders and borrowers with native COMP tokens, popularizing yield farming on the platform and making borrowing profitable as COMP tokens fully cover certain market situations interest, and the interest itself is provided by the token growth accumulated by all platform users. In short, borrowers get paid to borrow some assets.

Even though the project only supports 7 currencies, the interface is quite intuitive, with the lending and deposit panels on the same page. When the user chooses the deposit rate, except for Tether (USDT), all supported mortgage coins can be used for loans.

Compound differs from its competitors in that it accommodates a large number of collaborative projects from third-party developers, such as Instadapp and TokenSets, which provide more liquidity. But a low deposit rate of 12.42 percent a year makes the platform less valuable. Some restrictions may also apply to limits on the amount of funds credited – for example, Bitcoin (BTC) loans cannot be funded more than 40% in cryptocurrencies.

Unlike Aave, Compound users can more easily get answers from community members or open sources since the platform has no support services.

Instadapp: Bringing Refinancing to the DeFi Space

Instadapp is a wallet where users can conduct lending, margin trading, exchange and interest earning transactions based on smart contracts. However, the platform itself only provides currency trading services, and users who want to take out loans or deposits must resort to MakerDAO, Aave, Compound, and Curve services.

Still, Instadapp offers a handy all-in-one interface that highlights the service's many features. In a unique service, the ability to refinance debt from Compound to MakerDAO, presented in a very intuitive way. People can get loans or deposits through the three steps of registering a wallet, sending a confirmation transaction, and making a transaction, just like the application introduced above.

There's really nothing special about Instadapp's customer service. The support service in Discord will reply within hours every day, and the FAQ section is also quite detailed.

Yearn.finance: A solid lineup of products, some of which are still in beta

Yearn.finance is a credit and liquidity mining aggregator for Aave, Compound, DyDx, and Fulcrum, which automatically creates an optimal balance for maximum profitability. Unlike Instadapp, though, the platform has its own token that is used to periodically rebalance users' funds to select the most profitable lending service.

An added bonus for Yearn.finance users is guaranteed YFI token rewards for using platform services. YFI is the governance token of the platform and is only issued to users who use yToken to provide liquidity. Through YFI, the project strives to issue the most highly decentralized digital asset, which has no pre-sale, pre-sale and distribution to the team, and all modifications are done through online suggestions and voting by YFItoken holders.

text