Decentralized finance (DeFi) is one of the hottest trends to arise from the crypto market. It has disrupted traditional financial models, opening the door to a diverse range of financial services that were otherwise inaccessible to the majority of the global population.
DeFi enables anyone, anywhere, to lend and borrow crypto assets by removing centralized authorities. Over the last few years, the crypto market has been flooded with DeFi lending and borrowing platforms, serving as the newest financial enabler while resting atop blockchain technology’s security, transparency, and immutability infrastructure.
Even though Ethereum still dominates the DeFi ecosystem, the network’s gas costs and slow transaction speeds have spurred many new lending and borrowing protocols to build on competing networks. The introduction of new DeFi protocols on third-generation blockchain networks has created a fundamental breakthrough for the future of cryptocurrencies and global finance.
Keep reading to take a closer look at a few promising DeFi lending and borrowing protocols that have successfully cemented their position in the ever-expanding crypto market.
Built on Ethereum, Aave is one of the most prominent DeFi protocols. It is an open-source, decentralized, and non-custodial market protocol that offers lending and borrowing features. Initially known as ETHLend, the platform was rebranded to Aave in 2018.
Aave launched with a total value locked (TVL) of just $60,000 in ETH tokens in January 2020. Fast forward to the present, and the platform’s TVL stands at approximately $13.25 billion, spread across Avalanche, Ethereum, and Polygon pools. The Aave protocol is designed to serve the interests of both lenders and borrowers.
You can generate returns in the form of passive yields through liquidity provision by adding your tokens to the available pools. Alternatively, you can use the protocol to access both over-collateralized and under-collateralized loans. In addition to lending and borrowing, Aave also provides flash loans and a rate switching service that allows borrowers to choose between locked interest rates or floating rates for their loans.
MakerDAO has established itself as one of the best DeFi lending platforms in today’s market. Powered by the platform’s native stablecoin DAI, MakerDAO is a full-fledged DAO (decentralized autonomous organization) on the Ethereum blockchain that allows users to open a vault and access DAI loans by using ETH or other cryptocurrencies as collateral.
MakerDAO is the first DeFi lending protocol to achieve mainstream adoption and tops the leaderboard as the largest DeFi dApp within the Ethereum ecosystem, with $16.53 billion in total value locked (TVL). The platform follows a different approach compared to other lending protocols. Using the built-in governance mechanism in the Maker Protocol to manage the generation of DAI tokens reduces the volatility of the DAI stablecoin through smart contracts.
Built on the Solana blockchain, Soda Protocol has positioned itself as a promising DeFi 2.0 lending and borrowing protocol. The platform leverages Solana’s blazing fast transaction speeds and ultra-low gas costs to deliver a DeFi lending protocol alongside the first-of-its-kind on-chain credit rating system.
Soda Protocol’s primary offerings are quite similar to that of other Ethereum-based protocols like Aave and Compound regarding lending and borrowing services. However, the platform stands apart from the rest with its support for other DeFi lending products like Easy Repay loans, Flash loans, and Flash Liquidation, among others.
Unlike existing platforms, Soda Protocol doesn’t have any capping on position slots, thus giving users the freedom to lend and borrow multiple assets simultaneously. In addition, Soda Protocol also optimizes the interest rate model to provide users with more flexible rates across variable market conditions.
The platform also opens a world of new opportunities for the DeFi ecosystem through its Sol ID Credit feature, the first-ever on-chain credit rating system that collects and analyzes different types of on-chain behavioral data to generate credit scores for individual users. Each rating is minted as an NFT and can be applied to various scenarios, including accessing loans from partner DeFi platforms, lower rates on new products and IDOs, governance, and much more.
DeFi has opened the doors to a diverse range of passive income opportunities. If you already own cryptocurrencies, it is an excellent idea to let them work for you instead of sitting idly in your wallet. You can provide liquidity to the pools you prefer and generate passive interest, all of which will ultimately help you expand your crypto portfolio’s reach.