06.12.2021

The most profitable DeFi projects are not based on Ethereum

The decentralized finance sector continues to delight investors with huge returns in 2021. However, the top in terms of profitability assets from this area are new projects, and many of them are not based on Ethereum.

According to the analytical platform Messari, the absolute leaders in terms of profitability in the sector for the first quarter of 2021 were CAKE and LUNA coins with a yield of 3,031 and 2,784 percent, respectively.

By tradition, let’s start with an explanation. The decentralized finance or DeFi industry offers services to users that do not need intermediaries to operate. In essence, these are smart contracts that treat all customers on an equal footing. To interact with them, it is enough to have a cryptocurrency wallet and coins on the account: in the case of Ethereum, we are talking about ETH.

Thanks to decentralized finance, anyone can, for example, exchange coins for others, take out a loan or lend money to earn interest. Well, since the niche is decentralized, there will be no problems in using services due to place of residence, political views or the amount of income. In addition, users do not have to present various documents, as it happens in banks.

The niche gained massive popularity in the summer of 2020. Then investors actively invested money in new projects, which turned into a huge increase in the value of assets and profits. The DeFi industry is now running on more than just Ethereum. The Binance Smart Chain, also known as BSC, has been actively developed. It attracts users with low commissions and speed of work.

For example, a few cents are enough to swap on decentralized exchanges based on BSC.

Best DeFi Investments

PancakeSwap (CAKE) is a Decentralized Exchange (DEX) powered by the Binance Smart Chain. A native token of a decentralized exchange called CAKE is used by investors to receive rewards or vote for project updates. Its price is up 3,031 percent since the beginning of the year, beating all other coins in the DeFi space, Decrypt reports.

Another record holder was Terra (LUNA), a set of stablecoins pegged to local currencies for use in e-commerce. LUNA is also a governance token that can reward its users. In addition, it is used by validators for staking within the project’s ecosystem. Altcoin has grown by 2,784 percent since the beginning of the year.

Both projects have gained immense popularity as they are cheaper DeFi platforms compared to well-known Ethereum-based products like Uniswap or Aave. Despite the fact that most DeFi applications are based on ETH, their operation is expensive: the network is used by so many people that the commission for transfers and transactions within it sometimes reaches tens of dollars. You can read more about the mechanism of its formation in this article.

Note that a lower degree of decentralization allows to achieve low fees. In this case, the blocks in the network are not confirmed by all users or nodes, as is the case on Ethereum, but by the elite. That is why ETH fans see BSC as a fork, which is essentially not much different from a regular centralized exchange. However, many users choose it precisely because of the availability of transactions.

Here is a quote from Messari analysts sharing their findings.

Binance Smart Chain has quickly become the most used smart contract platform after Ethereum, providing DeFi farmers with an inexpensive alternative. The project has benefited from rising ETH transaction fees that have put many retail users below the threshold to enter the sector.

Here’s what Matt Aaron, the co-founder of the UniWhales platform, which monitors large transactions within DeFi protocols, thinks about it.

The emergence of PancakeSwap was directly related to the high transaction fees in Ethereum, which caused most people to leave the market. In the case of Terra, the founder of the Do Kwon project and his company are creating a well-designed ecosystem that motivates the purchase of the LUNA token. UI / UX, management and incentives are all top notch.

Note that the Ethereum Foundation team is currently working on the deployment of the second version of the altcoin protocol – updating the network that will make it faster and more secure. The eth2 update will allow the blockchain to handle thousands of transactions per second, making expensive transactions a thing of the past.

We believe that the logic in what is happening is obvious. Now using the same Uniswap is difficult, since the cost of a swap is $ 30-40. This forced users to switch to other projects, which also work for BSC. Well, the massive popularity of PancakeSwap ended with an increase in the value of the CAKE token, which is also not surprising.

Most likely, decentralized projects like Ethereum will be the winners in the long run. However, now users are interested in the available fees, which is why they are switching to Binance Smart Chain.

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