The cryptosphere anticipates a rebound from its season-long bearish trend, with some coins touching their all-time low prices and other projects hitting total decline. As a result, 2022 was a challenging year for the crypto industry, with the downward trend showing no positive sign of retracement.
However, while we await a market recovery and bull season in the new year of 2023, the only way for crypto projects to go from here is up. As a result, decentralized finance (DeFi) is one of the sectors predicted to grow significantly since it provides services comparable to those provided by traditional finance, such as loans, lending, insurance, and enhanced services such as yield farming, staking, and so on.
With this in mind, what are the top DeFi projects to watch for and invest in 2023?
Of course, there are thousands of DeFi projects within the sector, but it's crucial you invest in projects built on solid foundations with the potential to grow immensely. So, let's look at the top DeFi projects to invest in.
Top DeFi Projects To Invest
Uniswap is an Ethereum blockchain-based decentralized exchange and DeFi protocol for exchanging Erc-20 tokens. Rather than relying on the traditional market of buyers and sellers, the trading protocol performs trades using smart contracts designed to function as an on-chain automated market maker by providing liquidity to facilitate trades. In simple terms, Uniswap's AMM will set token values depending on criteria like volume, demand, and market capitalization. As a result, Uniswap enables a smooth and hassle-free decentralized cryptocurrency trading experience where transactions are permissionless and autonomous.
Uniswap is one of the largest and leading DEXs in the industry, which makes it a must-have DeFi protocol for most DeFi investors because its ecosystem was designed to keep token trading automated and accessible to everyone who has the tokens. Its native token, UNI, is a governance token that improves trade efficiency by automating liquidity solutions and distributing transaction fees among the pool's liquidity providers.
PancakeSwap is a decentralized exchange built on the Binance Smart Chain that allows users to swap Bep-20 tokens as an alternative to centralized exchanges. PancakeSwap additionally facilitates its trade operations via liquidity pools by employing an automated money maker (AMM) approach that relies on user-fueled liquidity pools to enable crypto trades. Users can receive greater rewards by locking their liquidity tokens in the pool. PancakeSwap has its native token, CAKE, which is used to reward liquidity providers for locking their tokens in the pool.
Aside from user liquidity, the protocol also receives funding from Binance as part of its DeFi accelerator. While the BEP-20 token is used for smart contract exchange, PancakeSwap was built to interact with various wallets, allowing users to transfer from other blockchains to the BSC blockchain.
Aave Token (AAVE)
Aave is another DeFi protocol based on the Ethereum blockchain that allows users to lend and borrow a wide range of cryptocurrencies. The protocol enables peer-to-peer lending through smart contracts supported by a cryptocurrency pool. You can earn by lending your crypto asset to earn interest or borrow from the protocol to invest in any crypto asset and pay back with interest. Smart contracts govern the protocol's assets, as users must trust a set of algorithms and a network of systems running Aave to complete transactions.
You can stake your holdings as a liquidity provider on the Aave DeFi protocol to earn interest and fee compensation. Aave differs from other lending DeFi protocols in that it provides its customers with flash loans, allowing them to take advantage of arbitrage trading opportunities across several exchanges without requiring large amounts of capital. As a result, Aave is a DeFi project to keep an eye on for exponential growth.
MakerDAO is a decentralized autonomous organization built on the Ethereum blockchain network that allows users to lend and borrow cryptocurrency via smart contracts. MakerDAO employs DAI, its stablecoin pegged to the US dollar, to establish the lending rate and repayable amounts for loans taken out on the platform by its users, reducing the risk of volatility in the assets used as collateral.
MakerDAO's primary goal is to build a crypto lending and credit network that provides loans to needy individuals at predetermined interest rates. Furthermore, MakerDAO token holders can vote to change the Maker ecosystem's monetary policy, changing saving rates and the tokens supporting Maker. Therefore, MakerDAO's ability to function as a bank makes it one of the leading DeFi projects to invest in.
Avalanche is a smart contract DeFi platform that has earned widespread recognition among crypto users as a good forerunner for the DeFi future due to its smart contract applications and diverse blockchain solutions. Avalanche places a high value on cross-chain interoperability, as it built digital bridges connecting it to numerous blockchain ecosystems. It relies heavily on a blockchain composed of three layers, with one strip representing scalability, decentralization, and security.
As a result, rather than processing all transactions as one, Avalanche settles them on 3 separate chains. The C-Chain is used to settle transactions originating from the DeFi protocols and web3 projects, the X-Chain is used to transfer and receive AVAX, and the P-Chain is used for network validators. Thus, Avalanche makes transactions faster, cost-efficient, and eco-friendly, making it a top DeFi project to look out for.
ChainLink is a DeFi protocol designed to integrate off-chain data sources onto the blockchain for usage by the web3 ecosystem, allowing DeFi applications to vastly expand their use cases. ChainLink is an abstraction layer for connecting smart contracts globally via a decentralized oracle network, which supplies the required data to smart contracts running on various blockchain platforms and smart contracts.
ChainLink can support all blockchain networks because it lacks a native blockchain and integrates with multiple blockchains to supply relevant data sources.
ChainLink services are in high demand since it serves as the go-to platform for multiple DeFi projects as its data aggregator, making the project one of the most valuable DeFi assets to invest in.
Compound is an Ethereum-based DeFi system that allows users to earn interest on their crypto holdings. Compound loan and borrowing procedures are peer-to-peer, with borrowers making payments in the form of tokens, which lenders get. The market sets interest rates, which are determined by the supply and demand for each asset.
Compound has the advantage of allowing customers to earn continuously compounding interest, as the name implies. Users can earn rewards by utilizing COMP, which represents assets invested in the Compound liquidity pools.
Compound is a leading DeFi project focusing on lending and borrowing that competes with traditional banks, putting it on the list of must-have DeFi tokens.
Are DeFi Projects Worth Investing?
DeFi has grown rapidly in recent years, and more investors are becoming aware of the possibilities of leveraging blockchain technology to create an open financial system. As a result, many people are capitalizing on the DeFi wave by investing in various DeFi projects.
There are several ways to invest and profit from DeFi; Learn more about how to explore the DeFi sector to make profits.
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