Cryptocurrencies are no longer a new and novel idea. They’ve been around for nearly a decade, and in that time, they’ve evolved into something far more significant than their original conception. Being the first cryptocurrency, Bitcoin paved the way for the rest, while Ethereum was the first platform to allow decentralized applications, or “dApps.”
And now we’re in the midst of the third wave of crypto innovation: DeFi. DeFi means decentralized finance. In other words, it stands for self-custody finance. DeFi is an umbrella term for blockchain applications geared toward disrupting financial mediators.
The third wave marks the establishment of independent, DeFi projects that are crucial to the future of our economies. An excellent example of the DeFi project is blue chip DeFi tokens.
What are DeFi Blue Chips?
The phrase “Blue Chip” comes from the poker game; the blue chips are the most valuable. According to traditional finance circles, “Blue Chip Companies” are well-established, financially safe organizations with a lengthy track record of consistent and sustainable growth.
On the other hand, “DeFi Blue Chips” are tokens/coins with a long history and a significant market cap. Institutional investors and retail payment systems are the most common users of the blue chip tokens. They also have a high liquidity pool and are traded worldwide on many different exchange systems.
The DeFi blue chips are a hybrid of the two concepts above, both of which are thriving projects in the DeFi space.
Why are DeFi Blue Chips Important?
The blue chips play an essential role in the overall health of the cryptocurrency market. They provide a high degree of stability and liquidity, acting as a safe haven during times of market volatility.
Most blue chip projects tend to have a large market cap, which means they’re less risky and more likely to succeed in the long run. It means that investors can feel confident in investing in these projects, knowing they’ll likely see a return on their investment. Additionally, their widespread use helps to legitimize the cryptocurrency industry as a whole.
Blue chips will provide investors with more opportunities to make money and grow their portfolios in the next decade. According to DappRadar, some investors have already locked up more than $65 billion in DeFi protocols. So if you’re looking for a safe and reliable investment, look no further than the blue chip tokens!
The Big Five DeFi Blue Chips
In the rapidly evolving decentralized finance (DeFi) sector, Decrypt has identified five projects that have achieved blue-chip status with the community—for now. The main criteria of these projects include reputation, lack of hacks, price performance, and continued updates. Here are the big five DeFi blue chips.
Uniswap is an Automated Market Maker that allows many users to trade tokens without a mediator. It’s non-restrictive and immediate. As a result, anyone can trade tokens without asking! The protocol’s native governance token is UNI. Holders of tokens can vote on governance proposals and upgrades.
Founded in 2018, Uniswap is crypto’s leading decentralized exchange. Back in 2018, the protocol required all trades executed using ETH as an intermediate base pair, incurring transaction fees and slippage for users.
In May 2020, the launch of Uniswap’s v2 iteration helped flare up the explosion of DeFi by enabling permissionless token swaps without being mediated by a centralized exchange. After experiencing liquidity vampire attacks from competitors like Sushiswap, Uniswap airdropped its token to consumers.
In May 2021, DEX pioneered concentrated liquidity with the launch of its v3 iteration. Uniswap provides enough liquidity to the platform, enabling it to remain the top decentralized exchange position.
The Aave token is a lending platform that allows users to deposit their crypto assets and earn interest or take out loans using their deposited assets as collateral. The protocol also provides flash loans, which are instant loans that do not require collateral. Aave was one of the first protocols to offer this type of loan.
In January 2021, Aave launched its v protocol, which included features like liquidity providers earning fees in a new token called LEND. The update also introduced staking mechanisms and flash loans with multiple collateral types.
With $12 billion in cross-chain TVL, Aave is among the top five DeFi protocols. Its recent Polygon and Avalanche deployments sped up adoption on the networks, with Polygon now ranking as the most popular protocol on both. Aave Arc, its institutional investment platform, has attracted interest from family offices and private banks.
Despite reaching a high of around $19.5 billion in TVL in October, Aave is down 80.4 percent against USD, and it’s down 84.8 percent against ETH since its apex in February 2021.
Maker is a decentralized autonomous organization (DAO) that runs on the Ethereum blockchain. The DAO provides a platform for users to create and trade custom tokens called ” MKR.”
In May 2020, Maker released its Dai stablecoin, pegged to the US dollar. Dai has become one of the most popular stablecoins in the DeFi space, with a market cap of over $12 billion.
Dai is used as collateral for loans on the Maker platform and can also buy goods and services. In September 2020, Maker launched Multi-Collateral Dai (MCD), allowing users to collateralize their Dai with multiple assets.
MKR is the native token of the Maker Protocol and is used to pay stability fees, participate in governance, and unlock Dai Credit Lines (DCLs). MKR holders can also earn rewards by participating in governance.
Decentralized money market Compound is a protocol that allows users to borrow and lend crypto assets. The Compound was a significant catalyst for DeFi Summer after launching liquidity mining incentives for borrowers and lenders with its governance token COMP in June 2020. The protocol uses smart contracts to match those borrowing with those lending automatically.
However, Compound’s yield farming incentives rapidly prompted a flurry of activity on the site since it rewarded its users just for using the protocol rather than asking them to take on the risks of temporary loss associated with providing liquidity to a decentralized exchange.
In September 2020, Compound launched its v0.11 release, which added support for Ethereum’s ERC-20 tokens. In November 2020, the Compound company disclosed that it raised $25 million in a Series C funding round.
Compound launched its v0.12 in January 2021, which supported synthetic assets. In March 2021, the company announced that it had raised $140 million in a Series D funding round.
The Compound has seen a drop of 86.67% against USD and 96% depreciation against ETH from its all-time high in January 2021.
Synthetix is one of the decentralized exchanges that allows token holders to create and trade synthetic assets. Synthetic assets are digital assets that track the price of real-world assets. The platform uses a synthetic asset called sUSD, pegged to the US dollar.
In December 2020, Synthetix launched its v0.21 release, supporting Ethereum’s ERC-20 tokens. In January 2021, the company issued a report that it had raised $102 million in a Series A funding round.
Since its all-time high in January 2021, synthetic assets fare worse, crashing 86.8% against USD. It’s also down 92% against Ether since September 2020, when it last peaked.
The Recovery of DeFi Blue Chips
According to Occultist, a well-known crypto Twitter, the biggest problem in DeFi right now is the tokenomic structure of many ‘DeFi Blue Chips.’ These protocols have a severe case of token dilution when the value of a DeFi token is spread too thin across too many holders.
“For many of these protocols to function well, they require users to provide liquidity. The problem here is that users need to be incentivized for providing their liquidity which is costly for the protocol,” said Occultist. The crypto twitter refers to a problem that DeFi 2.0 aims to solve by providing liquidity permanently.
However, Occultist believes that DeFi blue chips will eventually recover due to the fundamental value they provide. But for that to happen, community leaders need to step forward and propose a new utility for the native token.
But, all is not lost. The DeFi market recovery has extended beyond decentralized exchanges. Aave and Compound are slowly getting back on their feet. While Aave has outperformed the duo by growing 16.5 percent, Compound has also increased by 11.3 percent.
After months of lackluster price activity, DeFi tokens have recently risen in value. After the May market crisis, many DeFi blue chips lost more than half of their value and struggled to recover. It will take time for these blue chip DeFi tokens to rise in the face of uncertain market conditions.
Which is the best DeFi Blue Chip to buy in 2022?
Aave is the DeFi blue chip with the best chance to succeed in 2022. Aave is leading the other blue chips after rising 16.50% in the past month. The DeFi lending platform has a clear focus on delivering value to its users, with an expansive product lineup and a commitment to transparency.
Is it Wise to Buy DeFi Blue Chips?
Defi Blue Chips are valuable because they set the stage for a world without traditional finance borrowers. It also empowers investors to access new asset types while improving interest rates.
What is the risk in Defi blue chips?
Fatal code errors, rug pulls, exploits and scams are among the most significant risks of using DeFi platforms. As always, do thorough research and consult a financial advisor before investing in any cryptocurrency or digital asset.