DeFi, short for ‘decentralised finance’, includes all financial institutions activities (saving, trading, investing, lending, and borrowing) carried out on a blockchain.
The rationale behind DeFi is to solve traditional finance problems using open-source, transparent, and collaborative technologies while earning yields on already-owned cryptos.
The movement began in August 2018 in an Ethereum developer group chat. The first DeFi apps built were Maker, Compound, and Uniswap; some of the best Defi apps today.
However, Defi became popular between May and September 2020, a period popularly known as DeFi Summer.
Today, more than $144 billion is locked in 500+ Defi apps across ten blockchain ecosystems.
MakerDAO – Best Defi app for stablecoin borrowing
AAVE – Best Defi app for lending
LIDO – Best Defi app for liquid staking
Curve – Best Defi app for stablecoin swapping
Coindix – Best Defi app for yield aggregation
Balancer – Best Defi app for Portfolio management
Uniswap – Best decentralized exchange
Metamask – Best Defi wallet app
Below we take a deep dive into our findings on the best DeFi Apps for 2023 including why we think they’re the best and how we went about testing them, plus much more.
Maker is a stablecoin lending app that governs the creation (and destruction) of the Dai stablecoin. Dai is pegged to the US dollar, meaning that its value is equal to $1 at all times.
Dai is also decentralised, meaning that it isn’t controlled by a centralised entity like a bank or company. It is permissionless, meaning that people do not require licences or permits to use it. And finally, it is location-agnostic, meaning that anyone from anywhere can use it.
Dai is created by depositing collateral (ETH and BTC) into Maker’s vaults and borrowing against it. Users borrow from Maker in Dai. Maker also offers investors a savings rate for locking Dai in their vaults.
Borrowing Dai and using Maker’s vault is similar to taking a loan from a bank with slight variations. You deposit collateral at the bank and receive a loan denominated in dollars pounds. You can then save the pounds in a fixed deposit account to earn yields.
Maker works the same way. You deposit ETH or BTC as collateral and receive a loan in Dai. You may then choose to save the Dai in a Maker vault to earn yields at a specified rate, called a savings rate.
Pros
Dai integrates well with the DeFi landscape
Offers a savings rate for locking Dai
Accepts ETH, wBTC, and stETH as collateral
Cons
Ethereum gas fees may render too expensive for some users
Minimum collateral value may be too expensive for some retail users ($5,000)
High liquidation penalty fees
Maker has stood the test of time thanks to its stablecoin. Dai is the most widely used stablecoin after USDT and USDC and currently stands as the only decentralized finance stablecoin that has proven its resilience in a bear market. And, unlike most other savings protocols, Maker’s rates have proven sustainable.
AAVE is a decentralised app that allows anyone to securely lend and borrow cryptocurrency. With AAVE, users retain complete control over their funds as smart contracts govern the transfer of funds between lender and borrower.
The goal of AAVE is to incentivise people with crypto to lend them to borrowers in need of quick cash for a profit. AAVE charges borrowers a yearly percentage fee for borrowing, usually much lower than traditional centralized institutions, banks, and rewards lenders with the proceeds.
Supports several crypto coins and tokens for borrowers and lenders
Established as one of the safer lending apps with enough funds to run operate
Multichain integration with faster, cheaper blockchains
Susceptible to flash loan attacks
AAVE has a reputation as a stable and reliable lending platform. It’s currently the third-largest DeFi app and the primary lending platform in crypto at a TVL of $8+ billion.
Once, investors in DeFi had to choose between staking their coins (common in proof-of-stake blockchains) or deploying them in money market protocols to earn high yields. Now, they can do both.
LIDO creates derivatives of staked coins that are yield-bearing and usable across several lending, saving, and trading platforms. Because staked coins are locked and aren’t usable for other financial activities, LIDO’s derivatives stand in place of the cryptos they represent and are valued the same way.
Holders of these DeFi coins and their derivatives receive the rewards for staking and can also deploy them across other DeFi platforms to earn extra yields as if they were using the actual coins. The provision of derivatives to represent staked assets is called liquid staking.
Trusted protocol with over $8 billion locked
Deep liquidity as more funds are made available
Multichain support for Ethereum, Solana, Kusama, and Polygon
Derivatives accepted by over 37 other protocols
For now, staked ETH cannot be unstaked
Staked coins are slashed if chosen node operators act fraudulently
Liquid staking derivatives are a more widely accepted synthetic crypto asset across the industry. Other protocols are more willing to integrate LIDO’s tokens in their apps compared to derivatives from other apps. And LIDO provides derivatives for coins across four blockchain networks. As it stands, 80% of all staked ETH is on LIDO.
Investors also use LIDO because they do not impose a minimum value that many proof-of-stake networks do. For example, the minimum number of ETH that one can stake is 32 ETH, a steep price for many. With LIDO, anyone can stake any amount of ETH.
–stETH, a derivative of staked ETH with a yearly yield of 3.9%.
-stSOL, a derivative of staked SOL with a yearly yield of 4.07%
-stKSM, a derivative of staked Kusama with a yearly yield of 22.8%
-stMATIC, a derivative of staked MATIC on Polygon with a yearly yield of 8.7%.
Curve is a decentralized exchange best described as a stablecoin bank with superior swap capabilities because Curve’s slippage and transaction fees are currently the lowest in the industry.
Anyone from individuals to institutions, whales, and other protocols can use a Curve’s liquidity pool to power stablecoin swaps. You can also create a new liquidity pool in Curve’s ‘Factory’.
Investors can provide liquidity to Curve’s pools to earn rewards from swap fees. Curve is known for ultra-low fees but makes up for it in sheer volume.
Holds the largest stablecoin pool in crypto (the 3pool)
Has stood the test of time
Serves as a liquidity layer for a significant portion of the industry
Token in liquidity pool susceptible to attack (the case of 4pool)
Prehistoric user interface may be tricky for novice users
Curve has become essential to DeFi. Entire protocols connect their backends to a Curve liquidity pool to take advantage of deep liquidity and low fees. As long as crypto exists and continues to grow, Curve will remain at the core of DeFi.
3pool (USDT, USDC, DAI) which yields 0.25% – 0.36% per year
Tricrypto2 (USDT, wBTC, ETH) which yields 3.24% – 3.59% per year
steth (stETH, ETH) which yields 4.65% – 5.13% per year
Coindix gathers data on yield-bearing vaults from several protocols across 27 different blockchain networks into one dashboard. Essentially, it acts as a dashboard that shows you the most profitable liquidity pools you can invest crypto in across its supported blockchains.
Users can see the most profitable DeFi vaults, pools, or farms on each supported blockchain and filter based on asset type (e.g. stablecoin pools) and staking structure (single-sided staking).
Easy to find the best yields
Includes data on major DeFi markets
Growing support for more blockchains
Can create watchlists and alerts for when vault yields change
Can be overwhelming for new users
As DeFi grows, keeping up with vaults and the best staking crypto opportunities can prove increasingly difficult. Coindix is a neutral party that helps users stay afloat in a sea of shifting yields.
Vires USDT vault with a yield of 48.21% per year
Vires USDC vault with a yield of 4.81% per year
ACrypto’s BUSC/USDC/DAI/MIM vault with a yield of 39.50% per year
Balancer enables you to build any type of liquidity pool, set its own rules and structures, and earn trading fees. It also allows investors to create set-it-and-forget-it investment strategies using these pools.
Liquidity pools on Balancer can include up to 50 tokens (in some cases) and can be custom-built. Trading fees are reinvested into the pool and rebalanced to maintain their original weighting.
Different DeFi players can build pools for various purposes. For example, an investor can create a pool with several tokens they wish to hold long-term. Over time, fees generated will be reinvested into the pool and rebalanced, essentially growing the investor’s portfolio in the long term.
Flexible liquidity pools allow investors to build long-term strategies
Multichain support for the Ethereum, Arbitrum, and Polygon networks
Reduced swap fees for coins in the same pool
Risk of impermanent loss
Risk of irreparable loss due to poorly designed pools
Restricted to three blockchain networks
Balancer possesses an edge over other major DeFi platforms: flexible liquidity pools. And because DeFi revolves around liquidity pools, the Balancer app is a potential goldmine. Furthermore, its set-it-and-forget-it portfolio management capabilities attract investors who won’t spend significant time trading or swapping between coins.
-wMATIC + stMATIC pool with a yearly yield of 27.08%
-RBW + WETH pool with a yearly yield of 57.52%
-DAI + USD + USDT pool with a yearly yield of 3.12% – 7.62%
Uniswap is the largest decentralized exchange with a TVL north of $6 billion. It allows traders to swap between ETH and other ERC-20 tokens in a decentralized way; they are always in more control of their funds.
Uniswap maintains liquidity pools that power automated swaps; investors looking to earn yields on their crypto can do so by providing liquidity.
There are two versions of Uniswap: the original version (v1) built for the Ethereum blockchain and the multichain version (v2) that supports Polygon, Optimism, and Arbitrum.
Deep liquidity
Clean user interface
Rewards for liquidity providers
Currently expanding to more chains
High Ethereum gas fees for v1
Risk of impermanent loss for liquidity providers
Uniswap is the go-to decentralized exchange on Ethereum, making it the go-to dex in DeFi. The exchange processes $968 million worth of trades on its v1 platform and $99 million on its v2 platform, plenty of volume for traders and liquidity providers.
The most traded crypto pairs on Uniswap include USDC/ETH, USDC/USDT, DAI/USDC, and ETH/USDT.
MataMask is an open-source web3 wallet application that acts as a wallet for storing cryptos and a light node that allows traditional browsers to navigate the decentralized web. All DeFi activities require crypto wallets, and MetaMask is the leading provider.
With MetaMask, users retain control over their crypto and easily connect to and access DeFi applications with a single click. Furthermore, users can easily retrieve/restore their wallets if they lose their phone or computer using their seed phrase.
A word of caution: your seed phrase is sensitive. Anyone in possession of your seed phrase can access and move cryptos from your wallet. Always keep your seed phrase safe and offline.
Well integrated with numerous DeFi apps
Mobile and web versions available
Compatible with several blockchain networks
Incompatible with non-EVM-compatible blockchains
MetaMask is the most widely used decentralized crypto wallet because of its simple UI, integration with Ethereum and EVM-compatible chains, and security. It is also open-source, meaning that its source code is available online. Because of this, bugs can be spotted and easily fixed by a dedicated community of developers.
The ethos of DeFi is to give people total control over their money by cutting out the middlemen: traditional financial services such as central banks, investment institutions, and even governments. And thanks to the decentralized infrastructure of blockchains, this is possible for the first time since formal banking.
Decentralized peer to peer networks also serve to reduce the cost of financial transactions. For example, in the current financial system, wiring money across borders to a bank account can be expensive and time-consuming, taking anywhere between 2 – 5 days. Defi apps, on the other hand, can send money anywhere in the world within minutes (second for more advanced blockchains).
Also, the cost of finance is significantly cheaper on p2p networks. For example, sending money internationally is not as expensive because the banks that would have served as middlemen are gone. Hence, the transaction fee they would have charged are removed from the transaction cost, reducing the total cost.
Lastly, DeFi is inclusive. Everyone can access the best defi apps regardless of location or credit scores.
Different defi apps solve various problems in different ways. Some apps are for decentralized lending, some for swapping, some for arbitrage, some for saving, and some combine activities. Nevertheless, here are four factors must be considered.
Ensure the ecosystem is secure. The recent crash of the Terra network shows that entire ecosystems, not just Defi apps, can be attacked, if not technologically, then economically. Apps built on established blockchains are safer. You may lose out on a few 10x or 20x profit potential, but your funds are safer.
Understand the source of yields. A saying in Defi goes: If you can’t clearly state a protocol’s source of yields, then you are that source. Apps often offer unreal yields (sometimes thousands of percentage points), but history has proven that astronomical Defi yields usually end in astronomical crashes.
Avoid placing all your breadsticks in one basket. As solid as a dapp may seem and as juicy as its yields may be, do not place all your money into one protocol. Defi is rife with common crypto scams such as smart contracts hacks and rug pulls. Spreading your funds across multiple DeFi protocols and apps on different blockchains is the wiser financial choice.
Consider gas fees. The cost of processing transactions differs with blockchains. While most blockchains strive to make their transaction fees as cheap as possible, they are limited by current technology. The Ethereum blockchain is an example of this. Gas fees are expensive on Ethereum, luckily plans are underway to rectify this issue.
Download a crypto wallet like MataMask. You’ll need a web3 wallet that can interact with smart contract technology.
Configure your wallet. Some wallets come with native support for several blockchain networks, others don’t. A wallet like MetaMask is connected to Ethereum by default. However, you can connect it to other EVM chains.
Buy some crypto. External wallets don’t have fiat on-ramps. Buy some crypto from an exchange and transfer it to your external wallet.
Navigate to your app of choice. Defi apps have web front-ends with human-readable domain names. Type in the domain address in your browser. Ensure the app’s blockchain is supported and configured on your wallet.
Connect to the app. Defi apps usually have a Connect Wallet button at the top right corner of the screen.
DeFi has seen a 31% increase in users, despite the market conditions of 2022.
We explored the best DeFi apps to use and chose MakerDAO, Uniswap, MetaMask and others to be the top DeFi apps available with potential. Whichever one you choose, they are all good options for investors looking for DeFi apps.
Just remember that there are always risks involved in using DeFi apps such as potential hacks and other issues.
You can take a look at some crypto exchanges with low fees as well if you want to take a further step into your crypto investing journey.
Our criteria for assessment include mechanism design, market cohesiveness, ease of use, total value locked, market depth, competitive edge, and importance to the DeFi ecosystem.
The defi apps chosen have a track record of providing value and yields for users on both ends of the gamut. Apps were scored on the strength of the blockchain they are built on (Ethereum) and the impact their disadvantages have on user experience.
Security is also an important consideration. Our choices have a history of being secure and are certified by leading blockchain security audit firms like Certik.
Finally, we consider time in the market. The longer an app operates successfully, the longer it is likely to continue operating successfully. Time in the market is not an accurate measure of success when used in isolation. However, when combined with our other criteria, it uncovers apps that are worthy of consideration.
To find out more on how we ensure our content is accurate and well-researched, see our more details on how we test and our editorial policy.
The DeFi space can be intimidating to novice crypto users as apps constantly appear and disappear and are often complex to use, and also nuanced in their mechanisms. We’ve chosen the ones we’ve tried and think are the best in the DeFi Space. Here’s a quick round-up of our findings.
For lending, AAVE lets you earn yields by lending your crypto to others, and borrow at affordable rates. It has a sizable amount of funds locked ($8.2 billion) and is constantly expanding to new blockchains.
For stablecoin swaps, Curve has the lowest fees in the industry. Everyone from whales to institutions uses its liquidity pools, making them a good choice for liquidity investments.
For swapping ERC-20 tokens, Uniswap is your best bet as it supports most of the tokens on the Ethereum network.
For creating liquidity pools, Balancer’s flexibility allows you to manage your pools based on your rules while earning from trading fees.
For staking, LIDO’s liquid derivatives allow you to deploy your funds across the defi landscape while earning yields from staking.
Finally, for the juiciest yield, Coindix’s dashboard shows you all profitable liquidity pools across the major blockchain networks.