DeFi, short for ‘decentralised finance’, includes all financial 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.
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
Cons
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 decentralised 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 banks, and rewards lenders with the proceeds.
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 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.
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 decentralised 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 Curve’s liquidity pools to power stablecoin swaps. You can also create new liquidity pools 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.
Curve has become essential to DeFi. Entire protocols connect their backends to Curve’s liquidity pools 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.
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 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).
Can be overwhelming for new users
As DeFi grows, keeping up with vaults and staking opportunities can prove increasingly difficult. Coindix is a neutral party that helps users stay afloat in a sea of shifting yields.
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.
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.
Uniswap is the largest decentralised exchange with a TVL north of $6 billion. It allows traders to swap between ETH and other ERC-20 tokens in a decentralised way; they are always in 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.
Uniswap is the go-to decentralised 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 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 decentralised 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.
Incompatible with non-EVM-compatible blockchains
MetaMask is the most widely used decentralised 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: central banks, investment institutions, and even governments. And thanks to the decentralised infrastructure of blockchains, this is possible for the first time since formal banking.
Decentralised p2p networks also serve to reduce the cost of financial transactions. For example, wiring money across borders 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 fees 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 lending, some for swapping, some for arbitrage, some for saving, and some combine activities. Nevertheless, here are four factors must be considered.
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.
Defi apps are the protocols that allow people to carry out financial transactions on a blockchain. They are usually composed of smart contracts that carry out the actual transactions and a web front-end that interacts with users. Defi coins, on the other hand, are tokens native to the app used for governance purposes, rewards, or as a medium of transferring value.
There is no one-size-fits-all blockchain for DeFi projects. Things to consider include how decentralised is it (and therefore how secure is it); how scalable is it; and does it have an active and engaged community that get a real say in governance decisions.
DefiLlama is an app that aggregates information about Defi projects across blockchain networks. Here, you can discover interesting new projects and get in early. If you're happy to do some serious DeFi digging, Twitter is also a great place to find new projects.
The Defi apps listed in this article are among the most widely used (which is why we chose them). Usually, dApps with high yield staking functionality and multichain support tend to retain their users long term.