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Top 5 DeFi tokens by market capitalisation

By Nicole Willing

Edited by Alexandra Pankratyeva

19:45, 21 December 2021

Vector. Blue futuristic background. Bitcoin and blockchain. Electronic cryptocurrency and modern technology. Online banking, and financial communications. World wide web. Hologram. Planet Earth.
Top 5 DeFi tokens by market capitalisation – Photo: Shutterstock

Decentralised finance (DeFi) emerged in 2020 as blockchain developers launched new applications and services that enable users to borrow and earn using their cryptocurrency coins. The sector has taken off in 2021 as cryptocurrency adoption has grown. 

The total value locked (TVL) on blockchains is a popular indicator for the size of the DeFi market. It reached $259bn on 1 December, up from $15bn a year ago, according to DeFi Llama.

Are you interested in investing in cryptocurrency coins that are leading the way in DeFi? Let’s take a closer look at the sector and some of the top DeFi tokens to watch.

DeFi challenges traditional finance sector

DeFi refers to financial applications, services and protocols built on public blockchains running smart contracts. A smart contract is code stored on the blockchain that executes transactions automatically without a centralised intermediary, enabling fast processing speeds and lower fees than the traditional banking system.

As consultants Ernst and Young wrote in a recent report: “If you apply this decentralised peer-to-peer model on a global basis to the various forms of financial transactions that require an intermediary today (for example, collateralised lending, interest-bearing deposits or investment portfolio management), the potential impacts to the existing global financial system and its intermediaries become significant.”

DeFi has the potential to change the way individuals manage their finances, as well as how businesses and other institutions interact. By enabling the tokenisation of real-world assets, stocks, real estate, art and other physical assets can also be traded on a blockchain.

Ethereum is by far the largest smart contract-enabled blockchain, accounting for more than $153bn of TVL. As well as the blockchain’s native ether cryptocurrency, other coins run on the blockchain to provide DeFi apps. Terra, Binance Smart Chain (BSC), Avalanche and Solana have also emerged as smart contract blockchains, with more than $10bn of TVL each. With transaction fees on the Ethereum blockchain, in some cases, becoming prohibitively high, a number of the most promising DeFi coins have launched on more than one blockchain.

DeFi applications

The total DeFi token market cap has exceeded $100bn, out of a total cryptocurrency market cap of $2.25trn, data from CoinMarketCap showed on 21 December. If you are considering investing in the sector, you could start with watching the top DeFi tokens by market capitalisation. Read on to learn about the five largest DeFi coins.

Top 5 DeFi tokens by market capitalisation

DeFi apps use the protocol’s token to enable transactions – as an app’s usage grows, so too does demand for the token, raising the price. That makes them potentially attractive investment assets.

The largest tokens by market value are among the top DeFi coins to watch for those interested in decentralised finance.

Top DeFi tokens by market capitalisation

Terra (LUNA)

The luna coin is used for staking on the Terra protocol, which runs on the Ethereum blockchain. It’s used for coin mining and voting on governance proposals. The coin had a market capitalisation of $31.3bn, at the time of writing (21 December), making it the 9th largest cryptocurrency and the top DeFi token. The luna token price has climbed rapidly from less than $1 at the start of 2021 to an all-time high this week above $80, for a return of more than 12,000% year to date. 

Terra uses stablecoins (cryptocurrency coins pegged to fiat currencies), to enable transactions in global payment systems.

Miners need to stake luna to validate Terra transactions. As the Terra ecosystem expands, demand for Terra stablecoins is expected to increase, creating demand for luna. Terra uses an algorithmic market module that incentivises users with arbitrage opportunities to swap luna and terra coins at profitable exchange rates.

Terra (LUNA) all-time performance chart

Avalanche (AVAX)

Avalanche aims to compete with Ethereum as the platform for choice for decentralised apps and custom blockchains, by offering higher transaction speeds and scalability. Several Ethereum-based apps, such as the SushiSwap DEX, automated market maker (AMM) Curve Finance, and DeFi lender Aave, have launched on Avalanche and Ethereum.

Avalanche has three interoperable blockchains: an exchange chain for its native avax tokens; a contract chain hosting smart contracts; and a platform chain coordinating blockchain validators. The three chains use different consensus mechanisms, but all nodes validate every transaction.

BTC/USD

67,227.60 Price
-1.500% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 106.00

DOGE/USD

0.14 Price
-4.250% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.0012872

XRP/USD

0.62 Price
-1.500% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.01168

ETH/USD

3,463.39 Price
-0.840% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 6.00

The avax token price reached an all-time high in November of $146.22, for a gain of more than $4,500% since the start of the year. AVAX’s market cap stood at $28.8bn, at the time of writing (21 December), more than double that of the next largest DeFi token.

Avalanche (AVAX) all-time performance chart

Wrapped Bitcoin (WBTC)

The wrapped bitcoin (WBTC) is a tokenised version of bitcoin that makes it compliant with the ERC-20 standard, which allows it to run on the Ethereum blockchain and integrate into DeFi apps. A network of custodians and merchants ensures that WBTC remains pegged to the bitcoin price so that users can transfer liquidity between the Bitcoin and Ethereum networks.

WBTC is part of the Wrapped Tokens project, jointly developed by digital asset trust company BitGo, liquidity hub Kyber Network and Ren, an open protocol for transferring liquidity between blockchains.

WBTC had a market cap of $12.4bn, at the time of writing (21 December), with 258,940 tokens in circulation, according to CoinMarketCap. 

Wrapped bitcoin (WBTC) all-time performance chart

Uniswap (UNI)

The Uniswap DEX (decentralised exchange) launched in November 2018, making it one of the first automated market makers. Uniswap launched on the Ethereum blockchain and has since joined the Arbitrum and Optimism networks. Uniswap launched its native governance token UNI in September 2020, awarding it to users to offer the potential for profit as well as voting rights.

UNI has gained more than 700% since the start of the year. It hit an all-time high of $44.97 in April, rising along with the broader cryptocurrency markets. But, it failed to keep pace with subsequent rallies as other DEXs have emerged. It’s currently trading around the $15 mark, as of 21 December.  UNI’s market cap was around $9.3bn at the time of writing, flipping between the 4 and 5 position with the Dai stablecoin.

Uniswap (UNI) all-time performance chart

Dai (DAI)

DAI is a collateral-backed stablecoin running on the Ethereum blockchain. It’s managed by the MakerDAO decentralised autonomous organisation. The Maker Protocol, also known as the Multi-Collateral Dai (MCD) system, leverages collateral assets approved by the Maker governance process to generate dai coins. MCD dai was launched in November 2019, as an upgrade from the Single-Collateral Dai (SCD), or sai, which only accepted the native Ethereum coin ether as collateral.

DAI aims to provide users with a stable asset that takes advantage of the benefits of digital currencies without the high price volatility of cryptocurrencies, like bitcoin and ether. Holders can use the coin to make peer-to-peer money transfers, pay for goods and services, or as a store of value. The Maker Protocol’s Dai Savings Rate (DSR) allows holders to stake their coins to the DSR contract to automatically earn savings.

With 9.3bn coins in circulation and a 1:1 value against the US dollar, the token was switching between 4 and 5 position in the DeFi market with UNI, at the time of writing (21 December). It has a market cap of around $9.3bn.

Dai (DAI) all-time performance chart

The future of DeFi

With decentralised applications still in their infancy, the future of DeFi could be determined by the uptake of cryptocurrency tokens for financial transactions from borrowing and lending to saving and investing. Large-scale financial institutions, like JP Morgan and Visa, have entered the DeFi space, and some financial services companies are using blockchains to facilitate international payments.

“Whether or not institutions prepare to fight or embrace this new technology and form of intermediation will have significant impacts on how they operate and their prolonged success in the emerging digital economy,” Ernst and Young notes in its report.

But consultants Wolf & Co highlights the risks of shifting to a decentralised system. 

“DeFi doesn’t provide enough incentive to abandon the need (or want) for intermediaries to be involved in these services. It inserts technology into processes that don’t need it, it diminishes control over transactions, and it increases the risk of malicious actions and fraud… We’ll probably end up with a hybrid world of regulated DeFi… until that environment is situated, we should all assume that unregulated DeFi won’t replace traditional financial services.”

We recommend that you always do your own research, and consider the latest market trends, news, technical and fundamental analysis, and expert opinion before making any investment decision. 

FAQ

What are the most popular DeFi coins?

The most popular DeFi coins include luyna and avax, as well as a wrapped version of bitcoin, the dai stablecoin and the native token of the UniSwap exchange.

What is the future of DeFi?

The future of DeFi could depend on the continued uptake of alternative financial services, such as cryptocurrency borrowing and lending, yield farming, and blockchain-enabled cross-border payments. There is also potential for DeFi services to gain traction in tokenised derivatives trading and real estate transactions. The price of DeFi tokens will depend on whether they reach widespread use.

Is DeFi a good investment?

Whether the DeFi sector is a good investment for you will depend on your personal risk tolerance, investing goals and portfolio composition. Cryptocurrency markets are highly volatile and pose a higher risk for investors than traditional assets like stocks and bonds. You should evaluate the level of risk you are prepared to accept before investing. And never invest money that you cannot afford to lose.

Read more: HOGE coin price prediction: should you buy into the meme?

Markets in this article

AAVE/USD
AAVE / USD
96.231 USD
-1.682 -1.760%
AAVE/USD
AAVE / USD
96.231 USD
-1.682 -1.760%
AVAX/USD
Avalanche / USD
31.9550 USD
-0.7185 -2.220%
AVAX/USD
Avalanche / USD
31.9550 USD
-0.7185 -2.220%
ETH/USD
Ethereum / USD
3463.39 USD
-29.48 -0.840%

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