Centralized financial institutions are convenient to use and provide familiar services that have been around for ages in one form or another. Despite its many advantages, the world of tradfi is seemingly at its end with globalization hitting its peak and national economies struggling to keep inflation in check and provide a high quality of life to citizens. Decentralization has been cited as the most obvious solution since the beginning of the Bitcoin era.
Since the DeFi sector has a lot to offer, it is important for contemporary investors to understand various decentralized protocols and their role in the expanding ecosystem that now offers an extraordinarily diverse selection of investment opportunities to millions of users across the globe. Mordor Intelligence estimates that the size of the global DeFi market is close to $47 billion with an expected CAGR of 10.4%. It is expected to reach over $78 billion by 2029.
With the explosion of user activity (278% increase year-to-year in the first quarter of 2024), it is fair to think that the growing sector is attracting the most proactive investors and retail traders.
You can split all existing 1,500+ tracked protocols into several groups based on their main functionality. In 2024, the variety of options available to investors is staggering. Memecoins on Solana, aggressively expanding DEXes on Base, growing platforms deployed on Ethereum, and many other interesting areas of the market that you can check out create a glorious mash of concepts and investment instruments that can overwhelm a newcomer.
Before jumping into the comparison between the biggest decentralized projects in the blockchain ecosystem, it is a good idea to briefly discuss each of the categories they fall into.
Digital assets must have routes to provide value to their holders. Without exchange services with sufficient liquidity, many enthusiasts would simply stuck with certain coins without any convenient way to turn them into fiat or other useful assets. Decentralized platforms are offering a very important thing: self-custody.
Users do not have to hold their valuables on balances operated by a central authority like in the case of CEXes. Instead, they are using liquidity pools to quickly swap assets. While the main purpose of these platforms is to provide a good trading experience, they have also turned into yield-farming protocols since raising liquidity is one of the biggest priorities for DEXes.
For instance, DeDust, an exchange deployed on The Open Network, offers its clients a hefty reward for liquidity provision with the TON/USDT pair having a sizeable 2.29% base APY and 22.81% reward APY. The 30-day mean average mixed APY reached a spectacular 43.97% in August 2024.
Smart contracts can be used for a variety of purposes. Many DeFi protocols are using them to automate lending and borrowing processes by making all interactions between capital providers and those who need it trustless and permissionless. A smart contract is executed when certain conditions are met and do not require any additional communication between parties.
Lenders are rewarded with a cut of interest payments and additional rewards while borrowers pay back interest and must provide collateral. It is an elegant solution used by many proactive investors seeking investment options with higher returns compared to tradfi and staking.
Gains made on investments in lending protocols vary depending on the utilization of assets and market conditions. Target assets also play a huge role. For example, Aave has a very lucrative offer to GHO investors who can earn up to 26.9% APY (30-day average) on their stablecoin holdings. At the same time, the biggest, more or less reliable, USD-pegged stablecoin pool is the one offered by Scallop Lend at 17.14% base APY and 30-day averages lagging by 2%.
PoS networks are becoming the new norm for the crypto industry. They offer a less demanding way of participating in the network without the need to purchase expensive hardware and learn how to mine tokens. Instead, you can simply use capital to become a validator and earn rewards. With the explosion of this sector after the Ethereum merger, hundreds of investors are flocking to various protocols.
Here are interesting options for intrigued capital holders:
Restaking. Some projects allow users to stake ETH simultaneously on several protocols. For instance, Eigenlayer is a palace where you can engage with a dozen pools and receive rewards in wETH. It currently has over $12.5 billion in TVL. A similar offering from Symbiotic gives access to wrapped and staked tokens on a variety of platforms.
The DeFi sector is quite massive with a variety of different novel tools available to investors. Lending, DEXes, and staking are dominating the industry, but it does not mean that other innovative products don’t have any room to breathe.
Below are other, smaller categories:
RWA or Real-World Assets projects are designed to tokenize various physical valuables including real estate, commodities, and more. The combined TVL in 63 different protocols is over $6.4 billion. The most prominent example is Maker RWA with a $2 billion TVL as of August 2024.
Leading DeFi protocols are all from several specific categories. Instead of picking individual projects, we will compare these categories to give you an overview of the sector. The table below contains several key metrics like total value locked, number of relevant protocols, and more.
| METRIC | DEXes | LENDING | LIQUID STAKING |
| Number of protocols | 1393 | 440 | 184 |
| Combined TVL | $17.4 b | $32.2 b | $42.2 b |
| Top performers | Uniswap | Aave | LIDO |
| Top performer’s TVL | $4.6 b | $11.8 b | $26 b |
| Top base APY (TVL over $10m) | 63.84% | 4.68% | 4.68% |
| Monthly fees | $45.4 m | $21.6 m | $80.4 m |
The comparison allows us to draw several conclusions:
While transactions are cheaper compared to tradfi prices most of the time, during peak congestion, gas fees can go up significantly. Ethereum is notoriously expensive when the throughput capacity reaches its limits. Comparing fee structures on different DeFi protocols is close to impossible because prices may differ significantly depending on market circumstances, target asset prices, network fees, and other variables.
Since many protocols depend on underlying networks and fees vary depending on gas price, it is a good idea to simply learn about transaction costs on different blockchains:
Each layer-2 protocol also has its own fee structure which can be significantly cheaper compared to the layer-1 and faster. However, listing and comparing them all will take an enormous amount of time and space on your monitor considering the sheer number of active networks like Polygon, Optimism, Base, Arbitrum, and more.
It is important to understand the role of fees in the general framework of the DeFi ecosystem. They are generating rewards for validators and providing the necessary funding to the community that runs the whole operation. Another valuable thought is the cheapness of DeFi operations compared to tradfi. On average, an investor is expected to pay up to 3% for each transaction. DeFi users usually enjoy fees ranging between 0.01% and 0.3% depending on the protocol.Fat fees can feel expensive when the transaction size is small. However, when you need to pay less than $0.036 to move thousands of TON tokens from one address to another, the comparison to traditional financial institutions becomes laughable.
One of the biggest issues with the current structure of the ecosystem is the reliance on mostly autonomous smart contracts. Despite what the name suggests, these tiny applications are neither contracts nor smart. They do not do anything outside of their original programming and execute their code when certain conditions are met.
This design invites probing from bad actors who can often find critical vulnerabilities and exploit them. Bridges are infamous for their weaknesses due to multiple points where an attack can occur. In 2022, bridge hacks accounted for $1 billion in one estimate and over $3 billion in another. DEXes are slightly more resilient but also come under fire from time to time.
In general, interactions between users and self-custodial DeFi protocols are much safer compared to how users interact with Centralized exchanges or tradfi platforms. However, each new supported token or blockchain exposes decentralized projects to additional risks. Employing techniques like external audits and bug bounties can be extremely useful but does not solve the issue completely.
It is imperative to address three critical problems that hold the sector back:
Selecting the best DeFi protocol for certain activities can be quite difficult. Do you need a versatile DEX that supports all ERC20 tokens? Uniswap is the biggest player in this field. Do you believe in The Open Network? Supporting DeDust is the way to go. If you want to invest in real estate, RWA protocols are a good destination. The selection process wholly depends on your goals and preferences.
Product updates, DeFi tutorials and insights from our community
