Decentralized Finance ( DeFi ) is a revolutionary application of the underlying blockchain technology of cryptocurrencies, expanding the horizons of global finance. As an alternative to the traditional financial ecosystem, DeFi applications are enabled by Ethereum, the first-ever programmable blockchain protocol with smart contract capabilities.
The DeFi field continues to grow and develop, with a large number of projects replicating almost all traditional financial products and services in a decentralized environment. As more and more people adopted it, Ethereum’s inherent scalability issues became prominent, resulting in high transaction fees, confirmation delays, and more. With the future of DeFi at risk, the search for an Ethereum alternative has led to the creation of several blockchain protocols.
What is the DeFi ecosystem?
The DeFi ecosystem is a combination of blockchain and finance. They move away from the centralized traditional financial ecosystem of banks and other institutions towards more decentralized alternatives where users can control their money and investment decisions.
The DeFi ecosystem includes various financial products and services commonly found in mainstream finance, namely lending, investing, trading, prediction markets, insurance, and more.
Unlike traditional finance, the DeFi ecosystem has no geographic restrictions, numerous intermediaries, excessive regulatory burdens, and costs that hinder accessibility, and they are open to everyone.
Powered by cryptoassets, the effective combination of blockchain and finance enables DeFi to provide fair access to financial services and address the prevalent global problem of “unbanked”.
There are many DeFi projects in the market today that are not only built on Ethereum but many other protocols that follow. Among them, Tezos is one that deserves special attention.
Advantages of Tezos DeFi
Tezos is one of the worthy Ethereum contenders emerging from this race. As the first-ever open-source, liquid proof-of-stake (PoS) consensus-based protocol, Tezos positions itself as a secure, fully decentralized, highly scalable and versatile protocol.
Today, the Tezos protocol is the go-to choice for many individuals and businesses creating a new generation of DeFi and NFT applications. Tezos is also favored by crypto investors as an investment due to its potential.
The foundation of a vibrant DeFi ecosystem
After a shaky start, Tezos has picked up the pace, clearly establishing its advantage over other alternatives. Today, Tezos finds itself the most viable option for building DeFi and NFT solutions. It has helped the Tezos protocol gain a considerable community following who actively contribute to its development and adoption.
As of July 21, 2022, the market capitalization of the Tezos protocol exceeds $1.5 billion. Tezos has a complete list of DeFi projects, offering stablecoins, DEXs, DeFi lending, staking, and yield aggregation protocols for nearly every possible use case in the industry.
Stablecoins on Tezos
The volatility of cryptoassets, driven by market forces, makes stablecoins one of the essential tools in any DeFi ecosystem. Stablecoins are designed to represent a constant value, usually pegged to the value of a low-volatility asset such as fiat currency. Constantly maintain value with the help of reserves and algorithms. These stablecoins rely on fixed value to help investors preserve their assets and make sound investment decisions.
The Tezos ecosystem hosts some well-known stablecoins, including the most popular dollar-pegged Tether USD (USDT).
Besides USDT, other stablecoins on Tezos include:
Kolibri – Algorithmic kUSD stablecoin backed by collateralized debt positions
EURL – a euro-pegged stablecoin backed by Societe Generale’s euro reserves
USDS – USD-backed stablecoin
USDtz – USD-pegged FA token standard crypto-asset, 1:1 parity with USD
uUSD – USD-pegged stablecoin on Youves exchange for synthetic assets
DeFi Lending on Tezos
Although lending is a major business activity in traditional finance, access to credit is not easy for most customers. They need to provide a lot of documents, credit history reports and a lot of collateral before approving a loan.
In this case, many people have no previous credit exposure or access to financial services, and there is no way to meet the requirements. Even with approval, disbursement of the loan is not always instant.
DeFi lending removes these hassles and provides easy access to credit for anyone who meets the minimum requirements set by the platform, but borrowers still have to provide collateral for the loan in the form of crypto assets, usually issued in stablecoins.
The DeFi lending platform maintains a lending pool, and community members contribute liquidity by depositing assets. The platform issues loans from this pool to eligible participants, and in return, liquidity providers will receive a portion of the interest on these loans as a reward.
The Tezos DeFi ecosystem has attracted many projects to build lending protocols where users can lend their Tezos-based assets to those in need and earn rewards in the process. In the lending space, several well-known Tezos DeFi projects include Control Finance, MAVRYK, TezFin, Yupana Finance, etc.
Staking and Yield Aggregation
Broadly speaking, staking is the process by which users lock up their tokens on a smart contract for a period of time to enable certain network functions and receive rewards. It can happen at the protocol or project level, involving different tokens and different reward payouts. As a Liquid PoS-based protocol, staking forms an important part of the functionality of the Tezos network.
Users can stake Tezos’ native XTZ tokens on the protocol to become bakers (Tezos version of validators) to validate and commit transactions to the blockchain, or token holders can delegate their tokens to bakers and continue Earn rewards.
With average staking returns hovering around 3%, this is an attractive option for token holders to add to their portfolio. Likewise, the supply of liquidity to decentralized exchanges (DEXs) and lending protocols is a form of staking.
A broad network of public, private, and enterprise bakers powers the Tezos protocol, providing the community with numerous staking opportunities. Token holders can use tools like Baking Bad , TzStats , and Tezos nodes to discover available bakers, check their vital stats and pick eligible starting staking.
At the same time, with the help of AMM DEXs such as QuipuSwap , InstaDEX, SpicySwap and PlentyDeFi, there is no shortage of liquidity supply opportunities on Tezos. All of these staking opportunities, in turn, provide participants with a plethora of yield farming options.
In Yield Farming, liquidity providers are incentivized with additional cryptocurrency rewards to encourage contributions to the project. It can effectively attract much-needed liquidity to DeFi projects.
The standard Yield Farming mechanism allows liquidity providers on DEXs or lending pools to stake the generated liquidity provider tokens (LP tokens) on the contract for a specific period to earn rewards, which are in the liquidity supply Regular incentives are earned on a payout basis.
Yield aggregators provide participants with a variety of Yield Farming options, enabling them to choose the most suitable option with the greatest yield-generating potential. Most AMM DEXs like QuipuSwap, Vortex, and Plenty DeFi include Yield Farming contracts in their platforms, while other dApps such as Matter DeFi act as standalone yield aggregator solutions.
The Powerhouse in Tezos DeFi
Tezos has hundreds of dApps and DeFi projects, some of which stand out by offering a suite of solutions to help the community take full advantage of what the Tezos DeFi ecosystem has to offer.
As the flagship AMM DEX on the Tezos protocol, QuipuSwap supports a large number of Tezos-based cryptoassets and a full suite of DeFi products and tools, including Yield Farming, stableswap, and analytics. With a comprehensive DeFi offering, QuipuSwap is the most widely used DEX on Tezos.
Another end-to-end solutions platform, Instaraise started out as the first protocol of its kind on Tezos and aims to provide decentralized fundraising and incubation solutions for projects based on the protocol.
Instaraise has successfully helped several Tezos-based projects raise necessary funds and build community connections, and has since expanded to create an all-in-one DeFi ecosystem on Tezos.
Has its own InstaDex, provides single-asset liquidity, and provides liquidity providers with impermanent loss insurance, so far only available on the Ethereum-based Bancor platform.
As an all-in-one DeFi solution on the Tezos ecosystem, Vortex provides the community with decentralized exchanges, startup pools, yield farming, NFT markets, lotteries and DeFi market analysis. The Vortex Dashboard, created by Smartlink, serves as a single-window interface to almost every DeFi product available in the Tezos ecosystem.
Its “Tracking” feature allows users to track the performance of their entire Tezos-based portfolio, while providing users with ways to maximize income and reduce risk.
The future of Tezos DeFi
The self-amending and governance features of the Tezos blockchain, coupled with the low energy requirements and LPoS consensus mechanism make it forward-looking, an advantage that many protocols do not have.
The Tezos protocol can be continuously upgraded without forking, eliminating any possible disruption to existing dApps in the ecosystem. Additionally, the combination of a highly scalable architecture, low transaction fees, and the use of optimized OCaml and Michelson programming languages makes it ideal for projects of all sizes.
As a budding ecosystem, the Tezos protocol is slowly gaining widespread adoption, with many projects in various stages of development coming soon. It has gained recognition from some of the biggest names in various industries.
In addition to DeFi, Tezos has also established itself in the NFT space, with brands like McLaren, RedBull Racing, Ubisoft Quartz, GAP, and celebrities like Mike Shinoda choosing to launch their NFT series on the protocol.
Overall, the Tezos ecosystem is expected to be one of the most popular protocols as the demand for blockchain and Web3 applications will only grow from here.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/analyzing-the-tezos-defi-ecosystem-why-it-stands-out-from-the-many-defi-projects/
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