Top Performing DeFi Blockchains to Watch in 2022

2022/02/25 12:38:56

The past year was the year decentralized finance (DeFi) truly shot into the limelight, making its mark and gaining attention from retail as well as institutional investors. It’s safe to say that DeFi went mainstream in 2021, powered by the bull run in the cryptocurrency market and an increased need for easily accessible financial opportunities among investors. Over the past year, we saw leading financial institutions getting interested in DeFi and large investors looking for a way to capitalize on the opportunities projects in this space offered.

DeFi TVL growth through 2021 | Source: DeFiPulse.com

DeFi revolutionizes the way financial markets operate, lowering the barriers to entry for investors looking at ways to make their money work for them. From lending, borrowing, staking and more, DeFi projects make it possible for investors to earn attractive returns on their investments, gain access to capital easily and without cumbersome intermediaries, and have greater control on putting their investment to work.

What to Expect From DeFi in 2022

More Integration, Use Cases as NFTs, TradeFi and Metaverse Drive Innovation in DeFi

As time passes, more use cases in DeFi are expected to crop up as we have seen taking place over the past few months. The pace of innovation is expected to be rapid and power the adoption of decentralized solutions across mainstream capital markets. The rising popularity of NFTs, metaverse and GameFi is set to see the emergence of projects looking to capitalize on these trends, merging DeFi with these sectors of the crypto market in the coming months. This will, in turn, give rise to more exciting services being offered by DeFi projects, supporting the uptick in adoption of digital assets overall and increasing activity in the DeFi market as well.

The Rise of Web 3 Projects to Drive Up IDOs and Similar Opportunities for DeFi Investors

The year 2022 could very well see Initial DEX Offering (IDOs) becoming the primary way for Web 3 projects to raise funds and awareness. Launchpads and similar platforms can not only offer emerging projects in the Web 3 space access to capital but offer crypto investors a whole new way to watch their crypto capital grow. DeFi is certainly on its way to branching out and becoming more specialized in this area, offering a reliable platform to support the overall growth of the crypto industry in one more manner.

DAOs to Grow in Number and Expand in Scope

Unlike IDO launchpads, DAOs more often than not have a more focused goal, of rallying a community towards a single purpose or goal. While 2021 saw the creation of several exciting DAOs, including one which attempted to purchase an original version of the US Constitution, these projects will become even more rampant in the coming year. DAOs are aiming to become yet another example of decentralized finance’s successful development, pooling in funds from several users to achieve a single aim, be it to purchase a real world asset or support the growth of exciting projects and businesses in the crypto sector.

Institutional Investors Continuing to Pour More Funds Into DeFi, Helping it Reach Mainstream

With the mainstream financial markets still facing considerable uncertainties on account of high inflation, it is highly likely that institutional investors will continue to park their funds in the DeFi sector for higher gains. An influx of institutional inflows into decentralized finance applications and protocols will build up investor confidence and encourage more retail investors to turn their focus to these assets and opportunities as well.

Cryptocurrencies have reported somewhat weak performance since the beginning of this year over fears that the Fed and other central banks could start tightening their monetary policies in the near future. However, the global economic outlook still faces considerable uncertainties, which could potentially see this decision being delayed. Meanwhile, inflation levels remain high, giving investors a push towards digital assets as a hedge against inflation. This in turn, could fuel more large investors to turn to DeFi as a more lucrative opportunity to generate returns even as the traditional equity and capital markets languish.

More Cross-chain DeFi Protocols Are Emerging, Bringing Higher Liquidity, and Tapping Larger User Bases

As more users turn to DeFi products, the need to achieve scalability and higher liquidity will become more urgent. This reason alone could force new and existing DeFi protocols to consider ramping up their cross-chain operations, gaining access to larger user bases and unlocking deeper pools of liquidity in turn. The growth of DeFi and the overall blockchain industry depends on interoperability and discovering ways to have dApps operate seamlessly across multiple blockchain networks.

With this in mind, more developers are exploring ways to add cross-chain functionality to their DeFi offerings. However, going cross-chain will almost certainly increase the risks of hacks - another key focus area for the DeFi market in the coming months. The market will most likely show a need to identify ways to increase the security in DeFi protocols, especially as cross-chain operations open up more vulnerabilities that can be exploited by hackers.

The DeFi Market Could See Tighter Regulations Come Into Effect, Increasing Investor Confidence

As more funds pour into DeFi, regulators can no longer ignore the market and classify it as a passing fad. In addition, an increase in use cases and user base will further force regulators to step in and find ways to manage this sphere better. We might even expect fully-operational ways for the DeFi market to self-regulate and self-sustain, getting one step ahead of governments and regulators. In an attempt to make DeFi safer for investors, protocols are likely to double down on undergoing security audits, implementing KYC and other norms, and more to be more compliant with existing norms.

An increase in regulations within DeFi can drive up confidence among both institutional investors as well as retail ones. Regulation of the sector will be one of the key contributors to growth of the DeFi market in 2022.

Performance of DeFi Market so far This Year

This year has not been off to a great start, as far as the world of DeFi is concerned. After touching a high of over $250 billion in late 2021, DeFi’s TVL sank to under $200 billion amid the ongoing rout in the cryptocurrency market. Expectations for the US Federal Reserve to start increasing interest rates and tightening its monetary policy to offset soaring inflation in the country has dented the digital asset market’s appeal among investors. In addition, a risk-off sentiment in global markets owing to geopolitical tensions have rocked the boat further and sent investors away from the riskier instruments.

DeFi Dominance on the Decline

DeFi dominance declines in 2022 | Source: TheBlockCrypto.com

Analysis by The Block reveals a steady decline in DeFi dominance since Q4 2021, although this may not be an effective measure of the health of the market. The dominance of DeFi among the crypto industry could be sliding lower as NFTs and other products gain popularity.

Monthly Revenue of DeFi Protocols Also Falls

Cumulative DeFi revenue | Source: TheBlockCrypto.com

The monthly revenue of DeFi protocols across chains has also taken a hit since the beginning of this year. However, the cumulative DeFi revenue has been ticking higher, exceeding $4 billion at the time of writing.

Number of DeFi Users Continues to Grow

Growth in total number of DeFi users over time | Source: Dune Analytics

On the upside, the total number of DeFi users has continued to grow - a promising sign that investors remain confident about the potential of decentralized finance. This key indicator reveals that the market remains healthy and could see its TVL rise once the value of cryptocurrencies rebounds higher in the future.

Ethereum Sees Dip in DeFi TVL, But Some Other Chains See Growth

Ethereum’s DeFi TVL declines over time | Source: DefiLlama.com

While the biggest DeFi ecosystem Ethereum has seen quite a dip in TVL over the past few weeks, there are a few ecosystems which have enjoyed a growth in their TVL over the past one month. We will deep dive into some of the top performing DeFi chains in the section below. But before we do that, let’s reflect on the impact of the cryptocurrency market sentiment on DeFi’s performance so far this year.

Impact of the Crypto Market Sentiment on DeFi

In recent weeks, the crypto market has been subject to significant turmoil and weakness. The uncertainty surrounding the Fed’s plans to hike interest rates to combat rising inflation in the US has scared several investors off the market, causing leading cryptocurrencies’ prices to weaken. This in turn has hit the DeFi market, sending the value of assets locked in DeFi protocols lower.

Analysis of interest in DeFi (blue) vs. crypto (red) YTD | Source: Google Trends

The crypto market rout has also hit options protocols in the DeFi sector, amid the decline in trading volumes and users for cryptocurrencies in general. As a result, outflows from such protocols has also driven the weakness that DeFi’s TVL has experienced recently.

Developers behind DeFi projects in the options space and other sectors of the market believe that cryptocurrencies have to bounce back higher to see a resurgence in confidence among users towards decentralized finance. From this, it is evident that the market sentiment towards cryptos is one of the key deciding factors on the performance of the DeFi market in the near future.

Top Performing DeFi Blockchains to Monitor in 2022

Here’s a look at the most liquid and actively traded DeFi blockchain tokens on the KuCoin platform.

Terra (LUNA)

The native token of the Terra blockchain, LUNA, is used to manage the price stability of the stable coin, TerraUSD (UST). The price of LUNA has been soaring on account of rising adoption of the UST stablecoin among users worldwide. According to Coinmarketcap data, LUNA is the ninth largest crypto by market cap while the UST is the fourth most popularly used stablecoin within the crypto market.

In terms of DeFi performance too, the Terra blockchain has the distinction of being the second largest ecosystem for decentralized finance applications, next only to Ethereum. According to data on DeFi Llama, Terra supports 20 DeFi protocols with a TVL of over $18 billion. The TVL has risen by more than 21% in the past week.

LUNA enjoys high trading volume and liquidity on KuCoin, and is one of the top performing cryptocurrencies overall on the platform. KuCoin offers LUNA/USDT as a trading pair for users on its platform.

Fantom (FTM)

Fantom is the fifth largest blockchain ecosystem supporting DeFi applications in the crypto sector as on date. It hosts 177 projects in the decentralized finance space, enjoying a TVL of $8 billion. Fantom’s TVL has registered a growth of more than 5% in the past 24 hours.

FTM, the native token of the Fantom network, is the 34th largest cryptocurrency by market cap on Coinmarketcap. The FTM token has caught the eye of several investors in recent months on account of the rapid pace of expansion of Fantom’s DeFi ecosystem.

KuCoin’s users can trade FTM/USDT on the platform.

Avalanche (AVAX)

Avalanche is the 11th most popular blockchain based on its market capitalisation. Avalanche’s ecosystem registered quite the spike in adoption among dApps towards the second half of 2021 after the introduction of the Avalanche Rush liquidity mining program, which attracted developers to build dApps on the network.

Since then, the DeFi TVL of Avalanche has crossed $10 billion, making it the fourth largest ecosystem in the sector. At the time of writing, the blockchain supports 174 DeFi projects and has seen its TVL rise by more than 25% in the past month.

On the KuCoin platform, users can trade AVAX - the native token of Avalanche, against the USDT, AVAX/USDT.

Polygon (MATIC)

Polygon has been making news every few days on account of rising adoption of its network by dApps across all sectors of the market, including DeFi. The leading scaling solution for the Ethereum network has soared in popularity in recent weeks ever since Uniswap - the largest DeFi protocol, integrated into its ecosystem to escape Ethereum’s high gas fees and network congestion issues.

Polygon supports 201 DeFi protocols on its network, with a total value locked sitting under $4 billion. It is the eighth largest blockchain by DeFi TVL while its native token MATIC is the 16th largest cryptocurrency by market cap.

On KuCoin, users can trade the MATIC/USDT pair.

Solana (SOL)

Solana, the ultra-fast blockchain network, has faced some challenges related to network congestion in recent weeks. However, notwithstanding these issues, it still remains one of the most popular alternatives to Ethereum for dApps, especially in DeFi. The network congestion issues are also an indicator of the rising adoption of the Solana blockchain, both by developers and projects as well as users.

As per DeFi Llama, Solana supports 57 dApps in the decentralized finance space, which enjoy a TVL of just over $7 billion. It is the sixth most popular DeFi blockchain in the market at present.

Solana’s native token SOL currently ranks eighth among cryptocurrencies in terms of market capitalization. It has strengthened by over 9% in the past 24 hours.

Users can trade SOL/USDT trading pair on KuCoin exchange.

NEAR Protocol (NEAR)

One of the newest entrants into the top DeFi ecosystems, NEAR Protocol, has risen in TVL and rankings ever since the integration of Terra’s UST with its network. Currently, the NEAR Protocol ranks 20th in terms of DeFi TVL, supporting 20 dApps in this market on its blockchain. It enjoys a TVL of almost $530 million, a growth of more than 16% in the past month.

In terms of market cap, the NEAR token sits on the 28th position of the list among cryptocurrencies. It has strengthened by more than 14% in the past 24 hours.

NEAR/USDT is available for trading on the KuCoin exchange.

Binance Coin (BNB)

Binance Coin is the native token in use within the Binance Smart Chain, one of the most popular alternatives to Ethereum among decentralized finance applications. The BSC ranks third in terms of DeFi TVL but supports the second highest number of dApps in this space, next only to Ethereum. According to data on DeFi Llama, the Binance Smart Chain has a TVL of nearly $12 billion from 319 applications.

The BNB token is the fourth largest cryptocurrency by market cap and has registered a gain of over 7% since the previous session.

Users can trade BNB/USDT on the KuCoin exchange.

Cardano (ADA)

Cardano may have gone through some hard times in recent months after rallied on expectations of becoming a strong contender against Ethereum. However, it shows a lot of promise in the DeFi market as dApps start launching on its ecosystem over the past few weeks.

In terms of DeFi TVL, although Cardano ranks 34 in the list with just five applications, it still remains one of the most liquid cryptocurrencies, enjoying high levels of attention from crypto traders on KuCoin.

Cardano’s native token ADA holds on to its position among the top 10 cryptos by market cap, coming in at rank seven, even though its price has fallen well below its ATH. In the past 24 hours, the ADA token has strengthened by over 11%.

KuCoin offers ADA for trading against the USDT as ADA/USDT to its users.

Final Word

It goes without saying that the DeFi market and its unique value proposition are bringing a massive amount of users closer to its technology, all while still being at its infancy in terms of development.

With countless individuals and institutions supporting the technology, as well as an astonishing amount of brilliant minds entering the development space, DeFi is certainly poised to expand and innovate - with the aforementioned blockchain projects at its foundation as well as spearhead.