Decentralized finance (DeFi) has been a game-changer ever since its inception. With the many advanced financial instruments the technology has introduced, reliance on traditional financial institutions, particularly banks, has been greatly reduced.
DeFi is a collective term for financial products and services that are accessible to anyone courtesy of blockchain technology. The innovation provides borderless digital alternatives for traditional financial services such as borrowing, saving, and/or lending of assets. Notably, there are numerous decentralized finance platforms on different blockchain networks including Avalanche, where crypto users can carry out these operations to earn interest.
With the use of smart contracts, decentralized finance platforms allow individuals to lend and borrow assets. Staking to earn interest is an additional benefit provided by DeFi protocols. In this article, we highlight some DeFi platforms you can leverage to earn interest.
1. Aave Protocol
Aave is a community-governed protocol with a fully decentralized non-custodial liquidity market. The DeFi platform allows crypto users to participate as depositors or borrowers. While depositors provide liquidity to the market to make profits, borrowers get to borrow in an over-collateralized or under-collateralized fashion.
Getting started with the Aave protocol involves users first depositing assets in preferred amounts. Users then earn interest after depositing, based on the market borrowing demand. Also, using these deposited assets as collateral, users are qualified to borrow on the Aave platform. By borrowing, users can obtain liquidity without selling their assets.
Interest earned from depositing assets can be used to settle the interest associated with borrowing. Each asset has its unique Annual Percentage Yield (APY) which changes with time. More so, depositors on Aave get continuous earnings from the interest paid by borrowers. Equally, depositors earn from flash loan fees.
The Compound protocol is an algorithmic, autonomous interest rate protocol built for developers, to unlock a universe of open financial applications. It is described as a series of interest-rate markets running on the Ethereum blockchain. One of the major ways of earning on the platform is by supplying assets to the Compound Protocol. When users provide liquidity to the Compound Protocol, they immediately begin to earn a variable interest rate. Also, liquidity providers (depositors) get to share in the interest that borrowers pay back to the liquidity pools.
Interest accrues every Ethereum block (currently ~13 seconds), and users can withdraw their principal plus interest anytime. The Compound Protocol allows users to borrow crypto assets from the available pools. In doing so, supported assets are used as collateral. This gives borrowers the flexibility to settle a trade or use an application, with an asset that they don’t already own.
Those that borrow crypto assets from the Compound protocol pay a varying interest rate for every Ethereum block. In turn, the interest that borrowers pay produces the interest that depositors earn.
3. C.R.E.A.M Finance
C.R.E.A.M. Finance is a decentralized lending protocol for individuals, institutions, and protocols to access financial services. The C.R.E.A.M Finance protocol is a permissionless, open-source and non-custodial protocol that is available on Ethereum, Binance Smart Chain, Polygon, and Fantom blockchains.
Users who are passively holding ETH or wBTC can deposit their assets on C.R.E.A.M. to earn yield. Also, users can lend (supply) assets on the DeFi platform to earn interest. Also, users can use the deposited assets as collateral to borrow another asset.
Meanwhile, C.R.E.A.M. Finance offers a wide range of tokens on its money markets. They include interest-bearing stablecoins, DeFi tokens, LP tokens, stablecoins, and other cryptocurrencies like ETH.
Maker is a platform that unlocks the power of decentralized finance for everyone by creating an inclusive platform for economic empowerment. Created in 2014, MakerDAO is an open-source project on the Ethereum blockchain and a Decentralized Autonomous Organization (DAO).
The Maker Protocol, also known as the Multi-Collateral Dai (MCD) system, is the set of smart contracts that make it possible for users to create the currency Dai. Meanwhile, MakerDAO governs the Maker Protocol by deciding on key parameters in the ecosystem. To generate Dai, users deposit Ethereum-based collateral assets into Maker Vaults within the Maker Protocol.
The Maker Protocol employs a two-token system. The first is Dai, a collateral-backed stablecoin that offers stability. Second, there is MKR, a governance token that is used by stakeholders to maintain the system and manage Dai.
It bears noting that this protocol was the first decentralized finance application to earn significant adoption and remains one of the largest decentralized applications (dApps) on the Ethereum blockchain.
Developed and launched in 2020, Notional is a protocol on Ethereum that facilitates fixed-rate, fixed-term crypto asset lending and borrowing through a novel financial instrument called fCash. Notably, fCash are transferable tokens that represent a claim on a positive or negative cash flow at a specific point in the future. The so-called fCash offers a simple and reliable mechanism for Notional users to commit to transfers of value at specific points in the future.
On Notional, there are lenders, liquidity providers, and borrowers. While lenders trade cash for fCash and earn a fixed interest rate, liquidity providers leverage the defi platform’s liquidity pools to earn irregular trading fees. In other words, liquidity providers earn interest/ compensation as they facilitate lending and borrowing operations on the platform. Whereas lenders lend crypto with dependable returns – 3.929% fixed APY.
On the whole, Notional brings fixed interest rates to the decentralized financial system on Ethereum and gives crypto users the same access to stable financing. With the DeFi platform, users can lend, borrow, provide liquidity, withdraw liquidity or cash into their wallets, repay debts, withdraw loans, or roll assets from one maturity to another, all within a single transaction.
PolyCUB is a yield optimizer platform that provides a safe and easy way for DeFi users to discover yield and earn on the Polygon Network. PolyCUB borrows the essential aspects of 3 major DeFi platforms – Sushiswap, Adamant Finance, and Autofarm.
The protocol is tagged as Polygon’s most sustainable DeFi platform with multi-token bridging, curve-style staking, governance DAO, Protocol Liquidity, and lending. Earning interest in the PolyCUB platform is possible through different approaches. Majorly, users can earn income by participating in PolyCUB Kingdom Vaults, xPOLYCUB staking as well as bonding and Protocol Owned Liquidity (PoL).
On the platform, users can bond assets with Protocol Owned Liquidity (PoL) and earn instant ROI while building the future sustainability of POLYCUB. Also, users can earn the native token of the defi platform (POLYCUB) by participating in any of the Kingdom vaults or by staking xPOLYCUB.
PolyCUB Kingdoms are cross-platform yield farming vaults. It allows users to earn two forms of yields – users earn from both the base APY and POLYCUB APY. By holding POLYCUB, especially staked as xPOLYCUB, users earn from both the POLYCUB rewards pool and the xPOLYCUB contract. Staking xPOLYCUB also allows users to earn a 50% fee penalty generated by other farmers who harvest their yield before the X block locking period.
88mph is a non-custodial, fully on-chain protocol acting as an intermediary between users and third-party variable yield rate protocols. It is built to present users with the best-fixed yield rate for various supplied assets such as DAI, USDC, WBTC, and ETH with a custom or preset maturity.
The DeFi platform also offers a yield speculation instrument, called Yield Tokens (YTs). Yield tokens are fungible ERC-20/ERC-1155 tokens that allow users to speculate and profit from the rise in the variable yield rate of third-party lending protocols such as Compound or Aave. With Yield Tokens, users can hedge part of their borrowing costs of a loan.
MPH is the native token of 88mph, distributed as an incentive to use 88mph fixed yield rate products. By staking your MPH, you are eligible to collect 88mph protocol’s revenues distributed as MPH. The available options for providing MPH liquidity to earn rewards are listed on 88mph.app/farm. Here, users can deposit assets and earn a fixed yield rate on their capital.
Curve is an exchange liquidity pool and/or Automated Market Maker (AMM) on Ethereum. It is designed for extremely efficient stablecoin trading and low-risk, supplemental fee income for liquidity providers. To achieve successful exchange volume as an AMM, Curve needs a high volume of liquidity (tokens). This is where liquidity providers come in to earn interest. Curve offers users rewards for providing liquidity in the available pools.
Meanwhile, hundreds of liquidity pools have been launched through Curve’s factory and incentivized by Curve’s DAO. Users rely on Curve’s proprietary formulas to provide high liquidity, low slippage, and low fee transactions among ERC-20 tokens.
Are There Risks Associated with DeFi Platforms?
Yes, there are numerous risks associated with all decentralized finance platforms. Hence, it is pertinent to always carry out proper research before connecting your wallet to any DeFi platform. Over the years, there have been many cases of hackers infiltrating and exploiting DeFi platforms.
For this reason, users need to be security alert when interacting with decentralized finance protocols. This includes employing reliable hardware crypto wallets for storing assets. Regardless, DeFi has been a very profitable niche in the crypto and blockchain industry.