An Explanation of DeFi Tokens in Plain Terms

DeFi tokens, short for decentralized tokens, provide crypto holders with access to services similar to those provided by banks.  Examples of such services include loans and insurance.  DeFi tokens are diverse cryptocurrencies tied to decentralized and automated platforms that function with the use of smart contracts, providing crypto holders with access to helpful financial services and applications through the blockchain.  

DeFi Token Numbers of Note 

A whopping $75 billion of crypto has been locked on the blockchain.  All in all, DeFi tokens have a market cap of $114 billion.  This is a fairly small portion of the overarching $1.7 trillion of the aggregate crypto market.  DeFi tokens have quickly become one of the fastest-growing industry sectors, jumping more than $25 billion in a single year.

DeFi Tokens Worth Your Attention 

Several coins have emerged as the superstars of the DeFi system.  The leading coins of this interconnected alternative financial system include LINK, LUNA, DAI and SETH.  LINK, spearheaded by Chainlink, is the first token of the oracle decentralized network that powers smart contracts with data inputs ranging from price dynamics to weather information.  DAI is a stablecoin tied to the United States dollar.  MarkerDAO mints DAI.  

LUNA is by far the largest of all the DeFi tokens.  LUNA has a market cap in excess of $34 billion.  This DeFi token is the native currency of the network referred to as Terra.  The token provides utility in that it collateralizes mechanisms that support the network’s algorithmic stablecoins including TerraUSD.  Terra functions within the proof-of-stake dynamic in which tokens are staked by validators and subsequently rewarded for enhancing network security.  Rounding out the group of the top DeFi tokens is SETH.  SETH is essentially Ethereum staked within the overarching Lido protocol.  

The Basics of Governance Tokens

The majority of DeFi tokens are tied to specific protocols that are largely governed by a user community.  Users must buy and hold governance tokens to have a say in the decisions underlying DeFi protocols.  Such governance tokens have unique rights that empower holders to cast votes on suggested alterations to the platform.  

The native token from the decentralized Uniswap exchange, referred to as UNI, is the largest of all the governance tokens with a market cap just under $6 billion.  Uniswap debuted in the fall of 2020.  Those who hold more of a governance token have correspondingly more power in the context of voting.  This is a logical approach as those who have more of a vested interest should have a stronger say in regard to the progression of DeFi projects.  

It is also worth noting that governance tokens can be obtained with active contributions to protocols.  As an example, offering additional liquidity to the asset pool of a protocol sets the stage for obtaining additional governance tokens.

Similar to most cryptocurrencies, governance tokens are speculative.  These tokens can be traded on decentralized exchanges as well as centralized exchanges.  However, certain governance tokens that were recently issued might not be tradable until the holders of the token provide permission for their transfer between digital wallets.  

Buying DeFi Tokens is Easy

If you are interested in buying DeFi tokens, surf the web over to a centralized cryptocurrency exchange and you will find the process is fast, easy and intuitive.  Examples of such cryptocurrency exchanges include Coinbase and Binance.  Scoop up, trade and sell DeFi tokens just as you would regular cryptocurrency tokens and you’ll be on your way to diversifying your crypto investing portfolio.

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