What are the top DeFi projects to invest in during this bear market? Today we are going to rank the top 15 DeFi projects in 2022, from the best to the worst. In each one, we’ll include the strongest Pros and Cons so that you can get all the info you need to make your own decision.
Uniswap is the most popular DEX by a bunch of different metrics.
They were pioneers in the DeFi space. They popularized the AMM model that most DEXes use these days. They also never stopped innovating. After launching their V1 in 2018, they released V2 in 2020 and V3 in 2021. Each upgrade brought more game-changing features that made them even better than their competitors. Their “fee switch” is very exciting because Uniswap always has the option to send some trading fees directly to their token holders but they’ve never really gone with that option until now. They’re currently only testing it out and if they decide to make it permanent, a lot of people will likely rush to buy UNI again for that sweet passive income.
The fee switch could also screw things up. Some people are worried that liquidity providers will take their capital elsewhere because the fee switch reduces their revenue. Other people say that a fee switch could make UNI a target of regulators because it shares revenue with passive holders which is a No-No in the eyes of the SEC.
We’re still giving them an S because the Pros far outweigh the Cons.
Next, we got a project that gave birth to the most beautiful stablecoin out there. Yep, that’d be MakerDAO and their stablecoin DAI. Now MakerDAO is a lending platform at its core. You put in collateral and take out loans. and there’s DAI, a stablecoin.
They have a first-mover advantage. DAI is truly decentralized in a world of centralized stablecoins and DAI is super conservative in its model, so we don’t have to worry about it losing its peg. There are a lot more Pros that we could list for days but to save some time let’s turn to the cons.
One concern is that DAI can potentially be censored. Actually, DAI itself is permissionless, but MakerDAO does accept UDSC as collateral and we know that UDSC can be frozen by Circle. So it’s a risk that DAI could one day be under-collateralized if some of its backings were frozen. That is a fair concern but their community knows it so they’re working on fixing that.
That’s why we feel comfortable placing them in the S tier. MakerDAO and DAI are two of the most important entities in all of the DeFi space.
Curve Finance (CRV)
Next, we got a project that you know is legit because they had a whole War named after them. Yep, that’d be Curve Finance and their infamous “Curve Wars”. Curve is an AMM DEX like Uniswap but it’s really meant for similar assets, for example, swapping USDT for USDC, or ETH for staked ETH.
Curve is the number one DEX in terms of Total Value Locked. They also offer higher yields by putting their LPS collateral into other DeFi protocols and passing that yield through to them. But the biggest Pro of them all is how they designed their Curved token incentives because it’s honestly brilliant. In a nutshell, if you stake their token, you have the power to direct rewards to whichever liquidity pool you want. DeFi projects want their own Curve pool to get the most liquidity, so they were fighting over Curve tokens to see who could get the most.
Their complex design leaves them open to advanced attacks. One such attack was the Mochi governance attack where the project got banned for abusing the system with their own ingenious scheme.
We’re giving Curve an A for being an integral piece of the DeFi world.
This project is different from everything else we’ve covered so far. It’s called Synthetix and it’s a protocol that lets you trade all sorts of assets like Tesla stock, silver, the Japanese Yen, all on the blockchain. They do so by creating synthetic assets that track those different things and by using their own SNX token as collateral.
Their approach of trading against an overall “debt pool” is innovative because that’s better for liquidity than making everything have its own individual pool. Their adoption is decent during the bear market. Their generated fees and trading volume are not bad! They also have a booming ecosystem of projects building on top of their protocol. Go check out Kwenta, Lyra, and Thales just to name a few.
Now on the negative side, they’re extremely capital inefficient because in order to issue a new synthetic asset you need to reach over 500& collateralization ratio with your deposits. That’s honestly a lot to ask for and it could turn away people from using them.
Overall we’re still gonna give them an A because they are the leaders in their niche and they have a good track record too.
Next, we got a Lending & Borrowing project that did a literally 2,000X gain from a bear-market low to a subsequent bull-market high. It’s none other than Aave.
They’re growing faster than their peers. In fact, Aave is now the third largest DeFi protocol in terms of Total Value Locked and it’s the largest one under the Lending category. They’re also innovative because they launched their “Flash Loans” feature which lets you temporarily borrow assets with zero collateral. That’s gained a lot of popularity and usage in the DeFi world, so hats off to them for creating it! They also launched their V3 platform recently and plan on releasing their own stablecoin as well. They’re non-stop building.
if we were to nitpick one complaint, it would be that their Flash Loans have been used for attacks around the DeFi space but we won’t blame them too much for that.
So we’re still giving them an A rating.
Lido Finance (LDO)
One of the most powerful projects in the Ethereum world, Lido Finance is a liquid staking service. You send your ETH to their pools, they stake for you and give you their stETH token in return so you can stay liquid.
Lido is so powerful because they control a massive 30% of the staked ETH out there. They’re absolutely killing it in their own niche. They’re also super well integrated across all of DeFi. You can use their stETH token pretty much as if it were ETH itself. In addition, Lido has started to support other blockchains so that they aren’t just relying on one network.
One thing would be that they’re quite centralized. As of right now there are only 23 validator nodes that are part of the Lido system. Each new one has to be approved by them in a permissioned manner. That’s not good especially since Lido’s stake gives them immense power over the Ethereum network. Besides that, their tokenomics is quite centralized. Also their token is just a governance token, so it doesn’t accrue value that well.
Overall we still want to give them an A because they’re so critical to Ethereum and their team is working on improving their flaws
dYdX is also a DEX but they do Perpetual Futures instead of spot trading. That means you can go Long or Short on their exchange instead of just swapping one asset for another one. One special thing about them is that they’re built on a layer 2 blockchain StarkEx.
dYdX provides a smooth user experience. Their trading volume is quite substantial and that’s a surefire sign of Product-Market fit.
On the Cons side, they have made the decision to move to Cosmos which brings a lot of uncertainty. Another con is that their token is mostly a governance token and doesn’t give us that much utility for holding it. However, once they become their own Cosmos app chain they could give their token a lot more utility.
Overall we are giving them a B. It’s a solid project, but their upcoming move does bring some uncertainty.
Pancakeswap is the top DEX in the Binance Smart Chain ecosystem.
There’s a lot to like about Pancakeswap. They are fast and cheap and they have great adoption too. They even built a bunch of cool features, including a Launchpad, NFT Marketplace, and a lottery system.
Their tokenomics is pretty subpar. Their CAKE token inflation is super high and that means existing holders are getting diluted like crazy. Binance Smart Chain is quite centralized and you can kind of tell that Binance doesn’t prioritize it by how they leave bugs unfixed for months. Ultimately that limits Pancakeswap’s potential.
That’s a big reason why we’re giving them a B.
Yearn Finance (YFI)
Yearn Finance was founded by Andre Cronje, one of the most prolific DeFi developers ever. However, he jumped from project to project and he ended up quitting all of them earlier this year. Anyways his Yearn project essentially kicked off the yield farming revolution. Yearn Finance is a yield aggregator platform that made it easy for people to hunt down the highest yields. You can jump from opportunity to opportunity without having to manage your positions manually.
The ease of use was probably why Yearn Finance became so popular and it’s probably why their YFI token rocketed too. They really did a fair launch for YFI token. The developers didn’t get any, VCs didn’t get any. It was simply split between their liquidity providers and early users so which made it fairer than 99% of the projects out there.
Yearn Finance’s usage has dropped so much during the bear market. Their yields suck right now and that’s probably why their TVL fell off a cliff.
We got to give them a B. It’s okay but we don’t see a bright future now that Andre is gone.
Next up we got one of the OG DeFi projects. Compound is simple. They let you lend and borrow a bunch of different assets and the interest rates are set algorithmically based on supply and demand. That’s pretty much it. It’s so simple yet it’s a critical piece of the DeFi world.
They score well on every adoption metric. Their token incentive program pretty much kicked off DeFi summer back in 2020. They created their own new blockchain called Gateway which looks like a game changer.
There are a couple to note. One of them is that mercenary users took advantage of their liquidity mining program and that put a lot of pressure on their tokens price. Another con is that they’ve been losing a lot of ground to their competitors recently.
All things considered, we’re giving them a B.
Convex is a project whose sole purpose is to help Curve users maximize their yield. The Curve Wars were so important that we have an entire project like Convex to help people navigate that.
Their system is super flexible and affordable for users. That’s probably why Convex has grown immensely and all signs point to them winning the Curve Wars. What’s interesting is that because Convex has so much power over Curve now that some projects have started acquiring Convex tokens instead so that they can indirectly influence Curve emissions through Convex. So we essentially went from Curve Wars to Convex Wars.
One of the Cons is that Convex is extremely reliant on Curve. They will only go as far as Curve goes. So we can’t ever see Convex’s market cap going above Curve. To be fair Convex has expanded beyond Curve to support Frax, but that’s a simple yield forming place so it’s not very interesting.
That’s why we’re giving them a B. It’s a decent project but ultimately dependent on another one.
Perpetual protocol (PERP)
Perpetual protocol is an up-and-coming project that’s gunning for dYdX. Both of them offer Perpetual Futures Trading, but Perpetual protocol does it a bit differently.
Perpetual protocol uses a virtual AMM model, which means that no real assets are stored in their liquidity pools, It’s all synthetic or virtual instead. That’s actually quite the Innovative approach. Furthermore, they’re constantly launching. In late 2021. they had their first big upgrade called Curie that solved a lot of problems they were facing.
They don’t have any on-chain governance yet. And if we look at the stats, they are losing ground to their competitors such as Keep3r Network, dYdX and GMX.
At this point, we can’t give them more than a B.
So this project lets you do cross-chain swaps. You can swap Bitcoin for Ethereum on their own networks without using wrapped assets door. Rune token also plays a key role in their whole system. They have a BTC-Rune pool and an ETH-Rune pool so, if you want to go from BTC to ETH you can go through Rune in the middle.
They’re targeting an important underserved use case, which is swapping between chains in a trustless manner. Moreover, they have some cool features such as Continuous Liquidity Pools and synthetic Assets.
The biggest con would have to be how their architecture is so complex. Their protocol has over 200,000 lines of code and their behind-the-scenes workflow is super complicated as well. So it’s not surprising that they’ve faced a bunch of hacks and outages because more complexity equals more risk.
We’re giving them a C.
Augur is a permissionless prediction market project that launched way back in 2014 that lets you bet on the outcome of any event: elections, Sports, whatever.
They’re truly decentralized and immune to regulations. Augur team went as far as burning their kill-switch key so it’s literally unstoppable as long as the Ethereum network keeps running. Moreover, they have this Advanced Game Theory process to make sure that disputed results are settled properly and so far that hasn’t let them down.
No one really uses them! Augur V1 had all sorts of problems, so it makes sense that adoption was low. But even with their V2 out, it’s still struggling and competitors such as Poly Market have been doing better.
Overall we’re giving them a C.
OlympusDAO is considered DeFi 2.0. This project is really unique because they’re trying to create their own reserve currency. They’re trying to be a central bank with their own monetary policy, treasury, etc. but managed by smart contracts. Of course, their own token is the reserve currency and it’s backed by assets in their treasury. It is backed but it is not pegged to anything, so it’s not trying to be a stablecoin.
OlympusDao deserves credit for capturing the imagination of the crypto world. Back in 2021, so many people were putting (3,3) in their Twitter names and that just means that they were staking OHM and telling other people to join them. The community’s collective buy-in was how OHM was able to rock it not once but twice before coming back down now. Additionally, they were tackling one of the biggest problems in DeFi AKA mercenary capital. We’re not gonna go too deep here but just so you know that their innovative bonding system gave projects a way to control their own liquidity rather than relying on fickle users.
On the negative side, they had heavy Ponzi-nomics in their own system. At one point, the APY for staking Ohm was over 15,000 %. No joke! There’s no way to get that much without being a Ponzi and the system did eventually collapse as the price of OHM crashed 99% back down to its asset-backed value.
That’s why we got to give them a D.
Here you go the top 15 DeFi projects ranked from tier S (the best) to tier D (the worst). Now that you know the strongest Pros and Cons of each project, you can decide which ones to potentially buy during the bear market.
Let us know if we missed anything or if there’s anything you disagree with.