Even in 2022, more than 13 years later Bitcoin First released in January 2009, cryptocurrencies are still mostly characterized by speculation, with market participants trying to time price swings in hopes of making a quick profit. But for true devotees and supporters of the asset class, the belief is that cryptocurrencies and blockchain technology can fundamentally disrupt certain industries.
One of the most promising use cases for cryptocurrencies concerns its potential to disrupt traditional financial services, an industry plagued by excessive risk-taking, misaligned incentives and fee-charging intermediaries. In a similar vein, the top three cryptos to consider are Ethereum (ETH -5.73%), Solana (FLOOR -3.93%)and Aave (AAVE -3.05%).
RJ Fulton (Etherum): Lending platforms like Aave, Maker, Compoundand Curve have become viable options for those who need traditional financial products like borrowing or lending, but prefer to take advantage of the benefits offered by crypto such as anonymity, security, and decentralization. These protocols have minor differences, but they all have the same goal: to provide a blockchain-based alternative to traditional finance, better known as decentralized finance (DeFi). Another important feature they have in common is that they are all built on the Ethereum blockchain.
Ethereum’s rise to second place among the most valuable cryptocurrencies is mainly due to the fact that it was the first blockchain to introduce programmable smart contracts. With smart contracts, developers can then create things like stablecoins, decentralized exchanges, and more specifically, lending protocols.
It might be helpful to consider Ethereum as the underlying software on which these DeFi applications are built. Smart contracts are used to automate almost any task that would typically be handled by someone in a traditional financial institution.
Since smart contracts can be customized and programmed to perform particular tasks, they can be designed to do things like ensure there is always a sufficient fund balance to maintain liquidity, pay users when needed , or even set terms for things like interest rates and loans. durations.
Since the inception of Ethereum, the number of blockchains based on smart contracts has increased significantly. New blockchains compatible with smart contracts like Solana, gimbaland avalanche are all struggling to position themselves in the DeFi economy. Despite worthwhile efforts, these competitors have been unable to dethrone Ethereum as the blockchain of choice for DeFi.
Ethereum’s stranglehold on DeFi is no small feat. We can look at a statistic called Total Locked Value (TVL) to compare the collective value of a blockchain’s DeFi ecosystem. If you need to assimilate traditional financial terms, think of it as a company’s market capitalization. Of the $68 billion in all of DeFi, nearly $39 billion is on the Ethereum blockchain. Of that $39 billion, the Aave, Maker, Compound, and Curve loan protocols represent a combined amount of just under $23 billion.
Simply put, without Ethereum there is no DeFi. For this reason, investors looking to find the cryptocurrency that could shake up today’s traditional financial institutions the most don’t need to complicate their search too much. Investors need look no further than the cryptocurrency that is responsible for enabling the creation of DeFi in the first place.
Neil Patel (Solana): Solana operates a proof of stake consensus mechanism, which means token owners can lock in their holdings, earn yield, and help validate transactions on the network. However, Solana also incorporates something called proof-of-history, which allows computers to agree on time without having to communicate with each other, freeing up block space and speeding up transaction throughput. This innovation is why Solana has the capacity to process 50,000 transactions per second, far more than Ethereum’s 13.
Naturally, the incredible theoretical speed of Solana’s network makes it a possible threat to a very important industry not only in the financial services sector, but also in the economy in general, namely the payments space. Companies like Visa, MasterCard, PayPaland To blockwith a handset market capitalization of $960 billion at the time of this writing, immediately come to mind as the dominating players in payments. But the introduction of new products by Solana should keep these large incumbents on their toes.
In February, Solana Labs, the organization leading the advancement and development of blockchain, launched Pay Solana. Solana Pay essentially enables a direct transaction connection between merchant and consumer, using SOL or a stablecoin like USD coin, with a QR code and no middleman in between. This not only creates near-fee-free transactions, which low-margin retailers would really appreciate, but also instant settlement and the adoption of feature-rich loyalty programs. On that last point, since transactions take place on the blockchain, Solana Pay merchants could incorporate non-fungible tokens into the sale of goods, allowing them to drive deeper engagement and excitement from consumers. consumers.
Less than two months after its launch, adoption of Solana Pay has totaled over 600 merchants. Investors definitely need to keep an eye out for further progress.
Michael Byrne (Aave): While Solana and Ethereum are well positioned to disrupt peer-to-peer payments and a host of other industries, Aave, a $1.5 billion cryptocurrency built on Ethereum, is specifically focused on disrupting the lending industry. Aave is a decentralized lending protocol that allows users to borrow and lend cryptos without the need for a central intermediary. Aave users can lend or borrow major cryptocurrencies like Ethereum or stablecoins like Attached and USD coins.
Rather than having to find a counterparty to partner with for a loan, Aave facilitates this process by creating pools of capital (called liquidity pools) into which users can deposit or withdraw. Aave users who lend their crypto to the platform earn a return, while borrowers provide collateral and pay interest for the assets they borrow. A key benefit for depositors is that they can earn passive income on their assets that is far greater than putting money into a traditional savings account or certificates of deposit, while the ability to get Instant cash without going through a lot of red tape and paperwork appeals to borrowers.
Additionally, someone who has a lot of Ethereum, for example, and needs access to capital for an unexpected expense but doesn’t want to sell their Ethereum, can pledge it as collateral and borrow without having to close his position. Aave was initially limited to Ethereum and ERC-20 tokens, but now has marketplaces for other major cryptos like Avalanche and Phantom. There is currently $12 billion in capital locked in these liquidity pools on Aave, making it a robust market.
Perhaps most interestingly, users can even lend or borrow tokenized versions of real-world assets such as real estate, emerging market consumer loans, and even freight bills. and freight forwarding. We’re still a long way from Aave’s usurpation of traditional banks, but it certainly has the building blocks in place to one day become a viable competitor.