A tale of 3 chains.
As more and more new investors flock to crypto, it is only a matter of time before they move into DeFi. Bitcoin is great, for its own specific use case, but it is not able to replace the financial system and it is unable to hold random Gif’s worth millions of dollars .
DeFi is a revolution few understand. In our generation not many people have grasped the extent to which we are disadvantaged by the traditional financial system and to make matters worse, it isn’t really providing us with a useful service. DeFi is literally an alternative to this service. You want to save money in an interest bearing account? With tradition banks you will be hard pressed to find anything providing you with over 1% interest. At the current time of writing Aave is giving between 3–15% on USD stable coins.
DeFi has been able to replace different players in the financial world including:
— Centralised exchanges.
— Banks.
— Investment strategies.
— Launchpads for investors.
— NFT’s.
I will go through a few comparing points between the three and you can decide which you want to use. ( I use all 3! ):
- The Blockchains.
- Use cases.
- Decentralisation.
- Speed.
- Costs to use.
- Projects
The blockchains
Ethereum
The undisputed king of DeFi (At the moment) is Ethereum. It is the safest, most trusted and most decentralised blockchain in the DeFi world.
Binance smart chain
As stated in the name Binance smart chain was created by Binance and hosts it own Ethereum blockchain. Do not be fooled by the name it is still a decentralised exchange, but not as trusted as Ethereum.
Solana
A relatively new player in the space, which is gaining a lot of traction. Not only because of its close association with Alameda research, but also because of its speed and scaleability. Since it is much newer to the DeFi world not many people have made the jump to try it so far.
Use cases
Lending /borrowing.
These protocols provide the essential part of any banking system. You can deposit your funds into the protocol. Based on how much you have deposited (Collateral) you have the ability to borrow a currency if you choose to. Careful though, if your collateral becomes worth less compared to your borrows asset, you may be liquidated and you funds gone.
Some people simply use this as a savings account and do not borrow anything.
Investment strategies
Another way to make the most of your funds is to simply deposit them into a predetermined investment strategy. Some strategies are simple and others complex, some with more risk.
There are also indexes created inside the ecosystem, you can enter these as easily as purchasing a coin. Or you can customise your own strategies and tailor to your own risks.
Insurance
Of course no financial system is complete without insurance. With this ecosystem still in its infancy there are always risks involved with trusting a contract or the developers behind it. There have been different exploits happen in Ethereum and Binance. And Solana is no less at risk to this than the others.
Liquidity providing (LP)
The ability to trade different coins is only made possible with this innovation.
When you go to the airport and exchange one currency to the other. The exchange needs to have the cash for both currencies available. In normal exchanges this is done by Market makers.
In Defi, everyone can be the market maker. You can provide your USDC and ETH as a liquidity pair and earn the fees generated while doing this. There are some risks involved with impermanent loss. But work in going into removing these negative effects.
Yield farming
The battle for liquidity has come up with some very unique ways to incentivise users to provide their coins to a specific protocol. Some provide the user with extra tokens when they stake their LP’s. These token can have different uses such as governance over the protocol and earnings from the protocol given when staked.
Synthetic assets.
These can be anything from stocks to stable coins. Synthetic assets are bridging the gap for traditional investors to come to defi. This works similar to the borrow lending protocol except you create synthetics based to a peg against the original asset. (EG: You can create a token to represent the Tesla stock price ). In reality it much more complicated than that but you see the idea behind these.
Launchpads.
In the traditional world, venture capitalists often are the ones to invest in newer projects. In the decentralised world everyone can do this. But the space to enter these are getting crowded, so you need to be reactive.
NFT’s
In short a digital art which can be stored and has value. Think of it as a collectable football card. There are other uses for this tech, but thats a whole different subject.
Decentralisation
#1 Ethereum
Ethereum is by far the most decentralised blockchain of the three. It has been around the longest, its adoption has been going on for longer and it is the Original DeFi blockchain.
#2 Solana
At the moment it is not as decentralised as Ethereum. But Solana is a relatively new blockchain with little adoption so far. They have a goal of 500 validators and the requirements to become one are pretty high.
#3 Binance smart chain
By far the lowest amount of nodes running out of the blockchains. But it has its perks, it has been overtaking Ethereum in usage from the average user because of the way it has modified the gas fees for the network.
Speed
#1 Solana
By far the winner, without any optimisation or Layer 2 it is out performing the other blockchains. Transactions are almost instant.
#2 Binance smart chain and Ethereum
Both blockchains are using the same technology which is limited in its scalability. Transactions can take seconds to hours at a time.
Cost to use
#1 Solana
The cost of using the network is almost 0. It costs less than $0.00001 for a transaction to happen. The network scales based on the amount of nodes used, so it is already future proof.
#2 Binance smart chain
Since it has modified the usage of gas fees. Binance has a standard $0.10 transaction cost. The chain has control of this so it may change in the future.
#3 Ethereum
For now it is #3 with costs going from $5 to $200, but this may change in the future. Already there are some major updates on the way with Layer 2 already out now. Even though layer 2 has its limitations, a lot of work is going towards improving the user experience between layer 1 and layer 2. Ethereum 2.0 is also set to be released in the near future, adding to the scalability of Ethereum.
Projects!
#1 Ethereum
As it was the first and has the most users. Ethereum is by far the winner. There are 100’s if not more projects going on in Ethereum at the moment. The main DeFi projects going on are:
- Uniswap/ Sushiswap. (LP / farming)
- Aave / Compound / Maker. (Borrow lending)
- Trustswap / Duckdao. (Launchpads)
- Yearn /Harvest / Pickle. (Investment strats)
- Layer 2 projects are also starting to popup.
- And so many more…
#2 Binance smart chain
For the moment it is #2 but it is getting more and more projects migrating to it for the lower gas fees and easy transition ( As you can pretty much copy paste the contracts over from Ethereum )
- Pancakeswap (LP / farming / Launchpads)
- Goosedefi / Viking / Taco (Investment strats)
- Creamdotfinance (Borrow lending)
- and more.
#3 Solana
A close #3 behind BSC. Binance has generate a lot of copycat projects from Ethereum. Just look at the story behind Pancakeswap. This is not to say that the projects in Solana are unique. Many of the functionalities found in Ethereum are available in all three chains.
- Project Serum (LP)
- Bonfida (Swap / launchpad, investment strat)
- Raydium (Swap / LP / yield farming)
- Oxygen (Borrow / lend )
- MAPS (Bridging the gap of Defi to general user)
- Mango markets (investing with leverage / borrow/ lend)
- And more added each week.
Final thoughts
Ethereum is great and will probably not disappear. But its scalability will always be a hindering factor. Gas prices will always be a whole degree above Solana. The speed of Ethereum will be also be a blocking point for the use cases it can deliver. L2’s bring a new work around, but it seems to bypass the real issue at hand. Ethereum 2.0 promises to solve most of this, only time will tell.
Binance smart chain is for me not really decentralised. Just look at its name and you know who runs the show. Its user interface and naming has made a gamification of finance which can be fun, but i do not think it will be taken as seriously as the others.
Solana main issue is that it’s new. Not that many projects are running at the moment. And there is a debate on how decentralised a blockchain needs to be. But this is changing everyday. There are more and more projects coming. Raydium is going to work with sushi bringing more visibility to the chain. Oxygen, maps and synthify are on the table. And new projects are coming along each week.
So, if you wanted my opinion.
Solana > Ethereum > BSC
This is not financial advise, everyone must do their own research to understand what they are doing.
