DeFi Assets

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DeFi assets are tokens that can be used on DeFi protocols. They provide users with a trustless and seamless mechanism for representing or exchanging value on decentralized blockchain networks.

What Is A Crypto Asset?

A crypto asset is a digital asset which uses cryptography, peer-to-peer networking, and a public ledger to regulate the creation of new units, verify transactions, and secure the transactions without the intervention of any middleman.[1] Crypto asset is an umbrella term used to describe a wide range of digital currencies. Stablecoins, non-fungible tokens, cryptocurrencies, and DeFi assets are some categories of crypto asset types. The classification system can be broken down into additional categories and sub-categories. Some overlap exists, thus crypto assets can sometimes belong to multiple categories.[2]

Types of DeFi Assets

DeFi assets generally fall under two sub-categories as defined by DeFi Rate.

DeFi Tokens – tokens used in an underlying product or service. The value of these tokens is largely tied to the success of the protocol.
Token Flavors – tokens which users create by supplying crypto assets to a DeFi protocol. The value of these tokens is largely based on dynamic rates and user holding/staking.[3]

Examples of DeFi Tokens

Maker (MKR) and Multi-collateral DAI (DAI) are used on the MakerDAO Oasis Borrow platform. DAI is a stablecoin minted for loan generation. To keep DAI hovering around $1.00 and avoid price fluctuations, MKR is created and destroyed.

Synthetix Network Token (SNX) is the native token of Synthetix.Exchange. SNX can be locked in a smart contract that enables the issuance of synthetic assets. Users on Synthetix.Exchange trade Synths—tokens that provide exposure to assets such as gold, Bitcoin, U.S. Dollars, TESLA, and AAPL within the Ethereum blockchain. SNX holders are incentivized to stake their tokens as they are paid a pro-rata portion of the fees generated through trading activity on Synthetix.Exchange.[4]

Kyber Network Crystal (KNC) is the native token of Kyber Network — an on-chain liquidity protocol. KNC has three main use cases. Third party token reserves are required to purchase KNC to pay for their operation on the network. DApps and businesses earn commission in KNC for every transaction they facilitate on the network. In each transaction, a portion of the collected KNC fees are taken out of circulation forever via the network’s token burning mechanism.[5]

Examples of Token Flavors

Wrapped Bitcoin (WBTC)[ is the first ERC-20 token backed 1:1 with Bitcoin. WBTC enables the value of Bitcoin (BTC) to be represented on the Ethereum blockchain. The purpose of WBTC is to enable quasi-support for Bitcoin in DeFi applications. The number of blockchain applications for BTC has historically been limited due to the fact that the Bitcoin blockchain does not support smart contracts. For example, Bitcoin trading is limited to only centralized cryptocurrency exchanges (CEXs) and not available on decentralized exchanges (DEXs). WBTC enables the creation of Ethereum-based smart contracts that can be used for DeFi applications such as decentralized exchanges (DEXs), wallets, payment apps, and other applications.

cTokens are a set of tokens minted when users supply crypto assets to Compound—a decentralized lending/borrowing protocol. The value of these tokens is attached to existing crypto assets. cTokens currently available include cUSDC, cBAT, cDAI, cETH, cREP, cSAI, cUSDC, cWBTC, and cZRX. Compound users can convert a crypto asset like USDC to cUSDC, and vice versa.These tokens can be used to borrow crypto assets on the Compound protocol. They also support interest accumulation based on Compound’s rates. Users can earn interest simply by holding cTokens in their crypto asset wallets.

Advantages of Using DeFi Assets

Non-custodial Ownership — DeFi assets are designed to be supported by non-custodial crypto asset wallets. Traditionally, assets required a bank, credit union, or other third party for secure storage. DeFi assets enable users to maintain 100% control of their funds at all times, even when interacting with DeFi protocols.

Support For DeFi Applications — DeFi assets can be used for a variety of purposes on DeFi applications that offer improved user experiences over traditional financial products and services. DeFi assets can be used to access decentralized prediction markets, insurance protocols, asset exchanges, and many other applications.

Value Representation — DeFi assets allow blockchains to represent the value of assets that are not native to blockchains. For instance, DAI can be used to represent the value of $1.00 USD. DGX can be used to represent the value of one gram of gold. Various Synthetix tokens represent stock indexes, commodities, fiat currencies, and other assets. Because DeFi assets are traded on blockchains, settlement is much faster and cheaper compared to traditional financial platforms.

References

1. https://medium.com/babb/what-is-a-crypto-asset-1f0fcc517887
2. https://qz.com/1335481/cryptocurrency-is-just-one-of-seven-types-of-cryptoassets-you-should-know/
3. https://defirate.com/assets/
4. https://www.synthetix.io/uploads/synthetix_litepaper.pdf
5. https://kyber.network/about/knc