Blockchain technology is slowly gaining prominence as a future internet ecosystem. This has been the case since the last decade, when the first cryptocurrencies were minted. Since then, multiple blockchain-based applications, especially based on cryptocurrencies, have been developed, and most of them are working successfully to date. Meanwhile, in recent years, new blockchain-based applications such as non-fungible tokens (NFTs) and applications based on the concept of decentralized finance (DeFi) have been operational and would replace the traditional financial system in the future. .
Decentralized finance (DeFi) is the concept that aims to make true peer-to-peer (P2P) transactions possible without the need for a controlling institution to govern individual transactions. Currently, most DeFi platforms are focused on crypto exchanges, with an increasing number of banking and fundraising platforms popping up. Additionally, DeFi tokens are a great way to facilitate financial operations as they are supported by leading blockchains such as Ethereum, Binance Smart Chain (BSC), and Polygon.
In this blog, we will see more about various DeFi tokens and the things that matter when developing such tokens on major blockchain networks.
A brief briefing on DeFi tokens
Decentralized finance tokens or DeFi tokens, as they are commonly known, are blockchain-based decentralized applications that use smart contracts. They aim to eliminate the need for a third party when it comes to cryptocurrency banking. Some popular DeFi tokens include Uniswap (UNI), SushiSwap (SUSHI), PancakeSwap (CAKE), and Avalanche (AVAX).
Types of DeFi tokens
- Utility Tokens – Utility-based crypto tokens are created to raise capital in exchange for service as a utility. These tokens make it easier to create and launch your business with the ability to raise funds. Utility tokens are also considered by investors as speculative assets because they can invest in the best business project and earn profits when the results are greater.
- Governance tokens – Governance tokens provide special rights to token holders on the platform, including participation in decision-making voting and support for updating the portal to keep up with the current flow. These tokens also provide their holders with exclusive benefits such as reduced transaction fees, reduced conversion fees, and access to other utility benefits.
- Equity Tokens – Equity-based crypto tokens work like shares are the company’s assets or properties or derive value from company performance over time and context. Token holders can receive a percentage of the company’s profits or get to vote on governance decisions.
- Security tokens – Security tokens are the digital version of bonds representing physical assets. These tokens serve as a link between traditional and decentralized financial systems by allowing physical assets to be defined as digital tokens. Security tokens also allow an investor to invest fractionally in any asset they find promising, regardless of the scale.
Developing DeFi tokens on Ethereum
- Ethereum is one of the earliest blockchains, which is the basis for most blockchain-based applications and transactions. This includes most decentralized financial applications that use smart contracts based on ERC-20 tokens.
- ERC-20 DeFi tokens are convertible, meaning they can be exchanged for each other, which is an important need for any financial operation.
- These DeFi tokens can easily integrate various utilities according to your needs.
- In addition to seamlessly using smart contracts, these tokens also make transactions simple and secure.
- DeFi tokens using the ERC-20 standard running on the Ethereum blockchain are known for their smooth and consistent operation on various decentralized applications (Dapps), including those working on financial operations.
Developing DeFi Tokens on Binance Smart Chain (BSC)
- Binance Smart Chain (BSC) is a blockchain that offers more interoperability and offers the best features of both networks.
- DeFi tokens developed using BSC enable high levels of interoperability such that they are even compatible with the Ethereum Virtual Machine (EVM).
- These DeFi tokens achieve scalability, which means transactions are processed at higher speeds while latency becomes very low.
- When latency is low, ultimately these tokens only have one transaction or lower gas fees.
- These DeFi tokens operate on the BEP-20 standard, so they have access to greater liquidity and a wide range of utilities.
Develop DeFi tokens on Polygon
- Previously known as Matic Network, Polygon is Ethereum’s layer 2 protocol that aims to turn Ethereum into a blockchain ecosystem like Polkadot and Cosmos. DeFi tokens developed on Polygon use the ERC-20 standard similar to Ethereum.
- Due to these ties to Ethereum, Polygon has grown in popularity and many top players in the DeFi industry have already deployed their platforms on the chain.
- Polygon’s scalability advantage is reflected here again, as blockchain-based DeFi tokens can be transacted faster while only incurring lower gas fees.
- Additionally, as Polygon developers planned to expand their system to other major blockchain networks such as Avalanche, Solana, and Cosmos, these tokens would gain prominence across chains. Therefore, the support base would widen.
As a final note
Although there are more blockchains that have the ability to leverage decentralized finance tokens, the above blockchain networks scored more by being the popular and overall usage proportion for applications based on DeFi. Decentralized finance applications based on cryptocurrencies are slowly gaining prominence at different scales. It wouldn’t be very long before we would see more traditional financial institutions jump on the bandwagon to attract people who don’t believe in it.