Decentralized Finance (DeFi) projects began gaining momentum in just the last few years. In late 2018, fifteen Ethereum-based projects united as a network to build an open, decentralized and independent financial system (a decentralized finance system). The network included well known projects such as Compound, Kyber Network Protocol, MakerDAO, Origin Protocol, and Paradigm. Collectively the group set up some guidelines for DeFi members to adhere to. Primarily, the project has to build a service (or build on an existing service) using a decentralized blockchain within the finance sector. Members also agreed to core principles of DeFi of transparency, access, inclusiveness and common standards and the goal to increase interoperability. In just over a year a wide variety of projects are now included in this network, including exchanges, analytics, derivatives, insurance, user verification protocols, wallets, prediction markets, liquidity protocols, payments, staking, lending, and stable coins.

A summary of the various Decentralized Finance project areas are listed with the projects they support.

DeFi project lists from defiprime.com

Best in Class DeFi Cryptocurrencies

Based on the reach and scope of the existing projects to date the Best in DeFI class cryptocurrencies worth holding in your portfolio for the longer term include a shortlist:

ETH (the clear front runner for the majority of all DeFi project area categories)

BTC (Lightning Network, fiat on-ramps, lending, DEX)

MAKER Dao (projects for derivatives and stable coin usage)

Synthetix (derivatives)

0x Protocol (projects for analytics and infrastructure protocols)

EOS (asset management projects, DEX, use as stable coin)

Chainlink (and other interoperability tokens such as Blocknet)

Tezos (XTZ) (staking)

Stellar (XLM) (projects for lending, tokenization and stablecoin use)

There are likely to be many DeFi "gems" which are difficult to assess at this point in time and many new projects that will appear over the next few years that will be worth buying.

Conclusions

DeFi is a fast developing area with numerous projects. The development of a digital financial system is still in the very beginning stages. It will likely take several more years before the sector and the main project leaders mature. The main stream uptake of digital financing will act as a catalyst for the sector. While risky, the upside is that you are buying to a burgeoning sector and buying the early front runners of DeFi. It means that there are amazing opportunities as the sector will grow by orders of magnitude over the next few years to reach maturity.

The addition of security protocols, regulatory integration, regulatory approval where fiat and real world assets are tokenized, scalability, and increased liquidity are needed before more users will enter the DeFi space. Resolving these issues is just a matter of time as this new digital financial system is rapidly being built. In my opinion buying any of the main cryptocurrencies that are involved in the DeFi space (outside of Bitcoin and Ethereum) is risky but those that survive and thrive will see investments do exceptionally well over the longer term.

Disclaimer: My choices and reasoning for picking DeFi cryptocurrencies are not to be considered as investment advice.