What Is a DeFi Aggregator?
Decentralized finance, or DeFi, is a new and exciting development of financial applications being built with blockchain technology. DeFi is part of the larger decentralization movement promoting transparency, open-access and non-custodial global financial products.
Decentralized finance is spread out across blockchains like Ethereum and Binance Smart Chain, and within each blockchain is an ecosystem of siloed financial protocols. While these individual protocols offer great returns on lending your crypto, part of the appeal of DeFi is swapping, selling and trading crypto at the best rates, which can be challenging when financial information is spread across multiple protocols.
Enter DeFi aggregators, which bring trades across decentralized exchanges (DEXs) into one place, saving users time and increasing efficiency for better trades.
Benefits of a DeFi Aggregator
An aggregator pulls the best prices from across the DeFi landscape — including DEXs, lending services and liquidity pools — into one place so that users can optimize their trades. Without using an aggregator, users have to individually visit various exchanges, compare trading prices on each exchange to get the best deal and then manually execute each transaction using smart contracts. Manually checking prices across exchanges for the best swaps does not allow for complex trading routes or mechanisms. Aggregators not only pull the best prices, but they allow users to compare and combine strategies by dragging and dropping blocks to create the best strategy.
Using Successful Strategies and Combos With an Aggregator
Unlike traditional investing, DeFi aggregators allow users to earn from more experienced traders by following the same strategies. Inexperienced users can copy complex trades without having to code it themselves.
These strategies are not linked to a person, but rather are user generated for all to view and mimic. Instead of having to execute the strategy on multiple different DEXs, users can execute the strategy on an aggregator like Furucombo using no-code combos to build the trade.
Mimicking successful strategies and using combos instead of multiple platforms to execute saves time, is more efficient and can yield more lucrative results. Using combos gives you the additional benefit to access more trades simultaneously.
How Can a DeFi Aggregator Make My DeFi Strategy Simpler and More Efficient?
DeFi aggregators identify and share successful trading strategies with their users who are then able to adopt these combos to their own DeFi trading strategy.
In addition to these successful strategies, all transactions and combinations are visible to users to allow for a truly open, collaborative and transparent trading experience.
By collecting successful strategies and allowing traders to access them on a single platform, users of DeFi aggregators can save time and action trades quicker to take advantage of the most favorable yields.
One of the most appealing benefits of a DeFi aggregator is the ability to connect users with lucrative services like flash loans without the need to write any code or customize smart contracts.
A flash loan is an uncollateralized loan where a trader borrows, exchanges and repays a debt in a single transaction using a smart contract.
This is possible with no collateral because the loan will not execute without all parties borrowing and being repaid simultaneously, alleviating the risk of a borrower defaulting on the loan.
A simple example of flash loans is performing arbitrage trades to make profit based on minor price differences between exchanges.
Without a DeFi aggregator platform, users would need to write and implement some of the code required to create the smart contract.
By allowing traders to access these DeFi without writing a single line of code and presenting many successful DeFi trading strategies in real-time, DeFi aggregators make DeFi accessible to many who would otherwise be excluded from participating.
Gas Fees and DeFi Aggregators
Gas fees are a common discussion as Ethereum reaches new all time highs. Gas fees are usually higher on aggregators, sometimes even 150% higher, than on the individual protocol itself. But aggregators have work-arounds to solve this problem.
Some aggregators have gas tokens or gas cubes built into their platforms or trades that allow users to reduce and save on gas fees — sometimes up to 50%. The consideration to keep in mind is that while gas fees may be high on an aggregator, the efficiency and optimization that comes with using one typically outweighs the high gas.
Some DeFi aggregators give users a gas fee estimate that factors in the expected return from a particular strategy to ensure that fees are transparent.
It is no secret that user experience is left out of many DeFi protocols. While many decentralized (DApps) offer promises of high yielding trades, it is often challenging for the average user to conceptualize and learn the intricacies of trading across multiple platforms and protocols. DeFi aggregators solve this problem by bringing the best trades to the user in one place.
Many people passively hold Bitcoin and other digital assets and have yet to put their coins to use. DeFi aggregators open the door for newer users to build successful strategies, without having to know the intricacies of DeFi trading and coding required for many platforms. Using aggregators gives users reassurance that they are always getting the efficient strategy for their trades.
From DEXs to liquidity mining protocols and everything else in between, aggregators are essential for centralizing your DeFi activity. While our financial world becomes decentralized, the desire for user-friendly applications positions aggregators as a crucial and important tool in this new financial landscape.