Beyond Ethereum: Why DeFi on Alternate Chains Is Flourishing
Crypto Basics

Beyond Ethereum: Why DeFi on Alternate Chains Is Flourishing

4 months ago

Between 2015 and early 2020, the decentralized finance (DeFi) landscape consisted of a single dominant entity — Ethereum.

Beyond Ethereum: Why DeFi on Alternate Chains Is Flourishing

Inhaltsverzeichnis

As the first smart contract platform, Ethereum saw its popularity skyrocket in recent years, as developers leveraged its technology to build increasingly powerful and useful decentralized applications (DApps). This led to the advent of some of today’s most popular DeFi tools/platforms, including Uniswap, Compound, Yearn Finance, Curve, Synthetix, and more.

Indeed, the vast majority of trailblazing DeFi platforms were forged on Ethereum, before either migrating to other chains or being essentially cloned by a variety of cross-chain competitors. Nonetheless, despite being used as the proving grounds for DeFi, Ethereum is beginning to see its dominance dwindle, falling from ~84% in March 2021 to ~55% in March 2022 as other platforms see rapid growth in their DeFi ecosystems.

This is largely due to the usability advantages many of these platforms currently have over Ethereum, since essentially all other major smart contract platforms edge Ethereum in terms of speed and transaction costs — reducing friction for end-users and developers.

Here, we take a look at the broader cross-chain landscape and examine some of the features that have helped some of Ethereum’s biggest rivals gain market share over the last year.

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BNB Chain

Arguably the first real competitor to Ethereum, BNB Chain (formerly Binance Smart Chain) saw dramatic growth in its ecosystem almost immediately following its launch. Given that the platform features an Ethereum-like development environment, EVM compatibility, low transaction fees, and fast transaction finality, it became a hotbed for DeFi developments and saw its TVL explode rapidly.

At its height, BNB Chain had a DeFi TVL of more than $30 billion, but this has recently dwindled to just over $11 billion owed to increased competition. Nonetheless, BNB Chain still has an extremely active developer landscape, and some of its most popular applications count among today’s best-known DeFi apps, including:

  • PancakeSwap: By far the most popular DEX on BNB Chain, PancakeSwap offers a huge variety of features, and is constantly innovating and releasing new ones. The platform now supports simple swaps, limit orders, and perpetual futures for a wide variety of trading pairs. It now boasts a whopping 3.1 million active users and has a TVL of ~$4 billion (accounting for more than a third of BNB Chain's DeFi TVL).
  • Venus: Venus is a popular platform used for lending and borrowing BNB Chain-based assets through a powerful decentralized protocol. The platform allows users to earn a passive yield on their deposits by supplying liquidity to its supply markets. Since it launched its main network in November 2020, Venus Protocol has gone from strength to strength and is now the most popular money market on BNB Chain — with a TVL of more than $1.5 billion.
  • Alpaca Finance: Alpaca is a capable decentralized lending protocol on BNB Chain and allows users to earn a passive yield on their deposits. It also features a powerful yield farm platform that allows users to leverage up their LP tokens to maximize their yields, as well as a yield-bearing stablecoin solution known as AUSD — which is automatically used to generate a reasonable yield.
BNB Chain is also home to a wide array of popular play-to-earn projects including MOBOX, CryptoBlades, and Mines of Dalarnia. More to that, it is by far the most popular blockchain for meme coins, owing to its low fees and fervent community.

Avalanche

Another modern EVM-compatible blockchain, Avalanche launched back in September 2020, but then saw relatively muted growth until August 2021 — at which point its DeFi TVL began to skyrocket.
The platform separates itself from older smart contract platforms through its low-cost, eco-friendly transactions. The platform currently claims to offer the fastest smart contracts (as measured by time to finality) and benefits from an environmentally-friendly DAG-optimized Byzantine fault-tolerant consensus mechanism.

Unlike other single-layer blockchains, Avalanche leverages a three-chain architecture to offer its unique blend of speed, performance, and usability. This includes the Exchange (X) Chain which is used to create and exchange assets, the Platform (P) Chain used for coordinating validators, and the Contract (C) Chain used for hosting and executing EVM smart contracts. Most users, however, will primarily interact with the Avalanche C-Chain.

Some of the most popular DApps in the platform include:

  • TraderJoe: By far the most popular Avalanche-native DEX, TraderJoe is an automated market maker that supports trustless swaps for hundreds of Avalanche-based assets. But more than this, it also features an entire hub of DeFi features and products. This includes a yield farm used to earn yields on LP tokens, a launchpad platform for new Avalanche projects, an open lending solution, and a multi-asset staking dashboard. The platform regularly notches up $100 million+ in daily trading volume and has a TVL of $632 million — equivalent to ~9.1% Avalanche DeFi dominance.
  • Step App: Avalanche is also home to one of the most promising contenders in the rapidly growing move-to-earn space. Launched in April 2022, Step App allows users to earn rewards by being active such as by working out, running, or swimming, with the dedicated app tracking activity to determine rewards. But more than this, it’s also a new protocol for FitFi products and provides an SDK to help other projects leverage its technology to build apps within the Step Metaverse — using its geo-location, NFT minting, and token mechanic features to build new products. With over 140,000 users already registered to begin using the app, Step App looks set to become by far the most populated app on Avalanche in terms of unique users.
Like most popular smart contract platforms, Avalanche also has its own growth program — known as Multiverse. This includes up to $290 million in funding to help create new application-specific subnets (similar to blockchain sidechains), helping to further expand the Avalanche ecosystem.

Solana

Often dubbed the “Ethereum killer”, Solana was widely considered to be one of the most technically advanced blockchains when its mainnet beta launched in February 2020.

Capable of supporting around 65,000 transactions per second (TPS) and with average transaction costs under $0.001, Solana remains one of the most efficient blockchains. It is also one of the most decentralized, with over 1,600 validator nodes contributing to its operation.

Despite its impressive performance, Solana has seen its growth somewhat stunted since the platform has had to restart its network several times — after suffering multiple denial-of-service (DDoS) attacks. This has arguably caused it to lose ground to some of its competitors.
The platform features a completely original blockchain architecture that includes a unique protocol known as Proof of History (PoH) which it combines with Proof of Stake (PoS) consensus to set a universal cryptographically secured source of time on the network and facilitate its impressive throughput.

Nonetheless, Solana has seen a Cambrian explosion in its DeFi landscape in recent months, including a number of novel protocols that are not found on competing blockchains. Indeed, given its custom architecture and lack of EVM compatibility, many of its DApps are completely unique and specific to Solana.

Some of the most prominent include:

  • STEPN: Arguably the first real breakout application for the Solana ecosystem, STEPN is a massively popular health and lifestyle platform and ecosystem that pioneered the move-to-earn niche. The platform allows users to earn rewards in the form of Green Satoshi Tokens (GST) by staking ‘SNEAK’ NFTs and engaging in physical activity. The platform's governance token (GMT) is currently the largest non-stablecoin asset on the Solana blockchain by market capitalization.
  • Symbiosis: One of the most powerful DeFi applications on any blockchain, Symbiosis is a highly capable multi-chain liquidity aggregator for decentralized exchanges. The platform allows users to swap any token across a large variety of both EVM and non-EVM chains and is one of the few aggregators to support the Solana blockchain. Symbiosis also features a cross-chain farming feature, which rewards users in the form of SIS tokens when providing liquidity across one or more Symbiosis pools.
  • Fringe: Fringe is a Solana-centric lending protocol that allows users to contribute their assets to decentralized lending pools to earn a passive yield. As an open lending protocol, users can take out collateralized loans in a trustless manner by depositing their assets to the protocol. The platform also features a unique USD-pegged stablecoin solution known as USB, which users can easily mint by depositing collateral, allowing them to extract liquidity from their idle assets.

With just shy of $5 billion locked up in its DeFi protocols, Solana is currently the fifth most popular DeFi platform by TVL. However, its popular grant program and recently expanded VC presence in the ecosystem, combined with the fact it’s still a beta release, indicates it might have significant untapped potential.

Terra

Terra has seen arguably the most dramatic uptick in its share of DeFi TVL across all locked chains, with this figure increasing from less than 0.5% a year ago to almost 15% as of May 2022.

Built for algorithmic stablecoins and decentralized financial applications, the Terra blockchain provides an incredibly efficient and accessible array of novel applications — many of which don’t have an analog on competing chains. That said, its ecosystem is still relatively small, and the platform requires a dedicated wallet to interact with since it’s not EVM-compatible.

Built on the Cosmos SDK and leveraging Tendermint consensus, Terra is one of the most efficient blockchains in operation and is one of the few that is directly governed by the community through a proposal and voting system controlled by its governance token LUNA stakers.

In total, there are now more than 100 applications developed for the Terra platform, including DeFi, NFT, and Web3 projects. Some of the most popular include:

  • Anchor Protocol: By far the most popular DApp on Terra — accounting for more than half of Terra’s DeFi TVL. The platform provides a simple savings account that allows users to earn up to 18% APY on their TerraUSD (UST) deposits. This is derived from loans, which see users lock up their assets to take out a loan up to a fixed maximum LTV, and risk potential liquidation if their collateral falls below the minimum margin. The platform has gained popularity due to its high yields and the rewards it provides to borrowers (in the form of ANC tokens).
  • Lido: A popular liquidity staking solution for Terra, Lido allows users to maximize the utility of their staked assets. Through Lido, users can increase the yields earned on their staked LUNA, growing this to around 7.1% APY thanks to its compounding, as opposed to ~6% when staking LUNA natively. The platform also supports staked assets on various other chains, where it works to improve yields.
  • Astroport: The recently launched Astroport platform is a decentralized exchange and marketplace built on the Terra blockchain. It supports two different liquidity pool types: constant product (from Uniswap) and StableSwap (from Curve) allowing it to maximize liquidity and minimize slippage for both volatile and non-volatile digital assets. As an AMM, anybody can contribute liquidity to the platform and earn a share of its fee revenue. The platform is currently the fourth-largest DeFi protocol on Terra by TVL.
Several other platforms have recently gained prominence on the Terra blockchain. These include the DEX aggregator and launchpad known as Terraformer, which recently released an aggregator feature for Terra-based NFTs. As well as Mirror Protocol, which allows users to mint and trade tokenized shares and derivatives.

Zilliqa

One of 2017's most hyped blockchain platforms, Zilliqa got off to a relatively slow start but has seen a dramatic shift in momentum as its DApp ecosystem recently started to expand quickly.

As a low-cost and highly scalable blockchain that leverages sharding technology, Zilliqa is widely thought of as one of the most efficient blockchains currently operating — and also one of the most decentralized in terms of node distribution with a total of 2,400 nodes in operation.

According to the official Zilliqa statistics page, there are now more than 120,000 smart contracts active on the platform, of which close to 8,000 are used each day. Moreover, the platform now hosts a total of 60 tokenized assets (ZRC2). A growing number of these smart contracts and assets are associated with DApps, and the platform now has more than $320 million locked up in its growing DeFi ecosystem.

Part of this explosion in growth can be attributed to the range of funding opportunities developers are able to tap. This includes venture funding from its investment arm Zilliqa capital, grants from its $10 million Creator Fund, and acceleration/incubation/funding from ZILHive.

The platform now has a range of prominent DApps, including:

  • ZilSwap: Currently by far the most popular DEX on Zilliqa, ZILSwap allows users to trade ZIL and a wide variety of ZRC2 assets in a completely trustless and decentralized manner. As an AMM-type DEX, anybody can become a liquidity provider by contributing their assets to ZilSwap liquidity pools — earning yields in return. It also has an NFT marketplace known as ARKY, where users can trade Zilliqa-based NFTs for a 2% platform fee. The platform currently has $17 million in TVL and clocks in ~$2 million/day in trading volume.
  • XCAD Network: Arguably fueling a good chunk of the recent attention Zilliqa has received lately, XCAD Network is a platform that allows YouTube (and soon Twitch) content creators to more effectively engage with their audience and monetize their content through a novel Watch & Earn ecosystem. The platform allows users to create and sell their own range of creator tokens and helps fans earn an additional source of income by providing reward points when they watch and engage with their favorite creators. XCAD Network is currently one of the most feature-complete DApps built on Zilliqa, and the XCAD token is available as a ZRC2 asset.
Though Zilliqa’s ecosystem is still in its early stages of growth, the platform's recently shared roadmap indicates it will soon introduce EVM compatibility — bringing it in line with platforms like BNB Chain, Avalanche, and Polygon. This could help its ecosystem expand by making migrating to and deploying on the platform a simpler task for developers.

Polkadot

Arguably one of the most promising blockchain platforms in recent years, Polkadot is designed to act as a “layer-0” for the cross-chain landscape — laying down the framework for inter-blockchain communication and asset transfers.

Built on Parity’s substrate platform, Polkadot benefits from a central Relay chain that acts as its security and consensus hub. The platform features a unique block production mechanism known as BABE, which is combined with a finality mechanism known as GRANDPA. This is combined with Nominated Proof-of-Stake for validator selection to produce a blockchain that can achieve transaction finality in just seconds while remaining environmentally friendly and resisting attacks.

Since any sovereign blockchain can interoperate with Polkadot by either joining as a parachain or connecting through a bridge, it is widely considered to be a promising way to eliminate competition between individual chains, aggregate liquidity across platforms, and form a more cohesive blockchain ecosystem.

The platform recently began hosting auctions for the first wave of parachains. A wide variety of promising projects have already secured a slot — including Acala, Astar, Clover, Moonbeam, and Parallel — and are now live on the platform.

Polkadot also recently got its own launchpad known simply as DotPad, which is set to help kickstart its ecosystem by providing a platform for crowdfunding Polkadot, Kusama, and other Substrate-based projects — which may include potential parachain/parathread candidates. The platform is set to launch in Q2 2022, after which it will begin hosting initial DEX offerings (IDOs) for projects building on Polkadot or the surrounding Substrate ecosystem.

Velas

Forked from Solana, Velas shares many of its most attractive attributes, including its extremely low transaction fees and rapid transaction confirmation times. The platform can also be considered ultra-scalable — given that it can currently process somewhere in the order of 75,000 transactions per second (TPS).

Unlike Solana, Velas also benefits from EVM support. This makes it suitable for developers that are already familiar with the Ethereum development environment and Solidity programming language. It also has a native space, which supports the increasingly popular Rust language — providing a great deal of flexibility to developers.

Velas also directly resolves one of the major obstacles facing the adoption of other blockchains — pollution. Thanks to its hybrid consensus system that uses a combination of Proof-of-History and Proof-of-Stake, Velas is extremely energy efficient, and is carbon-neutral, making it particularly well-suited for ESG (Environmental, Social, and Governance) applications.

Since the launch of its EVM support, Velas has seen a significant uptick and adoption and is now host to a growing ecosystem of DApps — most of which offer DeFi functionality. Some of Velas’ most popular projects include:

  • WagyuSwap: The first DEX on Velas, WagyuSwap allows users to trade a wide variety of Velas-based tokens, or join the platform as a liquidity provider to earn a yield on their idle assets in the form of a trading fee split. The platform also benefits from an array of yield farms, which can be used to earn rewards on staked Velas-based tokens.
  • Autofarm: One of the most prolific DeFi yield aggregators, Autofarm allows to automatically optimize their yields by leveraging its automated farming solution. Autofarm now supports 14 different blockchains, with Velas being one of the latest additions.
  • VeleroDAO: A fork of MakerDAO, VeleroDAO is a protocol that allows users to mint a stablecoin known as USDV by opening up a collateralized debt position (CDP) by depositing Velas (VLX) tokens. This USDV can then be either spent, staked to earn interest, or returned to release the locked collateral.

Last month, Velas introduced a new fund and accelerator program to help finance and support promising new projects building on the platform. With this, Velas could be set to grow its ecosystem and potentially push existing DeFi heavyweights to deploy on the chain and leverage its capabilities.

Polygon

Originally conceptualized as a layer-2 for Ethereum, Polygon has gone on to form an entire ecosystem of its own, and now hosts a range of DeFi applications that are not found on the Ethereum blockchain.

Thanks to its fast transaction completion times, low fees, and reduced environmental impact, Polygon is quickly gaining popularity among developers that want to provide an Ethereum-like experience with none of the usual downsides.

Since its launch in 2017, the Polygon blockchain has gone from strength to strength in terms of adoption, and now clocks in more than 3 million transactions per day from over 350,000 daily active users.

As of writing, there is just over $3.4 billion worth of assets locked up in Polygon-based protocols, much of which is associated with the non-custodial liquidity market known as Aave — which has also deployed on several other chains.

Some of the most popular DApps on the platform currently include:

  • QuickSwap: A Polygon-native DEX which supports both swaps and limit orders, and offers a variety of yield farms — including LP mining, dual mining, and Dragon's syrup farms. The platform is currently the most popular DEX on Polygon, with ~$550 million in TVL.
  • StarGate: A cross-chain bridge that launched in March 2022 with immediate success — attracting more than $1.2 billion in liquidity within its first week of operation. The platform currently has a Polygon-based TVL of more than $176 million.
  • QiDao: QiDao is a Polygon-based protocol that allows users to extract liquidity from their crypto assets in the form of a USD-pegged stablecoin known as Mai (Mimatic). The platform is unusual among lending solutions, in that users do not need to pay any interest when taking out a loan. It features a native token known as Qi, which is used for governing the platform.
Polygon also recently got its own launchpad, known simply as PolyPad, which is designed to fund and accelerate promising projects building on Polygon. Since its launch in early April, the platform has already launched several projects, helping to expand the still relatively small Polygon ecosystem.
In April, Polygon also announced plans to launch the testnet for an entirely new scaling chain known as Avail. The platform is expected to operate as a data availability layer for other sovereign blockchains — helping to reduce on chain burden.

Waves

Launched back in 2016, Waves was one of the first true competitors to Ethereum and briefly counted itself among the top 10 largest cryptocurrencies by market capitalization. The platform recently began picking up momentum as a platform for DeFi projects, with several of its DeFi applications gaining significant popularity over the last year.

Waves is designed to be simple to use, allowing anybody to deploy their own tokens (known as SmartAssets) and DApps with ease while providing the resources developers need to succeed through its grants and upcoming incubator offerings.

Waves leverages an enhanced version of Proof-of-Stake, known as Leased-Proof-of-Stake (LPoS) to maintain consensus. This allows users to lease their tokens to full nodes to earn a fraction of any rewards they generate, to help increase participation and decrease centralization. Almost three-quarters of the WAVES token supply is currently staked.

One of Waves’ biggest draws is its extremely low fees. Despite the blockchain seeing significant increases in on-chain activity in the last year, its fees still stand at an average cost of $0.022/transaction — roughly 80 times lower than Ethereum. This has helped it attract a DeFi TVL of $1.2 billion — making it the 10th largest layer-1 chain by TVL.

Some of its most popular DeFi platforms currently include:

  • Neutrino: Neutrino Protocol is a platform used for creating price-stable assets. Through Neutrino, users can swap their WAVES tokens for USDN in return for a small protocol fee. This USDN can then be staked to earn up to 15% APY. The platform also has its own governance token, known as NBST, which is used for voting on Neutrino updates.
  • Vires Finance: Currently the most popular DApp on Waves, Vires is a liquidity protocol that can be used to trustlessly borrow and lend Waves-based assets. The platform allows users to deposit their assets to earn yields and uses fully transferable vTokens to represent user lending positions.
  • Waves Exchange: The largest DEX on Waves, Waves.exchange allows users to trade a variety of Waves-native and bridged assets. It also features a number of algorithmic investment products, LP staking options, and pools to help users earn a yield on their assets. As it stands, the exchange charges a flat 0.1% fee on all trades, which is shared among liquidity providers.

Waves is planning a major transition throughout 2022 — moving from Waves 1 to Waves 2 in this time. This includes plans to deploy a universal bridge, DAO framework, inter-Meterverse protocol, move to an entirely new consensus mechanism (Practical Proof-of-Stake Sharding), and introduce EVM functionality.

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