Nikolas Sargeant
DeFi has come a long way in a relatively short period, and the sheer number of protocols now available is mind-boggling. Whether you want to lend, borrow, save, trade, game, collect, insure, or speculate, there’s a dApp waiting to welcome you with open arms.
Although DeFi depends on blockchain, not all blockchains are equally suited to the task: many lack sufficient scalability and others are unable to support smart contracts, a core requirement for most protocols. Over the last couple of years, chains that are equipped to support the fast-growing parallel financial system, though, have conducted a kind of technological arms race, committed as they are to onboarding the next wave of users.
The question is, which one’s best suited to being the DeFi doyen?
Cosmos: The Internet of Blockchains
Any debate about the best DeFi-centric chains must feature Cosmos, which calls itself the Internet of Blockchains. A highly versatile platform renowned for its security, speed, near-zero fees and customizability, Cosmos’ Appchains can process up to 1,000 transactions per second (tps).
Appchains, which can tap into multiple liquidity sources across different chains without fragmenting assets, are customized blockchains anchored to the Cosmos network but operating independently. Thus, while they benefit from the main chain’s security and interoperability features, they are sovereign and application-specific. High-performance appchains like cross-chain lease protocol Nolus deliver appreciable benefits to both developers and users, particularly because they all benefit from Cosmos’ Inter-Chain Security (ICS) module.
The Inter-Blockchain Communication protocol, created by Cosmos in 2019, also enables seamless data transfer between Appchains, something many DeFi builders (not to mention users) consider to be a major benefit.
Solana
Solana’s rise in recent years has been something to behold, but it’s not difficult to understand its appeal to DeFi’s movers and shakers. After all, its low fees and ability to handle tens of thousands of transactions per second makes it an obvious choice – particularly for projects like DEXs and play-to-earn games.
The platform currently boasts the third-highest TVL, with over $3.8 billion locked in its various dApps. Over 340 million NFTs have been minted on the chain, and extremely cheaply too; another of Solana’s perks. Among other notable Solana projects is Save (formerly Solend), an algorithmic protocol for lending and borrowing which also features its own stablecoin (SUSD), liquid staking token (saveSOL), and memecoin shorting platform (dumpy.fun).
Polkadot: A Sharded Powerhouse
Created by Ethereum O.G. Dr. Gavin Wood, Polkadot’s heterogeneous multi-chain architecture is well-suited for DeFi applications. Indeed, the sharded network’s interconnected ‘parachains’ are somewhat similar to the aforementioned appchains, in that they enable purpose-built implementations while benefiting from main chain security.
The advantages of this model are clear, which is why we are seeing more and more parachains (and appchains) emerge. But which other attributes make Polkadot the perfect fit for DeFi? Well, at a glance it is celebrated for its low transaction fees, fast processing, cross-parachain communication, and recent introduction of Asynchronous Backing which vastly expedited transaction confirmation times and expanded network capacity.
Although Polkadot’s DeFi ecosystem is currently much smaller than others on this list, its community recently allocated a chunk of change to building it out. As a Polkadot blog noted at the time, “the community’s advocacy and decision-making will become increasingly vital to ensuring the ecosystem remains innovative and aligned with the values of its members.”
Cardano: Backed by Peer-Reviewed Research
The only blockchain created based on peer-reviewed research, Cardano belatedly joined the DeFi party but has made up for lost time by onboarding dozens of applications, among them collateralized debt protocol Indigo and the Minswap DEX.
Earlier this year, Messari noted that the Total Value Locked (TVL) in Cardano had soared by 693% year-over-year, with projects attracted by its robust security and high transaction throughput assured by its Ouroboros consensus mechanism, as well as the Cardano Foundation’s support for utility-driven projects.
Cardano’s thousands of community-operated distributed stake pools, meanwhile, guarantee a high level of decentralization.
Avalanche: Scalability via Subnets
Avalanche is another popular DeFi-centric blockchain. While Cosmos has appchains and Polkadot features parachains, Avalanche boasts ‘subnets’ that operate separately from the main network. Two years ago, the Avalanche Foundation launched the Avalanche Multiverse, a $290 million incentive program designed to promote the growth of subnets and position Avalanche as a go-to DeFi chain.
This endeavor has been a success, with Avalanche now home to a great many dApps including NFT lending platforms, metaverse games, exchanges, and an Avalanche-native stablecoin, Stablejack. The network is notable for its near-instant transaction finality, high throughput, low latency, friendly developer environment, and modest gas fees.
Conclusion
While each of these blockchains offers advantages for DeFi applications, the Appchain infrastructure of Cosmos stands out as a particularly novel application, one that allows projects to have their cake (or independence) and eat it too, safe in the knowledge they are secured by the main chain.
Don’t expect the blockchain DeFi arms race to ease up any time soon, as network infrastructure continues to evolve and the protocol-rich landscape sucks more users into its sandbox. And don’t assume the blockchains dominating today’s DeFi scene will necessarily continue to reign supreme either.
