In this article, we will deep dive into DeFI Ecosystem on Tezos, and I will share Top 5 Projects Building on it.
While Ethereum is the main reason for the latest growth in DeFi, it is not the only blockchain driving innovation. Several other blockchains have emerged offering smart contract capability with significantly higher transaction speeds. One of them is the Tezos blockchain. Similar to Ethereum, Tezos is also a proof-of-stake (PoS) based blockchain with virtually no carbon footprint.
Seeing the growth in the technical qualities of Tezos, developers started to build on Tezos to attract more users. In the last two years, we saw dozens of new applications launch, giving Tezos a good market share in the DeFi space. In this article, we’ll understand what makes Tezos a suitable space for DeFi and list the top five DeFi projects growing inside the Tezos ecosystem.
Why Build On Dapps
Tezos is a low-entry barrier blockchain platform to build decentralized applications. It is user-friendly even for someone with no prior development experience in Web3 to quickly transition and builds on the Tezos blockchain.
In comparison to other L1s like Ethereum, Tezos stands out in terms of network performance and overall user experience. But there are a few more factors that extend the functionality of dApps building on Tezos to the next level. We have the three main ones below:
Tezos is one of the first blockchains to introduce on-chain governance. It was the reason why we had to distinguish governance in blockchain networks. By conducting governance on-chain, Tezos has the ability to self-upgrade.
So, if a token holder of XTZ makes a proposal, it can be implemented once there is a majority of votes. This involves token holders more and gives decision-making power. More importantly, self-amendability powered by on-chain governance helps Tezos avoid creating hard forks.
Plugin Based Frameworks
Building anything from scratch is a hard task. That’s why Tezos provides plugin-based frameworks to automate a few processes and help developers focus on the main mission of the project. These frameworks simplify development workflow and make deployment on the Tezos blockchain seem effortless.
Taqueria, by ECAD labs, is the framework used on Tezos. It is currently in beta. It comes with many built-in processes from initial testing of applications to maintenance of smart contracts. Some of the tools compatible with Taqueria are SmartPy, Archetype, Taquito, and Pinata.
Highly Secure Network
When the cost of capital is low for joining the network as a validator, it will be more secure and decentralized. In the case of Tezos, you only need 6000 XTZ to become a baker who generates blocks on the Tezos blockchain. Even if you don’t have those many tokens, you can delegate whatever you have and earn rewards.
Tezos currently has over 400 public bakers, with many more operating independently. Apart from a high validator count, Tezos is a secure blockchain network because it conducts formal verification of smart contracts with an emphasis on functional programming.
Top 5 DeFi Projects on Tezos Blockchain
DeFi inside the Tezos ecosystem is growing rapidly. DEXs, lending and borrowing, on-chain betting, and synthetic asset creation are a few verticals currently being worked on. After analyzing overall activity and growth in users, we have picked five dApps that are driving volumes to Tezos and expanding the ecosystem to new places.
3Route is a DEX aggregator on the Tezos blockchain. It mainly solves the problem of price slippage across various exchanges including QuipuSwap, WTZ Swap, Ctez Swap, and Spicy Swap. 3Route platform features 250+ liquidity pools covering trading pairs of more than 75 Tezos tokens. The best part of 3Route is it doesn’t charge any service fee when doing swaps involving multiple liquidity pools. All you have to do is pay network fees for the Tezos blockchain.
The way 3Route works is it automatically builds the most cost-efficient “route”, or way, to find the best price to make a swap. So it completely lifts the burden of searching for the right liquidity pool to use as an intermediate token to exchange for the desired token. For example, I want to swap $10,000 worth of token A for B. But, due to price slippage, I am only getting $9,500 worth of token B.
3Route reduces the loss (in this case ~ $500) by splitting the capital of $10k into three parts of $3.3k each. Now each will be used for a different route, cutting the overall losses by more than 50%. Considering the future of value transfer in crypto is fueled by DEXs, it is essential to have DEX aggregators like 3Route to provide the best prices in the simplest manner.
Liquidity is key for any ecosystem to thrive and attract new builders. For Tezos, QuipuSwap is one of the DEXs bringing liquidity to projects through various incentive-driven features and programs. The liquidity providers on QuipuSwap earn roughly 0.3% commission for each swap operation. In addition, the LPs receive baking rewards for staking XTZ tokens. But it involves a voting process to select a baker. So LPs have to be active participants from time to time.
QuipuSwap also extended its functionality as a DEX by adding farming features. It is now possible to lock tokens from two weeks to one month with decent annual rewards. But there is a 10% penalty fee if you withdraw before the time period. The QUIPU tokens can be even used to play a game of coin flip.
Apart from traders and bakers inside the Tezos ecosystem, developers also actively use the DEX to integrate into smart contracts for building better applications with an improved interface.
Youves is a decentralized platform for creating synthetic assets. These are assets that track the price of another asset using a price oracle. Youves allows you to have crypto exposure inside the Tezos ecosystem while still achieving higher capital efficiency. By creating synthetic assets on Youves, you can participate in liquidity, staking, and lending programs to earn high yields.
The process involved in creating synthetic assets is also simple on Youves. First, you select which asset you want to mint on the platform. The available ones are uUSD, uDEFI (an index of the top five leading DeFi tokens), and uBTC. After selecting the asset, you need to add collateral. XTZ and USDT are the most used collateral assets. Once you added enough collateral to meet the 200% collateralization ratio, you can go ahead and mint new yield-generating assets.
Besides the standout functionality of Youves, it is also self-governed through a DAO. The token holders of YOU, the native token of Youves, will determine the reward percentages to bakers and other parameters of the liquidity pools.
Juster is a transparent crypto-betting platform. It creates events, helps bring liquidity, and generates good rewards for the winners. At the moment, Juster offers events on price changes of different cryptocurrencies like BTC, ETH, and XTZ. So there will be only two outcomes to every event.
If you want to earn on Juster, you can be two things: liquidity provider or better. A liquidity provider makes money by adding liquidity to one side of the bet and takes ownership of shares of the pool. On the other hand, a person who bets directly deposits money before the event begins. As it’s a zero-sum game, the losing side gives their share of the liquidity to the winning side. The earnings will be distributed based on the shares of an LP.
Plenty is another popular DEX platform on Tezos that allows you to bridge, trade, and earn efficiently. Using Plenty’s bridge, you can transfer tokens from Ethereum and other EVM chains to Tezos in less than five minutes. The swapping feature is also available with deep liquidity and low slippage fees. If you want to earn and lock your tokens on Plenty, you can add liquidity to many pools including wrapped assets like wBUSD, wDAI, wMATIC, and wLINK.
You can also farm native token PLENTY and influence many decisions on the platform. By voting on proposals, you can change the liquidity pool rewards and help increase the concentration of liquidity on a predetermined set of pools. Recently, Plenty launches a partner program allowing projects to participate in voting through a veNFT. This allowed projects to bribe other token holders, similar to veCRV, to draw more liquidity. An airdrop is also planned for users on these projects in near future.
Future of Tezos DeFi
From less than $1 million in locked value to reaching a peak of $200 million in 2021, Tezos has emerged as one of the better alternatives to the Ethereum blockchain. With low fees and fast transaction times, Tezos has become a robust smart contract platform to build a thriving DeFi ecosystem.
Tezos is already at 100 dApps with the majority serving the DeFi audience. Its synthetic asset creation platform, Youves, is one of the biggest dApp in the ecosystem and continues to attract new users. In terms of unique wallets and on-chain activity, the number keeps growing despite the bear market conditions. So the only thing remaining is to add enough liquidity that will encourage builders and users to consider Tezos DeFi.
Born and brought up in India, Karthikeya Gutta is a crypto journalist and freelance contributor for ItsBlockchain. He covers various aspects of the industry with in-depth analysis and research. His passion towards blockchain and crypto ecosystem is mainly because he believes it can really change the world and help millions of people.
Subscribe to get notified on latest posts.