In this article, we will dive deep into the DeFI ecosystem on Tezos, and I will present the top 5 projects that build on it.
While Ethereum is the main reason behind DeFi’s recent growth, it’s not the only blockchain driving innovation. Several other blockchains have emerged that offer smart contract capabilities with significantly faster transaction speeds. One of them is the Tezos blockchain. Similar to Ethereum, Tezos is a Proof-of-Stake (PoS)-based blockchain with virtually zero carbon footprint.
As the developers saw the growth of Tezos’ technical qualities, they started building on Tezos to attract more users. Over the past two years, we’ve seen dozens of new applications that have given Tezos a good market share in the DeFi space. In this article, we will understand what makes Tezos a suitable space for DeFi and list the top five DeFi projects growing within the Tezos ecosystem.
Why build on Dapps
Tezos is a low-entry barrier blockchain platform for building decentralized applications. It’s easy to use, even for someone with no prior Web3 development experience, to quickly transition to and build on the Tezos blockchain.
Compared 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 take the functionality of dApps built on top of Tezos to the next level. We have the three main ones below:
On-Chain Governance
Tezos is one of the first blockchains to introduce on-chain governance. That was why we had to differentiate governance in blockchain networks. By conducting on-chain governance, Tezos has the ability to update itself.
So if a token holder of XTZ makes a proposal, it can be implemented as soon as there is a majority of votes. This makes token holders more involved and gives decision-making power. More importantly, self-modifiability backed by on-chain governance helps Tezos avoid hard forks.
Plugin-based frameworks
Building something from scratch is a difficult task. That’s why Tezos offers plugin-based frameworks to automate some processes and help developers focus on the main task of the project. These frameworks simplify the 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 has many built-in processes, from initial application testing to smart contract maintenance. Some of the tools compatible with Taqueria are SmartPy, Archetype, Taquito, and Pinata.
Highly secure network
When the capital cost of joining the network as a validator is low, it becomes more secure and decentralized. In the case of Tezos, you only need 6000 XTZ to become a baker generating blocks on the Tezos blockchain. Even if you don’t have that 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 number of validators, Tezos is a secure blockchain network as it performs the formal verification of smart contracts with an emphasis on functional programming.
Top 5 DeFi Projects on Tezos Blockchain
DeFi within the Tezos ecosystem is growing rapidly. DEXs, lending and borrowing, on-chain betting, and synthetic asset creation are some industries currently being worked on. After analyzing overall activity and user growth, we selected five dApps that are driving volume to Tezos and expanding the ecosystem to new places.
3route
3Route is a DEX aggregator on the Tezos blockchain. It mainly solves the problem of price slide on various exchanges including QuipuSwap, WTZ Swap, Ctez Swap and Spicy Swap. The 3Route platform has 250+ liquidity pools covering trading pairs of 75+ Tezos tokens. The best thing about 3Route is that there is no service fee when doing swaps with multiple liquidity pools. All you have to do is pay network fees for the Tezos blockchain.
3Route works by automatically creating the most cost-effective “route” or path to find the best price for an exchange. This eliminates the burden of finding the right liquidity pool that can be used as an intermediate token to exchange for the desired token. For example, I want to exchange $10,000 worth of token A for B. But due to price drop, I only get $9,500 worth of Token B.
3Route reduces the loss (~$500 in this case) by splitting the $10,000 principal into three parts of $3.3,000 each. Now each one is used for a different route, reducing overall losses by more than 50%. Considering that the future of value transfer in crypto will be powered by DEXs, it is important to have DEX aggregators like 3Route to provide the best prices in the simplest possible way.
QuipuSwap
Liquidity is key for any ecosystem to thrive and attract new builders. For Tezos, QuipuSwap is one of the DEXs that brings liquidity to projects through various incentive-driven features and programs. The liquidity providers on QuipuSwap earn around 0.3% commission for each swap operation. In addition, the LPs receive baking bonuses for staking XTZ tokens. But it involves a voting process to select a baker. So LPs need to be active participants from time to time.
QuipuSwap has also expanded its functionality as a DEX by adding farming features. It is now possible to lock tokens from two weeks to a month with decent yearly rewards. But there is a 10% penalty fee if you withdraw before the deadline. The QUIPU tokens can even be used to play a coin toss game.
Aside from traders and bakers within the Tezos ecosystem, developers are also actively using the DEX to integrate with smart contracts to build better applications with an improved interface.
Youves
Youves is a decentralized synthetic asset creation platform. These are assets that track the price of another asset using a price oracle. Youves gives you crypto exposure within the Tezos ecosystem while achieving greater capital efficiency. By creating synthetic assets on Youves, you can participate in liquidity, staking and lending schemes to earn high returns.
The process of creating synthetic assets is also easy for Youves. First you choose which asset you want to mint on the platform. The available ones are uUSD, uDEFI (an index of the top five DeFi tokens) and uBTC. After choosing the asset, you need to add collateral. XTZ and USDT are the most commonly used collateral. Once you’ve added enough collateral to reach the 200% collateralization ratio, you can proceed and mint new income-generating assets.
In addition to the outstanding functionality of Youves, it is also self-managed through a DAO. The token holders of YOU, the native token of Youves, determine the reward percentages for bakers and other parameters of the liquidity pools.
Yesterday
Juster is a transparent crypto betting platform. It creates events, helps bring liquidity and generates good rewards for winners. At the moment Juster offers events on price changes of different cryptocurrencies like BTC, ETH and XTZ. So there are only two outcomes for each event.
Anyone who wants to earn on Juster can be one of two things: liquidity provider or better. A liquidity provider makes money by adding liquidity to one side of the bet and by appropriating shares of the pool. On the other hand, a direct bet person deposits money before the event starts. Because it’s a zero-sum game, the losing side gives their share of the liquidity to the winning side. Income is distributed based on the shares of an LP.
A lot
Plenty is another popular DEX platform on Tezos that allows you to bridge, trade and earn efficiently. Plenty’s bridge allows you to transfer tokens from Ethereum and other EVM chains to Tezos in less than five minutes. The swap feature is also available with high liquidity and low slippage fees. If you want to earn and lock your tokens on Plenty, you can add liquidity to many pools, including packaged assets like wBUSD, wDAI, wMATIC, and wLINK.
You can also farm native tokens PLENTY and influence many decisions on the platform. By voting on proposals, you can change the liquidity pool’s rewards and help increase the concentration of liquidity in a predetermined set of pools. Plenty recently launched a partner program that allows projects to participate in voting via a veNFT. This allowed projects to bribe other token holders, similar to veCRV, to draw more liquidity. An airdrop for users of these projects is also planned in the 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 emerged as a robust smart contract platform to build a thriving DeFi ecosystem.
Tezos already has 100 dApps, with the majority catering to the DeFi audience. Its synthetic asset creation platform, Youves, is one of the largest dApps in the ecosystem and continues to attract new users. In terms of unique wallets and on-chain activity, the number continues to grow despite the bear market conditions. So, all that remains is to add enough liquidity that will encourage builders and users to consider Tezo’s DeFi.
Born and raised in India, Karthikeya Gutta is a crypto journalist and freelancer for ItsBlockchain. He covers various aspects of the industry with in-depth analysis and research. His passion for blockchain and the crypto ecosystem is mainly because he believes it can really change the world and help millions of people.
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