DeFi tokens and altcoins explained

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If you’re only beginning your crypto journey or have been trading Bitcoin for years, there’s a fair chance you’ve tried to delve into the universe beyond Bitcoin and Ethereum just to be perplexed by all the various cryptocurrencies available.

After all, thousands of substitutes have arisen in the decade since Bitcoin first gained popularity. And there are currently over 45 cryptocurrencies available for trading on Coinbase alone. Tokens that support control decentralised finance (or DeFi) protocols have grown in popularity in recent years, and as a result, a lot of the cryptocurrencies on this list come from that world.

You’ve come to the right spot if you want to know the difference between XTZ and XLM. Main details on some of the largest and most important cryptocurrencies that aren’t Bitcoin or Ethereum is provided here (in alphabetical order). Any of these “altcoins” (short for “alternative coins”) is tradable on Coinbase and other major exchanges, and each has its own set of functions, targets, and applications.

Algorand (ALGO)

Released: June, 2019

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Algorand aims to improve on related ventures like Ethereum by increasing scalability, stability, and decreasing the time it takes for network transfers to be deemed “final.”

Developers may use Algorand to build decentralised applications — for loans, decentralised trading, and a variety of other purposes — that can benefit from smooth, low-cost transaction processing whilst scaling to a large number of users.

How it works: By a mechanism known as PPoS (or “Pure Proof of Stake”), algorand nodes find agreement on what should appear in the blockchain. — which uses a staking system (instead of a Proof of Work mining system like Bitcoin’s) to verify new transactions and produce new crypto tokens.

Participants in the Algorand network (or nodes) will stake any of their ALGO in return for the chance to be randomly chosen to suggest a new block of validated transactions. The winner receives a new ALGO.

Keep in mind that PPoS schemes, such as Algorand’s, use less electricity than Proof of Work blockchains, such as Bitcoin, so they do not rely on thousands of miners expending energy to solve cryptographic puzzles for the chance to gain a block reward and receive transaction fees.

Bitcoin Cash (BCH)

Released: August, 2017

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Bitcoin was originally intended to be a type of digital cash that people could use to make online purchases. It has developed over time into a “store of wealth” similar to digital gold. Bitcoin Cash was designed to carry over the original peer-to-peer cash concept — with a high-volume, low-fee network that anyone with an internet connection could use.

The Bitcoin Cash blockchain is built on the first Bitcoin blockchain, although there are several significant variations. One significant difference is that the actual block size has been expanded to 32MB from 1MB in Bitcoin. Because of the larger block size, Bitcoin Cash can handle transactions quicker than Bitcoin, with lower fees and a higher per-second transaction ability.

Remember that Bitcoin Cash is available on almost all exchanges and is backed by PayPal. But keep in mind that just because it was built to be quicker and cheaper than Bitcoin does not mean that Bitcoin consumers have left the original in favour of a newer edition.

Chainlink (LINK)

Released: November, 2017

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Chainlink is a decentralised oracle network operated by the Ethereum token LINK.

Oracles are a critical component of the decentralised finance (or “DeFi”) landscape: in the absence of a centralised authority, they are the primary process by which DeFi applications obtain reliable external data (especially prices). There was no reliable solution that permitted smart contracts and DeFi apps to access external market rates prior to the development of Chainlink.

Chainlink was created to incentivize a global network of computers (or “nodes”) to deliver reliable data to Chainlink’s oracles. Today, several oracles are in use, including those that offer price data across a broad variety of properties, weather data, and location data.

The Connection token is used to pay for network resources and to incentivize nodes to do verifiably truthful work and provide reliable data.

Keep in mind that in order to become a node and begin sending data to Chainlink oracles, holders must stake LINK tokens into a smart contract as an opportunity to refrain from misbehaving or sending false data to the network.

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EOSIO (EOS)

Released: July, 2017

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EOSIO aspires to be a competitor to Ethereum. It functions as a “blockchain computer” and offers blockchain infrastructure for decentralised applications, allowing developers to build, deploy, and host their own smart contracts and decentralised apps (or dapps).

How it works: Due to technologies such as parallel processing, EOSIO appears to be able to serve thousands of dapps without facing any detrimental network consequences such as heavy fees or long approval times. This could be attractive to commercial developers and financial institutions interested in implementing blockchain technology for large-scale use cases.

EOS, the network’s native coin, is used to power blockchain transactions and applications and can be staked for a reward in a consensus mechanism known as Delegated Proof of Stake (DPoS.)

Keep in mind that EOSIO was designed to be simple for developers and end users to implement, with a strong emphasis on the pain points experienced by developers of blockchain apps today, especially those of speed, scalability, and programme design flexibility.

Litecoin (LTC)

Released: October, 2011

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Litecoin is one of the most known cryptocurrencies. It was developed in 2011 as a fork of Bitcoin and provides quicker processing times and lower transaction costs.

How it works: As a fork of Bitcoin, Litecoin did not attempt to alter the underlying logic or architecture – it is almost similar to Bitcoin in terms of use and nature – but with a faster transaction processing time and a lower transaction rate (as much as 50 times lower, depending on market conditions).

Keep in mind that while Litecoin’s speed and low fees make it attractive as a payment choice and means of exchanging money, the network has far less miners than Bitcoin, which has a negative impact on overall network protection.

MakerDAO (MKR, DAI)

Released: December, 2017

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MakerDAO is a decentralised company founded on the Ethereum blockchain that operates a DeFi network that allows users to lend and borrow cryptocurrency. Its native token is DAI, a stablecoin. DAI is an ERC-20 token that operates on the Ethereum blockchain. It is intended to keep the worth of one US dollar constant. MKR is a governance token distributed to MakerDAO DeFi service customers. It offers holders a voice in the organization’s future.

How it works: MakerDAO operates in a mechanism known as “overcollateralization,” in which assets provided by users are locked up in smart contracts as collateral in exchange for newly generated DAI tokens.

The MakerDAO DeFi lending platform operates on the basis of a set of smart contracts that enable users to supply and borrow cryptocurrencies without the need for a centralised loan provider.

DAI is created by users depositing some of their cryptocurrency into a smart contract on the website. DAI, once developed, acts as a token on the Ethereum blockchain that, like any other cryptocurrency, can be exchanged between wallets to facilitate the transfer of value. DAI is useful as a mechanism for transactions since each token still tends to be worth one US dollar — meaning the value will not fluctuate wildly throughout the exchange. A secure cryptocurrency is referred to as a stablecoin.

Funds deposited to create DAI can be instantly re-acquired by paying off the DAI loan plus any fees.

Keep in mind: MakerDAO was the first DeFi protocol to reach a total value locked (or “TVL”) of $1 billion in 2020.

Orchid (OXT)

Released: December, 2019

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What exactly is OXT? With data privacy and surveillance becoming more of a problem for people all over the world, VPN services (“Virtual Private Network”) have become a common platform for searching the internet and connecting with web services anonymously and safely.

Orchid is a blockchain-powered VPN service that seeks to combine the simplicity of standard VPN systems with the encryption and privacy advantages of blockchain technologies. OXT is an Ethereum token that can be used to pay for Orchid’s VPN service in a safe manner.

How it works: There are two categories of users in the Orchid network:

  • Bandwidth users are the customers who use the VPN. (It’s available for Android, iOS, and Mac.)

  • Bandwidth providers are Orchid Nodes that have staked OXT tokens in order to supply their surplus internet bandwidth to users. In exchange, they receive compensation in OXT tokens. The more OXT staked, the greater the chances for a reward.

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Bandwidth suppliers are expected to stake OXT in order to be held accountable.

However, you do not have to be a full-service supplier to reap from staking OXT. Any OXT holder will participate in a pool with a maximum bandwidth provider by staking some of their tokens.

Keep in mind that Orchid’s goal is to establish a distributed network of trusted, high-quality bandwidth providers, allowing users to access the internet privately rather than relying on a single centralised VPN infrastructure.

OMG Network (OMG)

Released: July, 2017

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Purpose: OMG was designed to be used by businesses and DeFi apps to create systems that use a blockchain to transfer value between various digital and fiat currencies, and to create financial tools and services that are fast, cheap and secure.

Built on top of the Ethereum blockchain, OMG intends to integrate with other blockchain networks and traditional payment providers to allow businesses to transfer value from one blockchain to another, or to transfer funds between blockchains and traditional payment settlement companies like Visa and Swift.

OMG, formerly known as OmiseGo, is a layer-2 Ethereum scaling approach intended to be implemented into popular wallets. It operates on top of the Ethereum blockchain, allowing users to transfer Ethereum tokens more quickly and cheaply than converting them directly on the Ethereum blockchain.

OMG holders may also stake some of their tokens, which aids in the network’s security. When you stake any OMG, you win a share of the total payments collected from end users by the OMG Network.

Remember the OMG appears to be “currency agnostic.” Fees remain constant regardless of whether currencies or blockchains are involved in a given transaction.This feature could be particularly useful for payment processors and financial institutions.

Stellar Lumens (XLM)

Released: July, 2014

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Stellar is a blockchain payment application that debuted in 2014 as a hard fork of the Ripple network. XLM, which was developed by the non-profit Stellar Development Foundation, aims to link companies and financial institutions all over the world through blockchain, enabling them to easily settle payments and conduct low-cost currency exchanges.

How it works: XLM (or Lumens) power the Stellar network. The Stellar network is a device that enables transfers to cross borders (and currencies) even more quickly and cheaply than conventional financial-system networks.

A bank in Japan, for example, might use Stellar to transfer money to a bank in Mexico. Stellar will convert yen to XLM automatically, send the payment via blockchain, and then convert XLM to pesos at the best current exchange rate.

Stellar was designed to complement current assets and cryptocurrencies by enabling users to generate digital copies of any asset as a Stellar token. These will then be used to trade on the blockchain and exchanged for the base asset at any point.

Keep in mind: XLM is positioned to be particularly useful in developing markets, where it aims to serve as a low-cost bridge for cross-border transactions — allowing users to send and receive payments in their preferred currency. In early 2021, the Ukrainian government selected Stellar as its partner in the development of a national digital currency.

Tezos (XTZ)

Released: June, 2018

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Tezos, like Ethereum, is a blockchain network and smart contract tool. Tezos allows developers to build decentralised software (lending apps, decentralised exchange apps, and much more).

Tezos’ goal is to create a “self-improving blockchain.” Both protocol updates and changes are handled on-chain through decentralised governance in this model.

That government is completely managed by the society. XTZ is the governance coin, which allows investors to vote on how Tezos can change in the future.

How it works: Voting on suggested protocol updates and improvements is done by a mechanism known as “baking,” in which users lock up XTZ tokens to protect governance privileges. This is a kind of Proof of Stake.

Bakers can also win awards for proposing plans that are executed effectively.

Keep in mind that Tezos was one of the first initiatives to go “fully decentralised,” enabling token holders to vote on protocol updates that will be instantly integrated by smart contract, greatly minimising the chances of clashes and hard forks. It debuted in 2017 after a record-breaking $232 million token auction.

USD Coin (USDC)

Released: September, 2018

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A new class of cryptocurrencies called “stablecoins” have their price fixed to a reserve asset (often the US dollar) at a one-to-one ratio. USDC, as its name would suggest, is one such dollar-pegged cryptocurrency. Each USDC is guaranteed to be backed by a dollar in a bank. Its goal is to make crypto payments via the blockchain more reliable by reducing price fluctuations.

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What it is: Cryptocurrencies are being used to make transfers, interact with decentralised networks and tools, and store value. They do, however, have a characteristic that restricts their usefulness on a daily basis: uncertainty. Also Bitcoin, which has seen less instability in recent years, swings too fast in relation to fiat currencies to be a convenient everyday currency among certain consumers.

By assuring token investors that they can exchange one USDC for precisely one US dollar at any time, the risk for market speculation is greatly diminished, resulting in a crypto asset with a fixed value.

USDC is an Ethereum token that can be used to allow blockchain purchases and value transfers within Ethereum smart contracts. This enables users to store cryptocurrencies in a pocket, ready to give to a friend or connect with decentralised financial resources and services, with no fear of their funds losing value before they can invest them.

Keep in mind that USDC is a stablecoin created by Centre, a consortium that includes Coinbase and Circle as founding members. Since each USDC token is backed by one US dollar kept in a deposit, the stablecoin will sustain a 1:1 exchange rate with the US dollar.

Uniswap (UNI)

Released: September, 2020

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What is UNI? Uniswap is a Decentralized Exchange (or “DEX”), which makes it possible to trade certain cryptocurrencies directly, via smart contracts. It runs on the Ethereum blockchain.

UNI is Uniswap’s administration token, which requires users to decide on the protocol’s future.

How it works: By incentivizing users to supply tokens to liquidity pools in return for prizes, Uniswap enables near-instant exchanges between any Ethereum ERC-20 token without the use of an intermediary.

UNI is Uniswap’s governance token. UNI investors have the right to vote on any proposed amendments to the Uniswap protocol, use of treasury funds, fee arrangement adjustments, or other changes to the regulations under which it runs. Early users were given UNI in return for providing liquidity to specific pools.

Keep in mind that Uniswap facilitates token swaps by deposits provided by liquidity suppliers — effectively, any crypto investor who chooses to lock any of their crypto in liquidity pools in return for incentives (based on a percentage of any fees paid by traders who swap that asset).

If you deposit any of your cryptocurrency in a liquidity pool, you will be given liquidity tokens, which signify possession of your portion of the assets. Liquidity providers can withdraw their crypto from the pool at any time by cashing in their liquidity tokens.

Yearn.finance (YFI)

Released: July 2020

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YFI is an Ethereum-based token that drives Yearn.finance, which is intended to make depositing funds into DeFi ventures easier. DeFi usually necessitates a high level of scientific expertise. Yearn.finance (or yEarn) seeks to address this issue by developing an easy, simplified portal from which less technically-skilled consumers can reach DeFi platforms. Consider it a “robo-advisor” of sorts.

How does it work? yEarn aspires to be a complex “yield farming” automation platform with an easy-to-use gui. It automatically transfers funds provided by investors between the liquidity pools of various DeFi projects via smart contract in order to maximise investor returns.

It also allows investors to use automation to make decisions on which ventures to invest in in order to get the right value and increase their earnings.

Keep in mind that YFI is a governance token, which allows holders to vote on modifications to the protocol’s configuration or operating model. Since it has only been circulated to a small number of people, current YFI can be purchased and sold much as every other cryptocurrency.

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