What Is a DeFi Token?

DeFi, also known as decentralized finance, is a relatively new & modern approach to finance, primarily based on blockchain technology & cryptocurrency. As the name itself describes, decentralized finance means that there is no central authority that operates over it, effectively removing the control that governing bodies have over it.

Regarding decentralized finance, some important terms are DeFi coins and tokens, which are often used interchangeably. DeFi coins are like a version of a coin representing financial value, while DeFi tokens encompass a broader area of usage, not limited to finance only. Think of DeFi tokens as an umbrella term used for coins & tokens in the DeFi crypto space.

Summary of Important Points

  • Decentralized finance removes the control banks & government bodies have over personal finance.
  • DeFi tokens are used to transfer financial or any other value from one party to another.
  • The aforementioned DeFi coins are like a version of real currency - like the US Dollar - only in a digital form.

DeFi Coins vs. Tokens

As we briefly described above, there is a small difference between DeFi coins and tokens. So, what are DeFi coins and tokens? Regarding DeFi coins, they are used to transfer value in a financial transaction from one address on the blockchain to another. You can think of them as regular currency with which you can buy and sell items over the blockchain, where the proof of the transaction will remain.

On the other hand, DeFi tokens refer to tokens that are primarily used for utility reasons, but they can also be used financially. When someone says DeFi token, they’re usually referring to a governance token, which grants management power to the user that holds them. In addition to governance, DeFi tokens can be used like passcodes to provide access to a system or establish proof of ownership on physical assets like in the case of NFTs. These are some of the key features of DeFi.

How to Buy DeFi Tokens

As long as you know which DeFi tokens you’d like to buy, purchasing them and using them from your wallet is a breeze. Do the following steps to start invest in DeFi tokens:

1. Set up a Crypto Wallet

You can go over this step in many ways - you can get a private & public address generated from the blockchain, or you can get one from your favorite crypto exchange. You can even consider buying a ledger (hardware crypto wallet) where you can store your DeFi crypto physically.

2. Purchase Your DeFi Coins

After doing your research, choose which DeFi coins you want to buy and have them transferred in your wallet. There are many ways to go about this purchase, but you’ll probably have to do a transfer of value - i.e. exchange something you have if you want to buy DeFi token (like exchanging USDT for Terra).

3. Start Using Your DeFi Crypto as You Like

As we mentioned above, DeFi tokens open an entirely new world of finance to anyone that holds them. For example, you can use them as governance tokens, allowing you to participate in the blockchain of your choice regarding important matters (like validating transactions) and receive rewards for it. If you’d like to do something more with your coins, then you can use your DeFi tokens as leverage for lending and borrowing money on a specific protocol. DeFi is a new world of finance, and everyone should use what it offers.

Best DeFi Tokens to Invest In

As of mid-2022, there are thousands of projects on the decentralized finance (DeFi) marketplace, so it’s no secret that many are confused about which tokens to invest in. The following are our top picks for DeFi crypto list and coins you should invest in:

Maker (MKR)

MKR is a decentralized coin that is based on the ERC20 (Ethereum’s) network. It is a decentralized autonomous organization (DAO), allowing anyone to lend and borrow money in the form of crypto on its blockchain. As of late April 2022, MKR is valued at around $1,800, but it had an all-time high of $5,000 in early 2021, and we can see the potential of it reaching its ATH again.

Lucky Block (LBLOCK)

Lucky Block is one of those DeFi tokens that joined the party at a slightly later date, entering the DeFi space in late 2021. Lucky Block is a network with a primary use case as a lottery gaming platform, but unlike traditional lottery in the case of online or brick-and-mortar casinos, LBLOCK doesn’t have any regulation from a central government body.

Of course, this doesn't mean that it’s unregulated, as it’s tightly controlled by smart contracts. With the rise of online gaming networks and lottery ecosystems, we can definitely see Lucky Block’s potential for growth in the following years.

Convex Finance (CVX)

In addition to offering all the benefits of DeFi like easy lending and borrowing, CVX also offers direct rewards to liquidity providers, meaning that anyone who stakes CRV tokens can earn direct rewards. In the last 2 years, the CVX has grown in value by over 500%, effectively giving a 5x return to anyone holding it - and even more to those who have staked it.