Market cap: $1.4–1.5 billion
CDAI already fell to rank #22 in market cap by the time this article went public. With the way crypto market capitalizations slosh around, chances are high enough that CDAI will claw its way back. But what is CDAI?
CDAI is an ERC20 token or a Compound token (cToken) representing a lending or supply balance, along with accrued interest, on Compound. DefiPulse wrote a layman’s summary of CDAI. With the introduction of cTokens, assets once locked into the Compound ecosystem can now move freely through the ecosystem, providing much more liquidity and functionality.
Let’s back up. What’s Compound? Here’s the company’s one-liner:
“Compound is an algorithmic, autonomous interest rate protocol built for developers, to unlock a universe of open financial applications.”
Compound’s already made it to CoinMarketCap’s Top 20 list by market cap, in large part thanks to the success of cTokens.
The second piece of this puzzle is DAI (check out the backstory to the name), a stablecoin pegged 1:1 to the USD via the Maker (MKR) Dai Stablecoin System. DAI fuels a big chunk of the decentralized app (Dapp) ecosystem. It allows users to collateralize assets via the stability of the Maker protocol.
People use the DAI stablecoin to do various things, such as depositing it into Compound, one of the largest borrow-lend platforms today, and pool CDAI into a liquidity pool via Uniswap. Pooling CDAI earns you interest for holding cTokens while also collecting trading fees via Uniswap. It’s a complicated incentive. Let’s discuss it later. ️
Wow, that’s a lot to comprehend, and we’re not even in the top 20 list if you’re looking at current numbers.
Why is CDAI’s market cap so high?
Compound distributes its native governance token (COMP) based on how much you’re supplying and borrowing from the network. The more you utilize the protocol, the louder your voice becomes at town hall meetings.
In a sense, people are “farming” COMP by depositing and borrowing DAI. Without getting too lost in the weeds, the Compound protocol incentivizes people to use CDAI as the cToken of choice because CDAI’s yield currently beats other cTokens in the marketplace. Therefore you end up with a lot of CDAI. ️
Yield farming is a risky game, as the headlines would suggest:
When Coinbase’s oracle price for the DAI-dollar peg produced a 34% premium, liquidators benefited from DAI’s under-collateralization. Yield farmers were caught off guard by this liquidation event.
Here’s a thesis: If the market cap of a synthetic (such as cTokens) is higher than the market cap of the underlying protocol (DAI), that’s a sign of over-leverage. The story shared above of how an over-leveraged yield farmer lost millions in USD is quite telling.
I’d love for Su and Hasu to unpack this bit from the podcast:
The problem with earning interest in real-time via something like DAI is that it’s difficult to convert from one token to another accurately. People often opt to deposit assets onto aggregators like the Y-CURV (YFI), re-aggregating into COMP. ️
Market Cap: $1.72 Billion
“Tezos is an open-source platform for assets and applications backed by a global community of validators, researchers, and builders.” Longest-chain rule, like BTC.”
Tezos is a proof-of-stake (PoS) cryptocurrency with a “self-amending blockchain.” It was the first crypto-asset to have complete on-chain governance where people vote directly for changes to the underlying code.
The project grew in the backdrop of Bitcoin’s scaling debate in 2017. Back then, people were more interested in Tezos as a test case for the best governance model that larger projects would ultimately use.
The project’s different approach to all the other “Ethereum killers” generated a lot of buzz in 2017. However, the team’s finding it hard to onboard developers. In contrast, with Ethereum, it’s easy for anyone to start building quickly and access a robust network of support.
What’s feeding Tezos’s market cap?
Tezos initially secured smart, committed investors who contributed to the treasury coffers. Their coin is also more like “money” than other PoS coins (read more about “Baking” Tezos), which may give it a boost by its association with Bitcoin. ️
Tezos may secure another bull run based on the possibility of increased developer traction. Still, it doesn’t currently have robust grassroots participation.
Market Cap: $2.62 billion
NEM is popular in Japan and was a top-10 coin by market cap at one point. The guys at Uncommon Core consider NEM a “very ‘2017’ coin” or a “ghost coin.” It was meant to be for inter-bank settlements and adheres to several regulatory requirements of the financial industry. Unfortunately, the project hasn’t seen much adoption.
Newer DeFi applications are likely to break into the top 20 as ghost projects like NEM fall off the map.
Market Cap: $2.19 billion
TRON, a ripoff or fork of ETH to some, one of crypto’s most successful scams to others. I found their website deplorable — it’s much easier to find a photo of Justin Sun’s face (the CEO) than to find a one-liner about what TRON does.
“Tron is a blockchain-based decentralized platform that aims to build a free, global digital content entertainment system with distributed storage technology, and allows easy and cost-effective sharing of digital content.”
The meme power is strong with this one, and everyone recognizes how much TRON copied from Ethereum. First, they endorsed a copy of Metamask (TronLink). Then came $SUN, Justin Sun’s very own DeFi coin.
The thing about TRON is it’s easy to use due to its similarity to Ethereum. When fees get too high on the ETH blockchain, many people use TRON instead, solidifying its “cheaper ETH” use-case, for now.
Also, there’s a great deal of USDT on TRON. However, that capital is likely concentrated among a handful of TRON whales. For that reason, take its market cap and liquidity with a grain of salt. TRON did ok during the 2018–2019 bear market, finding a product-market fit in the burgeoning crypto gambling scene.
The TRON network is powered by a cult of personality, with a hyped following in China and the USA. Its cult-like culture isn’t something to dismiss in 2020. Inside and outside the crypto industry, the whole social zeitgeist is increasingly populist and searching for a pretty face to tell them when a number will go up.
Market Cap: $2.63 billion
“Wrapped Bitcoin (WBTC) is the first ERC-20 token backed 1:1 with Bitcoin.”
WBTC maintains a 1:1 peg with BTC via its custodians, the primary one being BitGo, in collaboration with the Kyber Network (KNC) and Republic Protocol (REN).
Quickly establishing a stronghold with Maker (MKR), Compound (COMP), Aave (AAVE), and Uniswap (UNI), the use-case for WBTC escalated quickly.
WBTC enjoys a powerful network effect due to the high demand for easy transferring between BTC and ERC-20 tokens. It’s a massive win for DeFi; Liquidity is an essential part of the user experience. Users want the ability to get in and out of positions quickly.
WBTC found an early advantage when DeFi was less mature than today (not to say the market has matured compared to its heading).
It’s important to know that WBTC relies on ChainLink’s (LINK) Proof of Reserves via WBTC’s primary custodian, BitGo.
The market is undeterred by the level of trust required to hold custodial coins. Tether (USDT) is also custodial, and it’s a massive force in the crypto market. We’re expecting a more decentralized form of WBTC to climb up the Top 20 chart with time. With virtually nobody aiming to ban Bitcoin anymore, that only increases the chances for WBTC’s (and to a lesser extend, REN’s) success.
Market Cap: $2.75 billion
Five of Monero’s seven original developers chose to remain anonymous, and I’ll use CoinMarketCap’s one-liner:
“Monero was launched in 2014, and its goal is simple: to allow transactions to take place privately and with anonymity.”
By its nature, it isn’t easy to know how much Monero has changed hands and by whom or why. Sometimes the headlines reveal large holders, like this 17-year-old politician from Ukraine.
Monero had a surprisingly good performance in 2020, even as the thesis of needing a privacy coin over a privacy solution over an existing coin was falling out of favor.
Privacy coins were prevalent in 2017, an investment class in and of themselves. In Monero’s case, their Proof-of-Work (PoW) system ensures that large miners cannot centralize the network’s control. Still, the flip side of any PoW system is it’s tough for the coin’s price to appreciate due to non-stop miner selling.
Projects like Monero have a hard time getting listed on regulated on-ramps (like Coinbase), implying it wouldn’t benefit from the “money effect.” That sentiment is not wrong, but the Monero network exists to protect privacy. In contrast, it exists as a new feature on Ethereum. Privacy as a second layer to existing projects aims to make the underlying protocol do something it wasn’t originally designed to do. Also, the added privacy feature may be forked.
Monero baked privacy into their social contract, and the community is committed to defending its core values. Monero’s mandatory privacy has the edge over the opt-in privacy of ZCash, as an example. Transacting in XMR doesn’t require that you trust anyone in the network. With ZCash, only a small percentage of transactions are genuinely private.
Market Cap: $2.87 billion
“EOSIO is a next-generation, open-source blockchain protocol with industry-leading transaction speed and flexible utility.”
EOS was the original “ETH killer” and the longest-running ICO on record, launching its mainnet in 2018. The company boasts a vast treasury. At some point, up to 11% of the global ETH supply contributed to it (️ for a fact check).
EOS aimed to be the ultimate delegated proof of stake (DPoS) solution. DPoS is less centralized, much more energy-efficient, and is extremely fast, capable of processing millions of transactions per second. There are also no user fees on the EOS blockchain. Developers were interested in 2018, but ultimately the project lost favor due to some economic incentive issues:
The largest exchanges are often the primary block producers, which is a risk for all PoS coins. Ethereum’s experiencing this issue with ETH2 staking. How do they encourage people to stake on their own? EOS displayed the difficulties with PoS early on). You can find a nerdy analysis of EOS’s pros and cons at Hackernoon. ️
Regardless of the potential flaws, EOS’s team maintains a large capital reserve and may be biding their time until they find the best use-case for the project.