Blockchain technology has been slowly gaining prominence as the future internet ecosystem. This has been the case since the last decade when the first cryptocurrencies were minted. Since then, multiple blockchain-based applications, particularly based on cryptocurrencies, have been developed, and most of them are functioning successfully to date. Meanwhile, in recent years, new blockchain-based applications such as non-fungible tokens (NFTs) and applications based on the decentralized finance (DeFi) concept have been up and running, and would replace the traditional finance system in the future.

Decentralized Finance (DeFi) is the concept that aims to make true peer-to-peer (P2P) transactions possible without the need for a controlling institution to govern individual transactions. Currently, most DeFi platforms concentrate on crypto exchanges, with an increasing number of banking and fundraising platforms springing up. Also, DeFi tokens are a great way of making financial operations easy as these are supported by prominent blockchains such as Ethereum, Binance Smart Chain (BSC), and Polygon.

In this blog, we will see more about various DeFi tokens and things that matter while developing such tokens on major blockchain networks.

A Small Brief on DeFi Tokens

Decentralized finance tokens or DeFi tokens, as they are commonly known, are decentralized blockchain-based applications that use smart contracts. They aim to eliminate the need for a third party when it comes to banking operations on cryptocurrencies. Some popular DeFi tokens include Uniswap (UNI), SushiSwap (SUSHI), PancakeSwap (CAKE), and Avalanche (AVAX).

Types of DeFi Tokens

• Utility Tokens - Utility-based crypto tokens are created to raise capital in exchange for some service as a utility. These tokens support building and launching your business with ease through the ability to raise funds. Utility tokens are also looked upon by investors as speculative assets as they can invest in the best business project and earn profits when the outcomes are greater.

• Governance Tokens - Governance tokens provide special rights for the token holders on the platform, which include participating in decision voting and supporting updating the portal to keep up with the current flow. These tokens also provide their holders with exclusive benefits such as lower transaction fees, lower conversion charges, and access to other utility benefits.

• Equity Tokens - Equity-based crypto tokens function as shares are the company’s assets or properties or take value from the company’s performance with time and context. The token holders can be given a percentage of the company’s profit or made to vote for governance decisions.

• Security Tokens - Security tokens are the digital version of bonds representing physical assets. These tokens serve as the bridging link between traditional and decentralized finance systems by making it possible for physical assets to be defined as digital tokens. Security tokens also make it possible for an investor to invest fractionally on an asset that they find promising irrespective of the scale.

Developing DeFi Tokens on Ethereum

• Ethereum is one of the earliest blockchains, which is the base for most blockchain-based applications and transactions. This includes most decentralized finance applications that utilize smart contracts based on the ERC-20 tokens.

• ERC-20 DeFi tokens are convertible, meaning they can be traded for one another, which is an important need for any financial operation.

• These DeFi tokens can easily incorporate various utilities as per your requirements.

• In addition to seamlessly utilizing smart contracts, these tokens also make transactions simple and secure.

• DeFi tokens using the ERC-20 standard running on the Ethereum blockchain are known for their smooth and consistent working on various decentralized applications (Dapps), including those working on financial operations.

Developing DeFi Tokens on Binance Smart Chain (BSC)

• Binance Smart Chain (BSC) is a blockchain that offers more interoperability and offers the best features of both networks.

• DeFi tokens developed using BSC enable high levels of interoperability such that they are even compatible with the Ethereum Virtual Machine (EVM).

• These DeFi tokens achieve scalability, meaning the transactions are processed at higher speeds while waiting time gets very low.

• When the waiting time is low, ultimately, these tokens have only a lower transaction or gas fee.

• These DeFi tokens run on the BEP-20 standard, so they have access to greater liquidity and a wide range of utilities.

Developing DeFi Tokens on Polygon

• Known earlier as Matic Network, Polygon is the layer-2 protocol of Ethereum that aims to transform Ethereum into a blockchain ecosystem like Polkadot and Cosmos. DeFi tokens developed on Polygon use the ERC-20 standard similar to Ethereum.

• Due to such bonding with Ethereum, Polygon has gained popularity, and many prominent players in the DeFi industry have already rolled out their platforms on the chain.

• Polygon’s advantage of scalability again reflects here as DeFi tokens based on the chain can be transacted faster while incurring only a lower gas fee.

• Also, as Polygon’s developers have planned to expand their system into other major blockchain networks such as Avalanche, Solana, and Cosmos, these tokens would gain prominence across chains. Hence, the holder base would get wider.

As a Final Note

Although there are more blockchains that have the possibility of leveraging decentralized finance tokens, the above blockchain networks scored more in being popular and overall proportion of usage for DeFi-based applications. Decentralized finance applications based on cryptocurrencies are slowly gaining prominence on various scales. It would not be very long until we see more traditional finance institutions join the bandwagon to appeal to people who have disbelief in them.