DeFi Protocols and Liquidity

Published in
6 min readJun 29, 2022


How defi protocol make money


Is Decentralized finance on its way to disrupting the traditional financial atmosphere of the world?

Surely, Defi is the next generation to the banking system we experience today. It has no centralized control over money, financial products, and services.

With tokenized digital money and stable coins creating liquidity, the Defi landscape has evolved into a massive network with integrated Defi protocols and financial instruments.

Further in this blog, we will target the following aspects related to the Decentralized finance:

  • What are Defi protocols?
  • Best Defi protocols
  • What is Defi Liquidity?
  • How does the Defi liquidity pool work?
  • What are Defi stablecoins?
  • Features of Stablecoin that make it an attractive investment option
  • Best stablecoins to invest in 2022
  • Sum Up
  • About ImmuneBytes

Let’s Begin!

What are Defi protocols?

The next-generation banking system, Defi sets to change the way we experience financial services in the future and Defi protocols are the way to achieve that.

They are the self-governing code or smart contracts, which seek to address the shortcomings of the traditional banking environment. These codes once deployed on the blockchain platforms are immutable and can be seamlessly used for lending, borrowing, investing, and other financial services that Defi offered.

Although, like any other financial medium Defi saw its own set of fluctuations in the total locked value. According to data from Cryptorank, Defi’s total locked value stands at $268.38bn, more than double India’s GDP.

Defi total value overview


Surely, you must be thinking of experiencing some of the best Defi protocols available at present.

Here is a list of some of the Best Defi Protocols:

  1. Aave
  2. Curve
  3. Lido
  4. Anchor
  5. MakerDAO
  6. Convex finance
  7. UniSwap

Undoubtedly, the world of finance stands on liquidity, and Decentralized finance, is no different. Let us now see what creates liquidity in the Defi landscape.

What are Defi Liquidity Pools?

The Decentralized financial protocols we were talking about, store a collection of crypto assets in the smart contracts, also called liquidity pools. Basically, a liquidity pool is a collection of funds locked in a smart contract.

Liquidity pools allow users to conduct decentralized trading and lending among other functions on a decentralized exchange platform.

Instead of, traditional brick-and-mortar market spaces used by the traders, Defi uses automated market makers. It permits the automated trading of digital assets in a permissionless manner.

Here, liquidity providers supply funds for trading in their pool and earn trading fees proportional to their total liquidity share.

How does the Defi Liquidity pool work?

Liquidity pools are the crypto suppliers for economic activities to take place in a decentralized financial world.

For exchanging tokens in a DEX landscape, traders rely on the liquidity pool for the supply of specified tokens. These pools are self-executing smart contracts with locked crypto tokens. Supported by another set of smart contracts known as Automated market makers (AMM) that helps in maintaining the balance of a liquidity pool.

Trading is executed on AMM against the liquidity provided in the pool. So, no actual seller is selling the crypto but a pool having sufficient liquidity executes the operation.

Now, that we know what backs a Decentralized financing mechanism, there is another entrant to the world of Defi i.e. Defi Stablecoins.

Let’s have a look at that as well,

What are Defi stablecoins?

Defi Stablecoins are the crypto entities pegged against another currency or asset, usually fiat money but there are several other types of stablecoins as well.

A stable, scalable, and secure crypto asset, serving as an alternative to the highly volatile crypto Universe.

Features of Stablecoin that make it an attractive investment option.

A brief understanding of the features of stablecoins
  1. Reduce Volatility

As they are backed by stable currencies or assets, stablecoins are immune from the volatility faced by the decentralized financial system.

2. Increased exposure to Defi

Volatility is a major issue resisting investors from entering the decentralized market. Stablecoins have the scope of increasing trust among investors.

3. Energy efficient

Stablecoins ensure reduce energy consumption with higher transaction throughput.

4. User-friendly mining

Miners do not require sophisticated mining techniques for gold or currency-backed stablecoins.

5. Crypto-fiat Integration

This permits widespread acceptance and easy trading at several Defi exchange platforms like Bitfinex.

Offering several benefits, Stablecoins are of various types. Here are the different types of stable coins introduced in the Defi world.

  1. Commodity-backed Stablecoins including Gold-backed, precious stones-backed, etc.
  2. Fiat-backed stablecoins
  3. Crypto-backed stablecoins
  4. Algorithmic-backed Stablecoins

Best stablecoins to Invest in 2022

The news of TerraUST stablecoin’s massive slip created a major distrust among its investors, in fact, it shows the loss of trust in the entire Terra. As UST built a void in the Defi Stablecoins domain, multiple protocols dived into the same pool.

UST dropped to massive drain

Consequently, a number of Defi stablecoins entered the crypto market seeking the attention of new and existing investors along with capturing liquidity.

Let’s have a look at some of the Best Defi Stablecoins that you can buy in 2022.

  1. USDD

One of the largest stable coin projects was launched on the TRON blockchain protocol. Since, its launch in may 2022, it has experienced rapid growth in circulating supply, currently at 601.86 million.


A recently released stablecoin of the Fantom blockchain protocol. USD has multiple collateral backing including FTM, USDC, DAI, SPIRIT, and wrapped tether.

3. Tether

An all-time favorite stable coin for investors. Tether is one of the oldest and probably the safest crypto asset backed by USD. Tether stands at the helm of the low-risk trading and anti-market fluctuations in the Defi landscape.

4. Binance USD

One of the most sort after stablecoin in the Defi space. BUSD is pegged against USD and is approved and regulated by the New York State Department of Financial Services.

5. Digital Gold Token

It is a stablecoin backed by gold and is developed on the Ethereum blockchain protocol. It attracts investors with dual backing of gold and trust in Ethereum.

You can also check out top 5 BSC projects of 2022.

Sum Up

Decentralized finance is all set to change the way people experience financial services in the future. Although, with the increasing number of stablecoins and other entities in the decentralized world, it is yet to be seen how the Governments around the globe react to the ever-increasing domain of Defi.

Undoubtedly, it is smart contracts that power almost every sphere of the decentralized financial system.

To make your smart contracts a tough nut to crack for the hackers, avail the auditing services at ImmuneBytes. Our top smart contract auditors will provide a thorough review of your code leaving no bugs hidden.

Also, Stay tuned with ImmuneBytes, to be in the known with more such information about Defi, Metaverse, and Web3 Universe.

About ImmuneBytes

ImmuneBytes, a blockchain security company offers enterprises and startups comprehensive smart contract auditing solutions for their applications to have a secure commencement. Our journey begins with an aim to foster security in the upcoming blockchain world, improving the performance of large-scale systems.

However, Blockchain fosters a secure transactional environment, and applications built on this technology come with their own set of vulnerabilities. As there is no scope for alterations in blockchain transactions, smart contracts need to be thoroughly evaluated to prevent any further loopholes from turning your project into an extravagant exploit.

ImmuneBytes administers stern smart contract audits, employing both static and dynamic analysis, alongside examining a contract’s code and gas optimization, leaving no escape route for bugs.

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