The Top Performing DeFi Coins in Q1 Were Not on Ethereum

Decentralized finance (DeFi) continues to do exceptionally well in 2021. But the top performing assets so far this year are newcomers—and don’t even run on Ethereum. 

According to a Q1 Performance Recap report released today by cryptocurrency data provider Messari, the top two performing DeFi cryptos in the first quarter of 2021 were PancakeSwap and Terra.

"DeFi" is shorthand for a group of peer-to-peer financial products, such as lending, borrowing, and trading platforms. They basically allow their users to access bank-like services without the need for an actual bank or other third-party intermediary.

PancakeSwap is a decentralized exchange (DEX) that runs on Binance Smart Chain—a blockchain platform launched by the world’s biggest centralized crypto exchange, Binance. The exchange’s native token, CAKE, is used by investors to earn rewards or vote on the project’s updates. Its price has shot up by 3,031% since the start of the year, beating out all other DeFi tokens so far. Today it’s trading for $23.52, according to Messari.

Terra (LUNA) is a financial ecosystem that includes a stablecoin facilitator, synthetic assets, savings accounts and more. LUNA (today trading for $16.18) is also a governance token that can earn its users rewards. It is also used for staking to validate blocks. It is up 2,784% since the start of the year. 

Both have exploded in popularity, according to Messari, since they’re cheaper and more efficient platforms for getting involved in DeFi relative to the more established products on Ethereum, such as Uniswap or Aave.

Despite most DeFi applications being built on Ethereum, it’s expensive: the network is being used by so many people, it’s struggling to work smoothly. In order to make transactions on Ethereum, one needs to pay “gas fees”—the variable cost of using the network, which goes to the decentralized group of people who help keep it running.

And with so many people using Ethereum, the cost of making a transaction is high. This is in part due to the huge interest in DeFi. But because of Ethereum's woes, new applications are now being built on other blockchains—and traders are eyeing-up them up.

“Binance Smart Chain has quickly become the most used smart contract platform next to Ethereum, providing yield farmers a low-cost alternative,” the Messari report said. (“Yield farmers” are cryptocurrency holders who lock up their holdings, in turn providing them with rewards.) “It has benefitted from Ethereum’s rising transaction fees, which have priced out many retail users.”

Matt Aaron, co-founder of UniWhales, an app that tracks big DeFi transactions, also told Decrypt: “The emergence of PancakeSwap was directly related to the high transaction fees and slow fees on Ethereum that priced most people out of the market.” 

He added: “With Terra, Do Kwon [Terra’s founder] and his company are building a well designed ecosystem that all flows back to the LUNA token. The UI/UX, governance, and incentives are all first class.”

According to Messari, “ballooning” Ethereum fees led many traders to move over to Binance Smart Chain to trade DeFi tokens—and PancakeSwap was the most popular platform. 

“CAKE ended the quarter with a 3,000% return making it the top-performing asset in the DeFi sector,” the report said. 

And Terra is where lots of new, popular projects are being built, according to Messari, which has led to an explosion in interest for Terra stablecoins. Investment firm Galaxy Digital also pumped $25 million into the project. 

Ethereum is currently working on rolling out ETH 2.0—an upgrade to the network that promises to be faster and more secure. But the project is by some estimates still years away from being completed. Who knows how many DeFi competitors will continue to take up the space between now and then.