Guide to DeFi tokens and altcoins
Whether you're just starting your crypto journey or you've been trading Bitcoin for years, there’s a good chance you’ve tried to dig into the world beyond Bitcoin and Ethereum only to find yourself confused by all the different cryptocurrencies out there.
After all, in the decade since Bitcoin began to catch on, thousands of alternatives have emerged. And right now there are more than 45 cryptocurrencies tradable on Coinbase alone. In the last few years, tokens that help power decentralized finance (or DeFi) protocols have become increasingly popular — and so a number of the cryptocurrencies on this list come from that world.
If you’re ready to figure out the difference between XTZ and XLM, you've come to the right place. Here (presented in alphabetical order) is key information about some of the biggest and most important cryptocurrencies that aren't Bitcoin or Ethereum. Each of these "altcoins" (short for “alternative coins”) is tradable via Coinbase and other major exchanges, and they all have unique features, goals, and use cases.
Released: June, 2019
Algorand seeks to build on similar projects like Ethereum by improving scalability, security, and reducing the amount of time it takes for transactions on the network to be considered “final.”
Developers can use Algorand to create decentralized applications — for loans, decentralized trading, and many other uses — that can take advantage of fast, low-cost transaction processing while scaling to a large number of users.
How it works: Algorand nodes reach consensus about what should appear in the blockchain through a process called PPoS (or “Pure Proof of Stake”) — which uses a staking system (instead of a Proof of Work mining system like Bitcoin’s) to verify new transactions and produce new crypto tokens.
Algorand network participants (or nodes) are able to stake some of their ALGO in exchange for the chance to be randomly selected to propose a new block of verified transaction. The winner is awarded new ALGO.
Keep in mind: PPoS systems like Algorand’s are more efficient than Proof of Work blockchains like Bitcoin in terms of electricity consumption, because they don’t rely on thousands of miners spending energy to solve cryptographic puzzles for the chance to win a block reward and earn transaction fees.
Bitcoin Cash (BCH)
Released: August, 2017
Bitcoin, in its original conception, was designed to be a form of digital cash people could use to make transactions online. Over time it has evolved into a “store of wealth” more like digital gold. Bitcoin Cash was created to continue the original peer-to-peer cash idea — via a high-volume, low-fee network that would be accessible to anyone with an internet connection.
How it works: The Bitcoin Cash blockchain is based on the original Bitcoin blockchain, but it has some distinct differences. A major one is an increased maximum block size of 32MB, compared to just 1MB on Bitcoin. Increased block size allows Bitcoin Cash to process transactions faster than Bitcoin, with lower fees and an increased per-second transaction capacity.
Keep in mind: Bitcoin Cash is available via virtually all exchanges and is supported by PayPal. But remember that even though it was designed to be faster and cheaper than Bitcoin, that doesn’t mean that Bitcoin users have abandoned the original for a newer version.
Released: November, 2017
Chainlink is a decentralized oracle network that is powered by the LINK Ethereum token.
Oracles are an important part of the decentralized finance (or “DeFi”) landscape: in the absence of a centralized authority, they’re the main mechanism by which DeFi apps receive accurate external data (especially prices). Until Chainlink was developed, there was no reliable solution that allowed smart contracts and DeFi apps to access external market prices.
How it works: Chainlink was designed to incentivize a global network of computers (or “nodes”) to provide accurate data to Chainlink’s oracles. There are many oracles operating today, including ones that provide price data across a wide range of assets, weather data, and location data.
LINK is the token used to pay for services on the network and to incentivize nodes to perform verifiably honest work and provide accurate data.
Keep in mind: In order to become a node and start providing data to Chainlink oracles, holders must stake LINK tokens into a smart contract to act as an incentive against misbehaving or submitting false data to the network.
Released: July, 2017
EOSIO aims to be an alternative to Ethereum. It provides blockchain infrastructure for decentralized applications, acting as a “blockchain computer,” and allows developers to create, deploy, and host their own smart contracts and decentralized apps (or dapps).
How it works: EOSIO claims to be able to support thousands of dapps without experiencing any negative network effects like high fees or slow confirmation times, thanks to innovations like parallel processing. This may be appealing for commercial developers and financial institutions looking to adopt blockchain technologies for large-scale use cases.
The network’s native token, EOS, is used to power transactions and applications on the blockchain, and can be staked for a reward in a consensus model called Delegated Proof of Stake (DPoS.)
Keep in mind: EOSIO was created to be easy for developers and end-users to adopt, with a specific focus on the pain points faced by developers of blockchain applications today – particularly those of speed, scalability, and flexibility in program design.
Released: October, 2011
Litecoin is one of the oldest cryptocurrencies. It was created as a fork of Bitcoin in 2011 and offers faster transaction times and lower costs.
Keep in mind: Litecoin’s speed and relatively low fees make it appealing as a payment option and means of transferring value, but the network has significantly fewer miners than Bitcoin, which has negative effects in terms of overall network security.
MakerDAO (MKR, DAI)
Released: December, 2017
MakerDAO is a decentralized organization built on the Ethereum blockchain that runs a DeFi platform that allows users to lend and borrow crypto. Its native token is a stablecoin called DAI. DAI is an ERC-20 token, which means it runs on the Ethereum blockchain. It is designed to maintain a stable value of one US dollar. MKR is a governance token issued to users of MakerDAO DeFi services. It gives holders a say in the future of the organization.
How it works: MakerDAO works through a process called “overcollateralization”, where assets supplied by users are locked up in smart contracts as collateral in exchange for newly created DAI tokens.
The MakerDAO DeFi lending platform works via a collection of smart contracts that allow users to supply and borrow cryptocurrencies without a centralized loan provider.
Users create DAI by depositing some of their crypto into a smart contract on the platform. Once DAI is created, it functions as a token on the Ethereum blockchain that can be transferred between wallets to facilitate the transfer of value like any other cryptocurrency. DAI is useful as a medium for transfers because each token always aims to be worth one U.S. dollar — which means the value won’t swing wildly during the duration of the transaction. This type of stable cryptocurrency is known as a stablecoin.
Funds deposited to create DAI can be instantly re-acquired by paying off the DAI loan plus any fees.
Keep in mind: MakerDAO was the first DeFi protocol to reach a total value locked (or “TVL”) of $1 billion in 2020.
Released: December, 2019
What is OXT With digital privacy and censorship growing as concerns for people around the world, VPN services (“Virtual Private Network”) have become a popular tool for privately and securely browsing the internet and interacting with online services.
Orchid is a crypto-powered VPN service that aims to extend the functionality of traditional VPN services with the security and anonymity benefits of blockchain technologies. OXT is an Ethereum token that serves as a secure means of paying for the use of Orchid's VPN service.
How it works: There are two categories of users in the Orchid network:
Bandwidth users are the customers who use the VPN. (It’s available for Android, iOS, and Mac.)
Bandwidth providers are Orchid Nodes that have staked OXT tokens in order to supply their surplus internet bandwidth to users. In exchange, they receive compensation in OXT tokens. The more OXT staked, the greater the chances for a reward.
Bandwidth providers are required to stake OXT to give them incentive to behave responsibility.
But you don’t need to be a full bandwidth provider to benefit from staking OXT. Any holder of OXT can stake some of their tokens in a pool with a full bandwidth provider.
Keep in mind: Orchid aims to provide a distributed network of trusted, high quality bandwidth providers, allowing users to access the internet privately, and instead of relying on relying on one centralized VPN service.
OMG Network (OMG)
Released: July, 2017
Purpose: OMG was designed to be used by businesses and DeFi apps to create systems that use a blockchain to transfer value between various digital and fiat currencies, and to create financial tools and services that are fast, cheap and secure.
Built on top of the Ethereum blockchain, OMG intends to integrate with other blockchain networks and traditional payment providers to allow businesses to transfer value from one blockchain to another, or to transfer funds between blockchains and traditional payment settlement companies like Visa and Swift.
How it works: Formally known as OmiseGo, OMG is a layer-2 Ethereum scaling solution designed to be integrated into mainstream wallets. It works on top of the Ethereum blockchain to allow users to transfer Ethereum tokens faster and more cheaply than transferring them on the Ethereum blockchain directly.
OMG holders can also stake some of their tokens, which helps the network stay secure. When you stake some OMG, you earn a percentage of the overall fees that the OMG Network generates from end users.
Keep in mind: OMG claims to be “currency agnostic.” Fees remain the same no matter which currencies are and blockchains are involved in a given transaction. This feature could be particularly useful for payment processors and financial institutions.
Stellar Lumens (XLM)
Released: July, 2014
Stellar is a blockchain payment platform originally launched as a hard fork of the Ripple network in 2014. Created by the nonprofit Stellar Development Foundation, XLM aims to connect businesses and financial institutions around the world via blockchain — allowing them to quickly settle payments and make low-cost currency exchanges.
How it works: XLM (or Lumens), fuels activity on the Stellar network. The Stellar network is a system designed to help payments cross borders (and currencies) much faster and more cheaply than with traditional financial-system networks.
For example, a bank in Japan might use Stellar to send money to a bank in Mexico. Stellar would automatically convert yen to XLM, send the payment via blockchain, and reconvert XLM to pesos at the best current exchange rate.
Stellar was intended to work alongside existing assets and cryptocurrencies, allowing users to create digital representations of any asset as a Stellar token. These can then be used to transact on the blockchain, and can be redeemed at any time for the base asset.
Keep in mind: XLM is positioned to be particularly useful in developing markets, where it aims to serve as a low-cost bridge for cross-border transactions — allowing users to send and receive payments in their preferred currency. In early 2021, the Ukrainian government selected Stellar as its partner in the development of a national digital currency.
Released: June, 2018
Tezos is a blockchain network and smart contract platform similar to Ethereum. Using Tezos, developers can create decentralized applications (lending apps, decentralized exchange apps, and much more).
Tezos’s mission is to create a “self-amending blockchain.” In this model, all upgrades and changes to the protocol are managed on-chain through decentralized governance.
That governance is managed entirely by the community. XTZ is the governance token that gives holders a say in future decisions about how Tezos should evolve.
How it works: Voting on proposed changes and upgrades to the protocol is conducted via a process called “baking”, in which users lock up XTZ tokens to secure governance rights. This process is a form of Proof of Stake.
Bakers can also earn rewards for submitting proposals that are successfully implemented.
Keep in mind: Tezos was among the first projects to incorporate go “fully decentralized”, allowing token-holders to vote on changes to the protocol that would automatically be integrated by smart contract, drastically reducing the chances for disputes and hard forks. It launched off of the back of record-breaking $232M token sale in 2017.
USD Coin (USDC)
Released: September, 2018
A new class of cryptocurrencies called “stablecoins” have their price fixed to a reserve asset (often the US dollar) at a one-to-one ratio. USDC, as its name would suggest, is one such dollar-pegged cryptocurrency. Each USDC is guaranteed to be backed by a dollar in a bank. Its goal is to make crypto payments via the blockchain more reliable by reducing price fluctuations.
How it works: Cryptocurrencies are now used to make payments, to engage with decentralized services and tools, and to store value. But they tend to have a trait that limits their day-to-day usability: volatility. Even Bitcoin, which has seen less volatility compared to its earliest years, moves too much relative to fiat currencies to be a comfortable everyday currency for most users.
By providing assurances that token holders can redeem one USDC for exactly one US dollar at any time, the potential for price speculation is significantly reduced – resulting in a crypto asset that maintains a fixed value.
USDC is an Ethereum token and can be used to facilitate blockchain payments and transfer of value in the context of Ethereum smart contracts. This allows users to keep cryptocurrencies in a wallet, ready to send to a friend or interact with decentralized financial tools and services, and with minimal any exposure to the risk of their holdings falling in price before they get a chance to spend them.
Keep in mind: USDC is a stablecoin built by Centre, a consortium of which Coinbase and Circle are the founding members. Each USDC token is backed by one US dollar held in a bank, enabling the stablecoin to maintain a 1:1 exchange rate with the US Dollar.
Released: September, 2020
What is UNI? Uniswap is a Decentralized Exchange (or “DEX”), which makes it possible to trade certain cryptocurrencies directly, via smart contracts. It runs on the Ethereum blockchain.
UNI is Uniswap’s governance token that allows users to vote on the future of the protocol.
How it works: Uniswap facilitates near-instant swaps between any Ethereum ERC-20 token without an intermediary by incentivizing users to supply tokens to liquidity pools in exchange for rewards.
UNI is the governance token for Uniswap. UNI holders get to vote on any proposals for changes to the Uniswap protocol, use of treasury funds, adjusting fee structures, or any other alteration of the rules by which it operates. UNI was distributed to early users in exchange for supplying liquidity to certain pools.
Keep in mind: Swaps between tokens on Uniswap are facilitated through reserves funded by liquidity providers — essentially any crypto holder who choses to lock some of their crypto in liquidity pools in exchange for rewards (based on a percentage of any fees paid by traders who swap that asset).
If you lock some of your crypto into a liquidity pool, you’ll be issued liquidity tokens, which represents ownership of your share of the funds. At any time, liquidity providers can pull their crypto out of the pool by cashing in their liquidity tokens.
Released: July 2020
YFI is an Ethereum-based token that powers Yearn.finance — which is designed to simplify the process of depositing funds into DeFi projects. DeFi typically requires a fairly high degree of technical knowledge. Yearn.finance (or yEarn) aims to solve this by creating a simple, streamlined portal via which less technically-skilled users can access DeFi platforms. Think of it as a “robo-advisor” of sorts.
How it works yEarn aims to be a sophisticated “yield farming” automation tool with a streamlined interface. It automatically moves funds supplied by investors between the liquidity pools of various DeFi projects via smart contract, in order to achieve the highest possible return for investors.
It also enables investors to use automation to drive decisions about which projects they should invest their funds into in order to get the best deal possible and maximize their profits.
Keep in mind YFI is a governance token, which means that holders are able to vote on changes to the protocol’s structure or operational model. It has only been rarely distributed to users, but existing YFI can be bought or sold like any other cryptocurrency.