Four Projects Enhancing Core DeFi Primitives on Ethereum

There’s nothing primitive about DeFi primitives. In fact, these building blocks are highly sophisticated these days, incorporating advanced mechanisms for mitigating risk, optimizing yield, and increasing liquidity. Lending, liquid staking, spot trading, and stablecoins are the four primary primitives powering decentralized finance across Ethereum and its interconnected EVM chains.

They’re not the only primitives in place – we also have perps, yield optimization, liquidity aggregation, and RWAs – but they’re the largest by TVL. And while the core function of these DeFi cornerstones hasn’t changed materially since their inception, they’ve gotten extremely advanced over the years. As an examination of just one project per primitive shows, Ethereum’s DeFi ecosystem is now capable of doing some very cool stuff.

Lending: Silo Finance

You can’t have lending without borrowing, and Silo does both with aplomb, using the tried and tested DeFi formula of deposit crypto asset, borrow stablecoin, and then loop and repeat if desired – or even reverse the process and deposit stablecoin before borrowing crypto. But what makes Silo different from the first wave of Ethereum lending protocols is its treatment of risk. It’s understandably interested in preventing onchain hacks and insolvencies from occurring and to achieve this has developed isolated pools that are self-contained.

Silo’s pioneering isolated lending model captures what makes DeFi great: on the one hand it retains the composability that is inherent to decentralized finance, allowing its protocol to be plugged into others to create novel money markets. But at the same time, in the event of an asset in a Silo pool running into issues, it won’t affect other users, allowing its lending protocol to remain open for business as usual, whatever happens. So far, the only things that have happened have all been good: growing TVL, growing users, and a reputation as DeFi’s smartest lending protocol.

Liquid Staking: Liquid Collective

Liquid staking has become a cornerstone of Ethereum DeFi following the network’s transition to Proof-of-Stake in 2022. In fact, it’s hard to recall the time when ETH could be earned by firing up a GPU or two and directing it at an Ethereum mining pool. Today, an entire generation of ethereans is being onboarded that will grow up with no knowledge of The Merge and the torturous roadmap that led to Ethereum finally embracing PoS.

But enough about staking history: we’re here to talk about its future, which is represented by Liquid Collective, by no means the largest liquid staking protocol out there by TVL, but certainly one of the freshest. It takes the versatile staking primitive to the next level by offering a secure, enterprise-grade solution for liquid staking. Its LST, known as LsETH, can be used across DeFi protocols while still earning staking rewards. With growing TVL and a reputation for reliability, Liquid Collective is proving that liquid staking can be both user-friendly and robust, with daily auto-compounding maximizing APR.

Trading: Balancer

Spot trading in DeFi has evolved far beyond the Token A > Token B model that Uniswap popularized. Balancer, to be fair, has long offered much more than the generic AMM model reliant on 50/50 liquidity pools, and its latest incarnation shows why Balancer and big brains are synonymous. V3 of its trusty protocol extends the composability and customizability that are inherent to DeFi and also throws in better UX/UI to boot.

As the entire industry gravitates towards a low-code model, driven by innovations like AI, Balancer’s V3 architecture aligns with this trend. It allows users to create pools with up to eight tokens and customizable weightings, offering unparalleled flexibility for liquidity providers. This structure enables more efficient capital allocation, allowing users to build pools that reflect their market views or portfolio strategies.

Balancer’s magic lies in its ability to balance innovation with practicality. Its pools are inherently composable, meaning they can be integrated into other Ethereum DeFi protocols to create complex financial instruments, such as yield-bearing stablecoin pools or leveraged trading strategies. At the same time, it mitigates risk through features like impermanent loss protection and dynamic fee adjustments, ensuring liquidity providers are rewarded fairly.

Stablecoins: Usual

Stablecoins are the lifeblood of DeFi, providing a stable medium of exchange in a volatile crypto landscape. But they’re not just a source of life: they’re also a form of yield nowadays, as RWAs and onchain trading strategies combine to generate sustainable returns for stablecoin holders. Usual is redefining this powerful primitive by elevating stablecoins into a high yield-generating beast – at least for USD0 stakers.

Usual’s stablecoin is backed by tokenized real-world assets (RWAs) like U.S. Treasury bills. The protocol redistributes profits from its RWA backing to users through a rebasing mechanism, allowing holders of USD0++ – a yield-bearing version of the stablecoin – to earn real yield without relying on lending markets. With more than $700M in TVL, Usual is going great guns, while showing why the future of DeFi and RWAs is intertwined.

DeFi’s come a long way over the last five years, as the projects profiled here demonstrated. From Silo’s isolated lending markets to Usual’s high-yield stablecoin, decentralized finance on Ethereum continues to innovate and impress in equal measure.