DeFi Aggregator(s) essentially identify and share successful trading strategies with their users, who are able to adapt the combinations provided to them to their own DeFi trading strategy. Within them, all transactions, as well as combinations, are visible to users to follow them, and this leads to an open as well as a collaborative, and transparent trading option for a lot of people. But to truly understand how they work, and how all of this fits into Decentralized Finance (DeFi), we’ll need to look at the components which make all of this a possibility.
A Brief Explanation of Tokens
Cryptocurrency tokens are essentially the cryptocurrencies themselves that can represent an asset or a specific use case on a blockchain and are often used for making investments or to store value. They are these digital currencies that can facilitate the transactions throughout the blockchain and they have many uses. Some of their uses include the reduction of fees when you make a trade, governance power, and other functions, all of which depend on the blockchain and technology in question.
Decentralized Finance (DeFi) Crash Course
Discussing “Decentralized Finance (DeFi)”, it uses technology in order to remove any intermediaries between parties within a financial transaction. The components of DeFi are stablecoins, as well as a software stack that enables the development of applications. DeFi is essentially a financial service without a central authority and invokes taking traditional elements of a financial system, through which the middleman is replaced with a smart contract.
The decentralized finance ecosystem is essentially made up out of multiple decentralized, non-custodial financial products, and these include decentralized exchanges, lending protocols, and even synthetic derivatives. This is an extremely experimental as well as risky niche, so make sure that you always invest with caution, and never put in more money than you are willing to lose.
Getting into Yield Framing
Yield Farming is essentially the process of locking up funds for which you are rewarded for doing so. You are lending your cryptocurrencies through the usage of different DeFi protocols and can earn fixed and variable interest as a result of your efforts. These rewards can be much greater when you compare them with traditional investments, but also have the disadvantage of being a lot higher in risk, due to the volatile nature of the cryptocurrency market as a whole. Yield Farming is typically done through the Ethereum network.
To further make this point, we’ll need to look at FIAT money, as when you take a loan in a real-world bank through using FIAT currencies, the amount which is lent out is paid back with interest. If we look at Yield Farming in comparison, it is similar, where the cryptocurrencies which would otherwise be at an exchange’s balance sheet, are essentially lent out through different DeFi protocols and have the potential of being locked in a smart contract which allows them to generate returns for the end-user. This process is carried out by ERC-20 tokens in most cases, and the rewards are in the form of the same token.
As a user, you will have to add funds into a liquidity pool. Liquidity pools are smart contracts that contain funds, and the pools power a marketplace where the users get to exchange, borrow or even lend tokens. Once you have added your funds to the pool, you can become a liquidity provider. Now, given the fact that you just locked your funds in the pool by taking the previous steps, you will essentially start generating rewards through fees from the DeFi platform. Yield Farming in this case can be seen as the process of lending ETH on a decentralized, non-custodial money market protocol, where you receive a reward for doing so. The beauty here is the fact that you can always take the reward tokens and deposit them yet again into other liquidity pools, which will give you the incentive to engage in even more Yield Farming.
How DeFi Aggregator(s) Fit In
So far, we have covered the basics, so let us really get into DeFi aggregators, and how exactly they work. DeFi aggregators essentially bring trades across decentralized exchanges (DEXs) into a single place which can save users a lot of time and increase their efficiency so they can end up making better trades.
An aggregator does this by pulling the best prices from different decentralized exchanges, lending services as well as liquidity pools into a single location, and as such, users will have all of the raw data and information to bring their trades to the next level.
Without using an aggregator, you as a user have to individually visit each and every exchange out there and manually compare the prices on each of them to get the best deal, and even further, you will need to manually execute each transaction through the usage of smart contracts. If you manually check the prices across the exchanges for the best swap, this won’t allow you to conduct complex trading routes. Aggregators don’t only pull you the best prices, but they also essentially allow you to compare as well as combine strategies through dragging and dropping blocks in order to create the best strategy.
When we compare this to traditional investing, DeFi aggregators differ in the way that they will essentially allow you to earn from more experienced traders by following their exact strategies. This means that even the most inexperienced and new users out there can end up copying the most complex trades conducted without really having to know too much, and potentially gain a lot from it. This beginner-friendly nature is what essentially brings it to a high level of popularity, as a lot more people feel confident in investing due to this.
Keep in mind that no strategy is linked to a single, individual person, but each of them is user-generated for all to view and mimic. Instead of having to execute a strategy throughout multiple DEXs, if you are a user of a DeFi aggregator, you can essentially execute the strategy there and build the trade.
By copying successful strategies, and using combos instead of multiple platforms, you can save a lot of time and yield a lot of decent results. Through combos, you get the ability to access a lot more trades simultaneously, which is a good thing to have.
Beauty of DeFi Aggregator(s)
So, by this point, you are probably familiar with exactly how DeFi Aggregators work. They essentially identify and share the most successful trading strategies with their users who are able to adopt these combos in their own strategies, it’s that simple. However, aside from this, all of the transactions as well as the combinations are visible to users. This in turn allows for a high level of transparency and authenticity, as you genuinely know and can see what kind of strategies are being implemented, and what people are actually investing in.
Through collecting all of these successful strategies, you as a trader are allowed to access them in a single platform, and this, in turn, allows you to save a lot of time, which is important when you want to capitalize on a cryptocurrency that’s about to sky-rocket in value.
Another appeal of these DeFi aggregators is the fact that you can connect them with different services such as flash loans without needing to actually write code or customize the smart contracts themselves. This all connects with the idea of “anyone can be a cryptocurrency trader” as you really do not have to be that in-depth in the industry to use them and make successful trades.
If you are uninitiated, a flash loan is essentially this uncollateralized loan where the trader borrows, exchanges, and then repays a debt in a single transaction through the usage of a smart contract.
This is available without any collateral due to the fact that the loan will not end up executing without all of the party’s borrowing and being repaid simultaneously.
If you’re looking for an example to understand this point further, you can think of it as performing an arbitrage trade in order to make a profit based on the difference between the exchanges themselves.
Without a DeFi aggregator platform, however, you would essentially need to write and implement the code which is required for the smart contract to operate that way, and this would lead you down a path of actually learning to code, which can eat up a huge chunk of your time and require a lot of commitment to execute efficiently.
By allowing traders to access DeFi without needing to know any programming language, which is presented in a simplistic way and provides the traders with access to some of the most successful DeFi strategies out there in real-time, DeFi aggregators can be seen as the main tools which make DeFi a lot more accessible to anyone out there, even people who would otherwise be excluded from this opportunity due to their limited or lack of knowledge in this regard.
Another key aspect that needs to be discussed here is the gas fees. You see, gas fees are one of the most common discussions when it comes to DeFi aggregators, as Ethereum reaches higher levels of usage. Gas fees are typically higher on aggregators, up to 150% higher in fact than on the individual protocol itself. However, aggregators have certain ways to combat this and bring it down a notch.
You see, certain aggregators out there have gas tokens or gas cubes that are built into the platforms or trades, and these allow users to reduce and save on gas fees, up to 50%. Keep in mind that gas fees are higher on aggregators by default, however, the efficiency, as well as optimization that comes with using one, is intended to outweigh the gas usage in regards to the returns you might end up getting through implementing them in your investment strategy.
Some of the more advanced aggregators out there go one step further and give users an estimate as to the gas fee that factors in the expected return from a particular strategy so that they can know everything before jumping in on a trade.
DeFi Aggregator Comparisons
The best way through which you can learn how a DeFi aggregator works is to actually see and review some of them. As such, we’ve created a list specifically designed to showcase their differences, so you know what you are getting into assuming you pick any one of these.
That being said, here’s a list of some of the most popular DeFi aggregators out there, so you can have more of a perspective of what you’re getting yourself into.
- Zapper – This is an aggregator that allows you to manage DeFi assets alongside liabilities through a simple user interface. It lets you quickly and efficiently deploy as well as manage DeFi positions, and this includes all of the complex things that you would otherwise find alongside multiple yield farming positions. Here, the stand-out features include the Zapping In and Zapping Out functionality. You can enter and exit DeFi positions directly through the Zapper dashboard. The main stand-out feature here is the fact that it can integrate with multiple DeFi platforms and allows for portfolio rebalancing through shifting the capital to other platforms, and has multi-pooling features which can allow for diversification of asset distribution. You also have pooling opportunities that are conducted through a single, simple interface, and this means that you will not have to visit multiple websites in order to make transactions. You can also monitor DeFi positions with a snapshot of your assets as well as liabilities.
- Zerion – This aggregator essentially tracks over 40 protocols and makes it easy to find tokens spread across multiple DeFi platforms as well as Ethereum addresses. It sources liquidity from major decentralized exchanges and this gives you a single-transaction address to liquidity pools and automated strategies as well as indexes from protocols. It allows you to explore, buy and manage with ease. You can explore the entirety of the DeFi market from Zerion’s simple UI, and you will not need to manually search up anything as it implements filters that can help you evaluate every DeFi asset.
- Plasma.Finance – This option gives you everything you need from a single location, and by everything, we mean portfolio management, FIAT on/off ramp, liquidity pools, DEX and SWAP aggregator, lending and browsing as well as a cross-chain asset swap. You can easily buy as well as sell tokens with your card or bank account at the best rates, and this is done through a partnership with plasmapay, ramp, and simplex. Alongside this, you also gain access to features such as auto-calculators, which can save you a lot of time that you would normally spend in regard to calculating your APY as well as P&L. You can choose from over 100 available liquidity pools cross-chain as well, and potentially learn how the market behaves through the analytical tools on offer.
- Matcha – This platform allows you to get crypto assets at the best rates through the usage of its very own “0x API Technology” which is able to check over 17 decentralized exchanges (DEXs) at the same time. It works across 0x, Balancer, Uniswap, SushiSwap, Kyber, and more. Through searching across these at the same time, you can save a lot of time, and there aren’t any hidden fees involved. No account is required, and you don’t even have any trading limits or deposit and withdrawal fees. It is built with the intention of providing a simplistic user interface, and it has a lot of shortcuts that can help users be a lot more efficient with their search.
The Bottom Line
There are plenty of decentralized applications (dApps) out there that offer the promise of high-yielding traders, however, and this is especially the case if you are a newcomer, many of them are often a challenge to use. This is due to the fact that each user has to conceptualize as well as learn the intricacies throughout each and every platform as well as protocol. DeFi aggregators solve this issue by bridging the best trades to the user in a single location.
There are plenty of people out there who are simply holding onto their cryptocurrencies instead of putting them to work, and as such, DeFi aggregators have the potential of opening the door for even the most inexperienced users out there and to helps them build different strategies based on successful ones that are already recorded and publicly available, without having to know any of the intricacies that are found on many DeFi trading platforms, and they are not required to know any programming languages either. The usage of aggregators essentially gives users the reassurance that they can get efficient strategies for each and every one of the trades they decide to pursue.