Top 10 DeFi Hidden Gems

Under-the-radar projects our analysts are digging into.
May 25, 20239 min read

Dear Bankless Nation,

It's a wild on-chain world out there. Today, we're digging into ten under-the-radar DeFi projects that our analyst team members are pretty excited about.

- Bankless team

Bankless Writer: Jack Inabinet

Exploring the frontier of crypto is scary.

Many newcomers to crypto avoid making the leap on-chain; we don’t blame you if you fall into this camp!

But today, we’re highlighting 10 of our favorite hidden DeFi gems. The first 2 are available to everyone, but we've saved the rest for our Bankless paid subscribers 🤝

1. Smilee Finance

What is it?

Anyone who has provided liquidity to an AMM is familiar with impermanent loss (IL). Smilee unlocks the potential of IL by allowing traders to take positions on price volatility.

The protocol's core primitives are on-chain options and derivatives enabling volatility trading at scale. To start, Smilee turns IL from a bug to a feature through their "Impermanent Gain" & "Real Yield" products.

Essentially, you can short volatility (akin to LPing on an AMM) while earning a yield, or long volatility with Impermanent Gain options offering up to 5,000x leverage and no liquidations. Smilee allows LPs to hedge their IL exposure and traders to speculate on volatility.

Smilee recently announced components of its Smilee v1.69 update, including a synthetic AMM and Directional Impermanent Gain options, enabling traders to enter and exit positions at any time while giving them the ability to double leverage by taking a directional preference on volatility.

Because of the flexibility of its custom synthetic engine, Smilee can offer a variety of exotic derivative payoff structures, including those for impermanent gain, options, variance swaps, structured products and insurance.

How to interact?

Smilee has already successfully undergone one round of incentivized testnet testing and a second round showcasing v1.69 is on its way. You'll need a private Discord invite to gain access to the incentivized testnet and Bankless has secured 25 of them for our Citizens! For details on how they'll be distributed, join the Bankless Nation Discord (gated to Citizens only) and keep up with the announcements.

2. Aevo

What is it?

Aevo is an orderbook options exchange from the Ribbon Finance team built on Aevo Chain, a custom OP Stack rolldApp – an L2 solution that's built on Optimism's code base that exclusively services the Aevo Exchange.

Similar to leading options provider dYdX, Aevo runs an off-chain orderbook and executes matched transactions on-chain with its smart contracts.

Currently, Aevo Exchange offers calls, puts, and futures on ETH, and the newly-launched Aevo OTC makes altcoin options accessible to anyone (well, anyone who can place a minimum $10k notional trade). The team intends to ship BTC options, increase market maker integrations, and integrate with Ribbon’s DOV vaults at a future date.

How to interact?

Aevo Exchange may be gated to Exchange Pass HODLers and Aevo OTC is for whales only, but have no fear, Bankless has your solution: we’re handing out 30 of these NFTs to Bankless Citizens!

Join the Bankless Nation Discord and go to the announcements tab to learn how to get your name on the list to receive one of these elusive passes. Once you’ve received your Exchange Pass, you’ll be able to bridge USDC from Ethereum into Aevo Chain and begin trading perps and options on Ether.

3. OpenEden

What is it?

OpenEden is the first smart contract Treasury Bill vault to be managed by a bankruptcy-remote, regulated entity, making it one of the safest methods to access real world yield on-chain.

The protocol places compliance and transparency above all else. Collateral is managed by a Singapore central bank (Monetary Authority of Singapore) regulated fund management company and tokens are exclusively issued from a professional fund regulated by the British Virgin Islands Financial Services Commission.

OpenEden provides a variety of comforting features for investors, like real-time Chainlink Proof of Reserves attestations and daily custodian reserve reports. Instant redemptions are possible, thanks to a 5% USDC reserve, offering investors on-demand liquidity.

TBILL is OpenEden’s first yield-bearing ERC-20 and the team hopes to unlock DeFi lego mode soon.

How to interact?

Go to the dApp and complete OpenEden’s required KYC onboarding process. Non-US and accredited US investors are eligible to invest. In just 15 minutes, your application should be approved and you can deposit USDC and mint TBILL instantaneously to begin earning yield. Exit your position at any time, with OpenEden’s 24/7 redemptions.

4. GammaSwap

What is it?

GammaSwap turns an LP’s trash into a tradooor’s treasure.

Providing liquidity to AMMs like Uniswap exposes liquidity providers to impermanent loss, reducing the value of their position as underlying asset values fluctuate.

Payoffs resulting from liquidity positions mimic constantly adjusting short straddle options in traditional financial markets, where an investor sells both put and call options on the underlying with the same strike and expiration.

Under the current paradigm, LPs are not compensated for writing these options.

Creating a marketplace where liquidity providers are matched with parties looking to long volatility allows LPs to generate an additional source of yield from traders or hedge against their own impermanent exposure.

How to interact?

While mainnet is not live, you can gain early exposure to the GammaSwap ecosystem through their ongoing trading competition, in partnership with Rysk Finance.

Test your abilities as a volatility trader or portfolio manager for the change to earn rewards and a slice of the competition’s $50k prize pool. Non-cash prizes include NFTs, OATs, and Discord roles, making participation a must for any degen looking to get their foot in the door for a potential protocol airdrop.

5. Stream Finance

What is it?

Stream Finance aims to bring US Treasuries into DeFi and narrow the gap between stablecoin and real world yields, using a tailored, KYC-minimized process to allow any non-US parties to get exposure to US Treasuries.

Currently, Stream allows individuals to set up “vaults” to invest in 4-week US Treasury bonds and withdraw their principal and accrued interest at the end of the term, however, the team intends on adding additional asset types, like corporate bonds.

Flow, a product currently in the works from the Stream team, will bring instant liquidity to depositor positions, but requires users to sacrifice a portion of their yield, reflective of the fact that the smart contract must hold liquid assets to honor redemptions.

How to interact?

Stream Finance is currently live on mainnet. Visit their dApp and start earning real-world yields today.

6. Yama Finance

What is it?

Stablecoins often have little native use beyond storing value. Yama seeks to propel adoption of its dollar-pegged token by satiating traders’ thirst for leverage.

A novel omnichain stablecoin built on USDT, Yama uses interest from borrowers to incentivize native liquidity for swaps. The protocol offers high leverage – up to 17x – on collateral, like GLP, and its design offers a host of benefits, including high relative levels of liquidity, zero fees or slippage on YAMA/USDT trades, and extremely high APYs for lenders.

While the protocol has yet to live up to its omnichain promise (currently deployed only to Arbitrum), the protocol envisions itself as the de facto stablecoin provider for the long-tail of rollups and has plans to deploy to both Fuel and Eclipse.

How to interact?

Whether you’re seeking yield, degen leverage, or a combination of the two, Yama has got you covered.

Lending to Yama is a relatively low-risk method to earn over 20% APY on your USDT. For those seeking directional price exposure to crypto assets and enhanced yields of up to 220% APY on GLP, borrowing is the wei.

7. Sentiment

What is it?

Sentiment aims to solve the capital inefficiencies associated with overcollateralized lending primitives by enabling permissionless, undercollateralized and on-chain credit markets to provide users unique ways to leverage positions and interact with whitelisted dApps.

An occupant of the DeFi Dog House, Sentiment fell victim to an oracle exploit at the beginning of April that allowed a hacker to walk away with $970k and caused $1.1M in bad debt, but was able to negotiate a 90% recovery of funds and execute a liquidation to return the protocol to 100% solvency in the days following the hack.

While the Lindy clock has certainly been reset for Sentiment, the team remains committed to regaining user trust.

How to interact?

Supply liquidity to Sentiment and earn the juiced yields on a variety of bluechip collateral, or collateralize your Sentiment Account and begin to borrow funds to trade or invest in whitelisted strategies.

8. Mero

What is it?

Mero is a trustless reactive liquidity protocol where users can earn yield and register “Actions” for their liquidity.

Actions automatically deploy passive liquidity when and where it is needed, while generating yield on your funds when not in use.

Users can earn yield on ETH, USDC, USDT, DAI, or FRAX until their liquidity is needed. Mero then reactivates this liquidity in accordance with registered Actions to initiate collateral top-ups and debt repayments, allowing users to protect loans on any Ethereum-based borrowing platforms from liquidation.

How to interact?

Deposit eligible assets into Mero’s single-exposure yield-farming strategy pools to earn over 7% APY and register actions to protect your loans from liquidation.

9. dAMM Finance

What is it?

Reputation-based lending is the life blood of the traditional financial system and dAMM Finance is trying to bring it on-chain.

Collateralized lending products from protocols like Aave are inherently capital inefficient and leveraged yield farming protocols like Sentiment restrict borrowers to whitelisted corners of DeFi. To overcome these hurdles, dAMM allows pre-approved, creditworthy market makers and investors to borrow with no money down, allowing them to trade and provide liquidity across any crypto venue in an efficient manner.

Loans are secured by legally binding Master Loan Agreements, meaning that borrowers who attempt to skirt obligations will face real world repercussions for default, providing repayment guarantees to lenders, albeit weaker than those present in many other categories of DeFi lending.

Unlike competitive undercollateralized lending protocols (Maple) where lenders provide funds directly to borrowers of their choice, dAMM opts for a pooled model, with lenders to provide assets to pools and pre-approved borrowers able to draw on the facility if liquidity is available.

How to interact?

Provide liquidity to dAMM’s borrowers in an asset of your choice. Keep in mind that lending to highly utilized pools allows you to earn higher yields.

After you’ve accrued protocol rewards on your liquidity (in addition to interest on your collateral, visit dAMM's bonding tab to claim your bonded dAMM and redeem it for discounted dAMM. You’ll then be able to stake your dAMM for gdAMM and receive a portion of protocol revenues, currently yielding over 20% APY paid out in USDC.

10. Buffer Finance

What is it?

Buffer Finance is a DeFi options protocol designed for traders looking to take advantage of short-term volatility or hedge risks of high-leverage positions in crypto and Forex markets.

Traders on Buffer play with a slightly different set of variables than those available in alternative margin trading venues. Instead of choosing how much leverage you want, you set a duration for your bet, anywhere between 3 minutes to 4 hours, and the protocol gives you a guaranteed payout if your directional prediction is correct.

A lack of funding rates or liquidation risk and the presence of predefined PnL figures abstracts away much of the pain that comes with a more traditional margin trading experience and provides for a more beginner-friendly entrance into the world of leverage.

How to interact?

Visit the dApp to enter into positions on your underlying of choice or provide USDC and ARB liquidity to the protocol and receive escrowed BFR token emissions and a portion of trade settlement fees.

After you’ve accrued some escrowed BFR, you can stake it with Buffer to earn additional protocol fees or “claim” your BFR through an unbonding process, where esBFR vests into BFR linearly over the 365 days and does not earn any fees.

Action steps

  • 🚁 Interact with the above protocols and earn a potential airdrop
  • 🏴 Check out hot opportunities in the Bankless Token Hub

Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.

Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here.

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