DeFi is a very broad field. To help spur your ideas, here are examples of DeFi protocols that already exist

Decentralized Exchanges (DEXs) are probably the most widely known category of Defi products. They are on-chain applications allowing people to exchange tokens in a decentralized manner. Unlike centralized exchanges, they allow access to everyone at any time and they offer full transparency on their liquidity and on everything happening on the platform. Also, on some platforms, anyone can contribute to the liquidity and receive reward. 

Some popular examples of decentralized examples are Uniswap, dYdX and Curve. Back in February 2022, we ran a Scrypto challenge around decentralized exchanges. We suggest looking at the submissions for inspiration.

Lending is also a very important aspect of DeFi. You might be wondering how it is possible for lending to work on a decentralized network where it’s hard and sometimes impossible for projects to identify their users. How can they make sure the users don’t just run away with the money? Some very smart people thought about this and found different solutions. For example, many projects only offer overcollateralized lending. This means that people have to lock-in an amount of another token with a higher total value than the tokens they are getting lent. Since the price of the token used as collateral is constantly changing, it means that the total value of the collateral could become less than the amount lent. In that case, people are able to trigger a liquidation to pay the loan back. This incentivizes people with active loans to keep topping up their collateral.

Some popular examples of lending protocols are Aave, MakerDAO and Compound. Back in June 2022, we launched a Scrypto challenge around lending. You can find more information about it here and find the submissions for inspiration here.

Some say that stable coins are the heart of DeFi. They are very important for any DeFi ecosystem to be successful. Stable coins are tokens whose price follows that of a fiat currency or another asset. Popular ones are USDC, DAI and Binance USD (BUSD) which all follow the price of USD. USDC and BUSD rely mostly on off-ledger processes to keep the price constant and might not be the most interesting examples for this competition. Another more interesting category of stable coins are algorithmic stablecoins, which rely on on-chain processes to keep the token price constant. Maker DAO’s DAI is an example of this.

Most decentralized applications rely on liquidity provided by the people from the community. To entice them to lock-in some liquidity, they often offer a reward issued as another token. This allows people to gain yield on their assets that they would not otherwise have if they simply kept the tokens in their wallet. This encourages people to constantly be on the lookout for the protocols offering the highest yield at the current moment. This can be time consuming and tedious. People have thus started building yield aggregators. This allows liquidity providers to lock their liquidity on a single platform that then invests it on the projects offering the best yield.

Some examples of yield aggregators are Yearn, Beefy and Idle Finance. There was a Scrypto challenge on this subject back in August 2022. Find the results for inspiration here.

Derivative contracts are contracts that derive its value from an underlying asset. The person who sells these derivative contracts holds the underlying asset and may choose to write and sell a derivative contract, providing the prospective buyer an option to buy or sell the underlying asset at a specified time in the future. The contract writer will want to write and sell derivative contracts to receive immediate income in hopes the contract expires and becomes worthless; preventing the buyer from exercising the contract in which the contract writer will still hold on to the underlying asset yet receive an income for selling the contract. On the other hand, one reason the buyer wishes to purchase these derivative contracts is because it allows for cost savings. The underlying assets of the contract are often sold at a discount compared to if the underlying asset was purchased directly. We’ll provide more resources on how to understand option and derivative contracts in the resources section, but the underlying technical mechanics that can allow for derivative contracts to exist in decentralized ledgers are through representation of NFTs, particularly, “Financial NFTs” (FNFTs). FNFTs can be used to represent control over an underlying asset by using it as a badge that provides access to an asset held inside a Vault. Like a derivative contract, a FNFT can be transferable and derives its value from an underlying asset.