What are DeFi native tokens?

Image:https://www.coingecko.com/en/categories/decentralized-finance-defi

DeFi native tokens are functional tokens issued by decentralized financial protocols themselves, which are usually embedded in the core mechanisms of DeFi protocols, serving various functions such as governance, incentives, and staking.

Unlike exchange tokens, these tokens are not attached to a specific platform, but rather the ‘engine’ and ‘control lever’ of the DeFi protocol itself. For example, Uniswap’s UNI is not only a governance token, but also an important tool for user incentive mechanisms.

Three major functions of DeFi native tokens:

1. Governance
   Most DeFi protocols delegate upgrade rights, parameter setting rights, etc., to the community, and holders of native tokens can vote to determine the direction of the project.
2. Protocol Incentives
   To encourage users to provide liquidity or use protocols, the platform will distribute native tokens as rewards, forming a positive cycle.
3. Economic Value Anchoring
   Some tokens (such as MKR) directly impact the stability and liquidation logic of the protocol, serving as the core pillar of the Decentralized Finance protocol’s economic model.

Top 10 DeFi native tokens Overview

Here are the top 10 DeFi native tokens currently attracting the most market attention (in no particular order):

Why it’s worth paying attention to DeFi native token

• Highly decentralized: Most of these projects are operated by DAO, with transparent community governance and high user participation.
• Deep binding to the protocol: DeFi native tokens are directly linked to the protocol mechanism, and the more they are used, the higher their value.
• Potential upside: When the TVL (Total Value Locked) of DeFi rebounds, native tokens are usually the first beneficiaries.

Especially for projects like UNI, AAVE, MKR, etc., their tokens not only symbolize ‘equity,’ but also represent practical governance power in governance.

Risk Tips and Precautions

Investment advice:

• Understand the protocol principles: Do not just look at the price, delve into the model and token usage of each Decentralized Finance protocol.
• Pay attention to the DAO dynamics: the approval or rejection of governance proposals directly affects the token value.
• Long-term participation vs. short-term trading: when participating in lock-up or staking, evaluate the liquidity and lock-up period.
• Choose the right trading platform: Choose a safe and suitable trading platform, such as Gate.ioTrade securely to ensure asset safety.

Image:https://www.gate.io/trade/UNI_USDT

Main Risks:

• Contract security issues: Some protocols were attacked leading to asset losses.
• Serious token inflation: Some projects have a fast token release speed, diluting the value of holders.
• Centralized governance: A few whale addresses control the proposal approval rate, leading to decision imbalance.

Future Trend Outlook

With the development of Ethereum Layer2, the integration of AI financial tools, and the gradual on-chainization of Real World Assets (RWA), DeFi is transitioning from being a ‘bank on the chain’ to ‘on-chain infrastructure.’ In this evolution process, DeFi native tokens will further expand their role, including emerging use cases such as cross-chain settlement, stablecoin control, and AI agent governance.

And established projects such as AAVE and MakerDAO have also launched V4 or Endgame upgrade plans, trying to maintain their lead in the competition.