Decentralized finance grew exponentially in 2020 as an answer to great corruption and the lack of access to financial markets for ordinary people. Defi has created a new money paradigm. Ethereum’s smart contract architecture has laid the creation of an almost limitless open-source financial ecosystem, giving birth to groundbreaking innovations that the world has never known before.
Decentralized finance or, in short, “DeFi” is an umbrella term for all financial projects and protocols in various blockchains, that are compatible with Ethereum Virtual Machine. This ecosystem provides users with financial tools, ensured by smart-contracts and working without intermediaries and credit rating systems. DeFi Apps aim to provide solutions similar to what traditional finance services offer. However, these services are provided transparently and on a global decentralized network.
Let’s presume that DeFi arose around 2013 with the first Initial Coin Offering, Mastercoin, (now, Omni). There was the first innovative fundraising mechanism like the IPO – ICO. Then a year later, BitShares implemented the first stablecoin which went up for 400% since December 20. ICOs (now renamed as allocations) and stablecoins eventually played a key role in DeFi statement.
The value of DeFi is continuing to skyrocket – recent statistics show that the total value locked in DeFi projects eclipsed $60 billion as for May 2021. At the beginning of 2019, the value was around $40 million.
Decentralized finance took the world of crypto by storm in 2020 and kept successfully captivating attention into 2021. Meanwhile, CoinGecko calculates a total market cap of $128 billion for DeFi. The TOP ten tokens according to coinmarketcap.com are UNI, LINK, WBTC, AAVE, stablecoin DAI, TERRA, MKR, CAKE, AVAX, COMP.
These TOP protocols provide wide range of innovative financial tools:
- Instant reversible swap tokens with Automated Market Making mechanism
- Oracles system for maximum data actualization
- Flash loans
- Bitcoin mirror in DeFi, trading 1to1 to real BTC
- DeFi stablecoin pegged to USD, MKR is governance token for DAI
- API that integrates with global payment providers and offer stablecoins pegged to various national currencies
- Staking, Yield Farming / Liquidity mining and swapping
- Tools for constructing DApps’ smart-contracts
Through compounding various protocols, for example flash loans + farming, new ways of turning a near-instant profit arises. The most frequently discussed innovations in defi space are rooting for passive income in crypto: staking and liquidity mining or farming.
The new era of earnings by putting one’s assets to work in the form of staking, providing liquidity, yield farming, and other participation became mainstream a year ago and now are still heavily present.
The today’s realities of high unemployment rates due to prolonged lockdowns, quite odd central banking policies, and the fears of hyperinflation shook the confidence within the traditional financial system. The coming of defi is just a consequence of Individuals’ and institutions’ increasing ambition of implementing effective ways to preserve and generate wealth.