Decentralized Finance
Decentralized Finance (DeFi) is the merger of traditional bank services with decentralized technologies such as blockchain.[ 1]DeFi is an abbreviation of the phrase decentralized finance which generally refers to the digital assets and financial smart contracts, protocols, and decentralized applications (DApps) and are almost all DeFi applications are built on the Ethereum blockchain, the world’s most popular programmable blockchain. [2]
DeFi Overview[edit]
History[edit]
Ethereum - a protocol widely known for introducing smart contracts - was launched in 2015 and made blockchain programmable. Blockchains had previously been limited to simple transactions. With Ethereum, developers could finally push data and sophisticated programs to a blockchain. Projects were slow to leverage the turing-complete features of Ethereum for financial services. MakerDao, founded in 2015 gradually became a leading project in the cryptocurrency space.
Started in 2015 as a blockchain consultancy firm and foundry, Consensys, did not originally specialize in Decentralized Finance Projects. Nonetheless, it brought new developers to the Ethereum ecosystem. The DAO, a decentralized autonomous organization, launched in April 2016 was created a 'decentralized' model to organize commercial enterprises.
Today DeFi is today the fastest goring app on Ethereum. It is widely considered to be not only the killer app for Ethereum but for all of blockchain.
DeFI Applications - DeFi a leapfrogging Technology[edit]
DeFi is considered a leapfrogging technology that may be most useful in developing world. In 2013, only 35% of the world's population had access to the internet.[1] By 2019, 57% of the world’s population uses the internet on a regular basis. Smartphones have begun to become considerably less expensive, meaning they’re more affordable for the planet’s poorest. Two-thirds of unbanked citizens now own a mobile device[2] — the selfsame technology they need to begin exploring DeFi platforms.
Ethereum Scalability Problems[edit]
Ethereum utilized a proof of work consensus protocol. All nodes must confirm and reach consensus on each transaction. This has made costs extremely expensive and caused gas prices to spike on two previous occasion. In late December of 2017, Ethereum’s first hit dApp, Cryptokitties clogged the network. Then in July of 2018 Chinese Exchange Fcoin's poorly programmed smart contracts resulted in a spike in gas costs. In summer of 2020 DeFi has overtaken Cryptokitties and Fcoin, bringing gas costs to nearly $20 per transaction.
Blockchains[edit]
- Ethereum: Ethereum is the leading blockchain utilized for decentralized finance. As the original blockchain utilizing smart contracts, Ethereum benefits from first-mover advantage. As more projects utilized Ethereum for their Dapps, they also strengthened the ecosystem for Ethereum as more projects built on Ethereum to be compatible with standards and projects Ethereum facilited.
- Bitcoin: Bitcoin - the leading cryptocurrency by market cap, and until recently by # of transactions - has been slow to integrate DeFi applications given the limitations of the Bitcoin blockchain.
DeFi Models[edit]
Since 2020 DeFi companies have exploded in popularity. DeFi models their associated projects are disrupting businesses in every vertical from lending to payments and Decentralized Exchanges. Some popular models include:
- Security Tokens: A Venture Equity Exchange was the first project to attempt to tokenize startups but never got past a Minimum Viable Product (MVP). Today there are numerous projects and blockchains
- Lending
- DEXs
- Stable Coins
DeFi Projects[edit]
DeFi Projects in Order of Value (Locked)
A Total of $2 billion USD in was locked up by projects as of August 17 2020. In order are the top five DeFi projects:
1. Maker 2. Aaave 3. Curve Finance 4. Synthetix 5. Compound
References[edit]
- ↑ Blenkinsop, Connor (2019-10-07). "Decentralized Finance, Explained". Cointelegraph. Retrieved 2020-08-16.
- ↑ "Financial Inclusion on the Rise, But Gaps Remain, Global Findex Database Shows". World Bank. Retrieved 2020-08-16.
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