Decentralized finance, also known as DeFi, is a nascent industry comprised of projects built on Ethereum that are designed to offer financial services traditionally provided by centralised institutions.
Since early 2019, the total value locked in DeFi protocols has grown exponentially, culminating in over $1 billion worth of crypto assets being locked in Ethereum smart contracts as of August 2020. This growth can largely be attributed to the launch of numerous yield-generating protocols that allow users to earn interest on their crypto holdings, as well as the recent boom in decentralized exchanges (DEXes) that offer alternative trading venues for digital assets.
The DeFi industry is still in its early stages of development, but it has already seen a number of successful projects launch and grow to become industry leaders. There are a few different decentralized exchanges (DEXs) that have become popular in the world of cryptocurrency. MakerDAO is one of the most well-known DeFi protocols, as it is the creator of the Dai stablecoin, which has become a popular tool for hedging against volatility in the crypto markets.
The most popular DEX seems to be Uniswap, which is a protocol that allows for the trading of Ethereum-based tokens. Other popular DEXs include Kyber Network, Binance Dex, and 0x. These exchanges offer a great deal of flexibility and freedom when it comes to trading cryptocurrencies. However, they also come with a few risks. For example, since these exchanges are decentralized, they are not subject to the same regulations as traditional exchanges. This means that there is a greater potential for fraud and manipulation.
Another prominent project in the DeFi space is Compound, which allows users to earn interest on their crypto holdings and also borrow assets against them. Compound has seen significant growth in recent months, with its total value locked (TVL) reaching over $1 billion in August 2020.
With the rapid growth of the DeFi industry, it is becoming increasingly clear that this nascent sector is here to stay. In the coming years, we can expect to see more projects launch and mature, as well as a continued influx of users and capital into the space. As DeFi matures, it has the potential to change the way we think about financial services, and could one day provide a viable alternative to traditional centralized institutions.
