What is DeFi?

A collection of decentralized blockchain-based protocols offering similar services to the traditional financial industry

Short for decentralized finance, DeFi is an emerging industry enabled by blockchain and smart contract technology. Those building the sector’s applications attempt to recreate services found in the traditional financial industry in a more trustless and permissionless fashion, without reliance on trusted intermediaries. 

Since decentralized applications primarily consist of combinations of smart contracts, most of the applications that we consider to be DeFi are built on Ethereum and other blockchain networks that support sufficiently sophisticated programming languages. Ethereum remains the largest DeFi ecosystem by far, but examples of other prominent platforms supporting decentralized finance include Solana, Avalanche, Polkadot and Cosmos. 

The DeFi sector’s roots can be traced back to 2017. That year, many projects launched initial coin offerings to raise development funds. Although many ICOs failed and some were outright scams, a handful went on to become the dominant DeFi applications of today.   

During 2020, interest in DeFi started to ramp up considerably. Uniswap’s development of peer-to-contract trading and Synthetix incentivizing liquidity providers with rewards catalyzed the niche, inspiring others to borrow these concepts. As a result, during mid-2020 — a period affectionately referred to as DeFi summer — the total value of all cryptocurrencies committed to the sector’s smart contracts surpassed $1 billion for the first time. By mid-September, the figure exceeded $10 billion, and it rose to almost $90 billion by the following May. 
Today, the DeFi sector includes lending platforms, such as Aave and Compound; decentralized exchanges, such as SushiSwap and Uniswap; derivatives exchanges, such as Synthetix and dYdX; and stablecoins, such as MakerDAO’s DAI. Built using coded smart contracts, these platforms are often interoperable, enabling novel functions and occasionally leading to catastrophic vulnerabilities.

Disclaimer
This content is provided for informational purposes only and may cover products that are not available in your region. It is not intended to provide (i) investment advice or an investment recommendation; (ii) an offer or solicitation to buy, sell, or hold crypto/digital assets, or (iii) financial, accounting, legal, or tax advice. Crypto/digital asset holdings, including stablecoins and NFTs, involve a high degree of risk and can fluctuate greatly. You should carefully consider whether trading or holding crypto/digital assets is suitable for you in light of your financial condition. Please consult your legal/tax/investment professional for questions about your specific circumstances. Information (including market data and statistical information, if any) appearing in this post is for general information purposes only. Some content may be generated or assisted by artificial intelligence (AI) tools. While all reasonable care has been taken in preparing this data and graphs, no responsibility or liability is accepted for any errors of fact or omission expressed herein. OKX Web3 Wallet and its ancillary services are not offered by OKX Exchange and are subject to the OKX Web3 Ecosystem Terms of Service.

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