What is DeFi?

A dive into the buzzy world of decentralised finance, a nascent space that’s beginning to offer competition to the traditional finance system.

Token Takeaways

Decentralised finance replicates traditional finance activities like lending and borrowing with tokens.

DeFi first boomed on the Ethereum blockchain and has grown with the broader ecosystem.

If tokens are successful, DeFi could see huge growth in the future.

DeFi is arguably the most important niche in the token universe, and it’s only just getting started. As we believe that decentralised finance will form a key part of the crypto and token economy and be hugely disruptive worldwide, token.com features a curated Collection dedicated specifically to DeFi Blue Chips. This piece goes deep on DeFi and our Collection of the space’s most essential tokens.

Understanding DeFi in the crypto era

Decentralised Finance, or “DeFi”, as it’s commonly known to token enthusiasts, is one of the most groundbreaking technologies to emerge from the blockchain and crypto movement.

DeFi is an emerging and disruptive niche within the token universe, encompassing several top decentralised crypto exchange platforms and some of the best token opportunities. It offers token users access to traditional finance activities such as lending and borrowing without the need to go through third-party services such as banks.

DeFi could profoundly change the world as it seeks to disrupt the traditional finance system. While legacy institutions act as gatekeepers and maintain control over the traditional economy, DeFi creates a more open, transparent system that anyone can access. This transformation in financial accessibility mirrors the ethos of the best crypto exchange platforms, empowering millions of individuals excluded from traditional economic avenues and signifying the potential transformative impact of DeFi, even in its nascent stages.

How DeFi has grown and its potential for the future 📈

The DeFi movement started on the world’s biggest smart contract blockchain, Ethereum. As the network gained popularity, a small handful of promising projects started to build on the network to give users access to financial activities beyond simply exchanging value.

By early 2020, Ethereum had become the main hub for DeFi. One powerful aspect of Ethereum’s ecosystem is composability—a principle that allows users to access different applications on the network interchangeably in endless combinations. As more applications flocked to the network, DeFi on Ethereum quickly grew and became one of the ecosystem’s most promising innovations. It then exploded in 2020 with the advent of yield farming, an activity that allows users to earn tokens and grow their holdings by putting their tokens to work within the ecosystem. Today, the ability to earn yields that outpace traditional services such as banks remains one of DeFi’s core value propositions. 

While Ethereum is still the biggest DeFi hub, several other networks have seen an influx of users as new DeFi-focused applications build on their platforms. Other Layer 1 networks like Solana and Avalanche host their own DeFi applications, some of which initially launched on Ethereum and expanded as part of a vision to embrace “the multi-chain future.” Today, there’s around $38 billion locked in DeFi applications, most of which is on Ethereum. At its peak, the figure was closer to $180 billion.

Chart showing the total value locked in DeFi from 2019 to 2023

The total value locked in DeFi peaked at almost $180 billion in November 2021, but today the figure sits closer to $38 billion (Source: DeFi Llama)

It’s worth noting that DeFi is still in its infancy. $180 billion accounts for only a tiny fraction of global wealth. The DeFi space is still developing and not ready for mass adoption. DeFi has suffered from many attacks over the past few years, and many projects have folded, proving there are risks to using the technology at such an early stage.  

Although DeFi is currently down from its 2021 peak, we believe that the movement will see huge growth over the next decade and beyond. This is because DeFi offers many improvements over the traditional system. For large organisations, DeFi creates a way to exchange and capture value on a borderless network without paying high fees or waiting for settlements to clear. For regular people, it offers access to financial activities typically reserved exclusively for larger institutional players. There are over 1 billion unbanked people worldwide, and those with bank accounts are rarely offered notable interest rates on their savings. DeFi could change that and become a considerable force for good for millions of people around the world.

The DeFi Blue Chips Collection 💫

The DeFi Blue Chips Collection features a host of the most widely used applications catering to the Decentralised Finance space. Many of them launched on Ethereum as the movement exploded in popularity and have grown to become established multi-billion dollar projects. 

The Collection draws focus to lending activities by featuring Aave and Compound, two of the most popular projects on Ethereum. They both let users borrow tokens and earn interest when they make a deposit. 

We’ve also included Curve and Uniswap, two of DeFi’s biggest decentralised exchanges. These platforms are considered bedrocks of the DeFi ecosystem, offering deep liquidity and seamless token swapping capabilities—characteristics integral to the best crypto coin exchange platforms within the DeFi landscape.

Other Ethereum favourites in our DeFi Blue Chips Collection include the Layer 2-based derivatives exchange dYdX, which leverages StarkWare’s zk-Rollup technology. It also features MakerDAO, currently the largest DeFi project and the creator of the DAI stablecoin, which may be the best crypto to invest in this ecosystem.

Synthetic assets are one of DeFi’s most powerful offerings, and they get a nod in our DeFi Blue Chips Collection with the inclusion of Synthetix. The early DeFi exchange Sushi also features alongside one of the frontrunners of the yield farming boom, Yearn. 

Looking beyond Ethereum, Avalanche has one of the most vibrant DeFi ecosystems. Its biggest project, Benqi, features in our Collection. Finally, the Raydium exchange, which has quickly become one of Solana’s key projects, is also one of our selected blue chips.  

Delving deeper into the crypto DeFi universe

DeFi is one of the token universe’s most promising innovations, but it’s yet to fulfil its world-changing promise. There are also some issues to overcome before the technology is ready for mass adoption. Nonetheless, there is little doubt that DeFi will become one of the token economy’s most important offerings. DeFi is already growing at a fast pace, with new projects emerging all the time. The DeFi Blue Chips Collection is an easy way to familiarise yourself with DeFi’s most essential projects and get exposure to some of the best crypto to invest in. Check it out for yourself now.

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Please note: Investing in cryptoassets is risky. Due to the volatile nature of the cryptocurrency market, investors run the risk of losing their funds when they make an investment. Returns from cryptoasset investing are not guaranteed, therefore users should always be aware of the risks.