Five years later, DeFi now defines Ethereum


DeFi Dad is a DeFi super user sharing his financial experiences and tutorials on Twitter and YouTube. He is an organizing member of the Ethereal Summit and Sessions, host of The Ethereal Podcast, and weekly contributor to The Defiant and Bankless.

Ethereum has always been difficult to explain. Even the founders of Ethereum sometimes struggled to communicate the transformational potential of the project in layman’s terms. Metaphors such as “world computer” and “gas” have attempted to translate Ethereum into the world, but looking back it is clear how much we have understood the true capabilities of the platform.

In 2017, big promises were made that Ethereum would “bank the unbanked”. But that promise appeared to be largely broken in the wake of the initial coin offering (ICO) craze. Nonetheless, the oft-repeated slogan represented the first attempt to describe Ethereum’s potential to transform personal finance.

See also: History of Ethereum in 5 charts

While the ICO craze showed Ethereum’s potential as a distributive technology capable of emulating, enhancing, and democratizing the initial stock offering, what was lacking then was a simple financial use case. personal that could be shown to a friend, such as a mobile app. In those early days, there were plenty of white papers, promises, and signs of progress from a few teams (some of which led to top DeFi projects like ChainLink, Kyber, and Set), but most of the benefits weren’t still delivered.

Meanwhile, many inspiring speakers in the Ethereum community have led us to believe that Ethereum is going to change the world. It just needed a patient newcomer ready to wade through new ideas, complex alien concepts, and a source of new information every day. Nothing was a simple elevator pitch.

When I saw Joe Lubin speak at Ethereal SF 2017, there was an inspiring message to take home. A lot of details went over my head at the time, but if you listened carefully, it was impossible not to buy the idea that Ethereum could change the world for the better.

It should be noted that in 2017, ConsenSys and other early adopters and builders also educated institutional players and enterprise software vendors on how they could take advantage of many blockchain use cases on Ethereum. Partnerships with Microsoft, IBM, and Hyperledger have helped solidify Ethereum’s credibility in the enterprise blockchain race.

See also: How the EEA Made Ethereum Acceptable for Large Businesses

Fast forward to July 2018 when I started working full time at Ethereum. We were all recovering from the hangovers of 2017, thinking the bull run might return sooner before we saw the markets crash and get even bloodier. We were coming out of an era without a coherent elevator pitch to be easily understood, including language that seemed to come from a “Big Bang Theory” script.

I recognized that Ethereum needs to find a small group of fanatic users. For better or for worse, I began to leverage my SaaS background, which taught me that startups need loyal users who find so much use in an app that if it gets deleted , they would have no alternative.

DeFi Days

In the spring of 2019, I’m working full time on the Ethereal Summit, a series of events celebrating the founders and builders of the decentralized web on Ethereum. This is when the Ethereum narrative began to change. I’ve heard of Compound, where you can lend and borrow – similar to MakerDAO, but with better loan-to-value (LTV) ratios.

I was amazed – 50 MILLION dollars in an app built on Ethereum! It was exhilarating to learn that a second fundraising app had been created, launched and had been running on Ethereum for over six months.

All of this activity has become known as decentralized finance, or DeFi. The term was coined in 2018 by members of Team 0x, but the industry was only just beginning. I couldn’t stop thinking about it.

I started researching all of the projects we were hosting at Ethereal – PoolTogether, Kyber Argent, and Zerion. And I did something even more drastic: I started testing and using these damn products!

See Also: Why DeFi on Ethereum is Like Algorithmic Trading in the 90s

I needed to see my investment make money to realize the power of these DeFi applications. I started lending dai on Compound for over 10% APY and it just clicked. I lend dai and others borrow this money, but there is no bank to collect the finder’s fee. So in turn, I earn better interest on loans and borrowers pay lower fees, and without knowing your client (KYC) or anyone’s permission.

What stopped DeFi’s mass adoption was better storytelling and a more visual demonstration of how DeFi can work for anyone.

This had long been a topic of discussion in crypto, user experience (UX) had to improve for Ethereum to be adopted, but I found that the same people who espoused such critiques often had no experience with it. DeFi applications. It seemed like a lie that stuck around long enough to become a truth, although I found some DeFi UX to be better than my experience with traditional banks.

For me, what kept DeFi mass adoption back was better storytelling and a more visual demonstration of how DeFi can work for anyone. Cami Russo’s and The Defiant were already doing a lot of work in this space, but there was clearly more to build.

At the end of 2019, the DeFi community was still small compared to today, only a few thousand or maybe even a few hundred users, but it felt like we were on a rocket ship of excitement. We have come together with this term DeFi, the simplest term to describe any peer-to-peer fundraising application built on Ethereum, requiring a web 3 wallet like MetaMask, which does not need KYC and does not have single point of failure. If ETH is money, DeFi is your bank.

What started as a concept is now an interconnected application economy with an invested value of over $ 4 billion. But it’s more than money. DeFi has changed the way people think about Ethereum itself and spawned new stories and memes.

A meme is born

Shortly after that spark really took off in fall 2019, DeFi users naturally found a second totem pole to come together. This was the concept of Total Value Locked (TLV), invented by the DeFi Pulse team.

TVL refers to the sum of all the value deposited in smart contracts of a DeFi application, whether measured in US dollars (USD) or ETH. TVL reflected a new metric not playable for adoption. It was a way to compare the trust DeFi users placed in an app. It has its flaws, but those flaws are no worse than reducing Bitcoin to its price.

See also: Nathaniel Whittemore – ‘Stacking Sats’ vs. ‘ETH Is Money’ – The Memes That Shaped 2019

DeFi also helped solidify the “ETH is money” meme. As Bankless podcast co-host David Hoffman said, ETH is a three-point asset because it acts as a store of value, a fixed asset, and a consumable asset. “ETH is Money” is an intentional hub of “ETH is gas” and updates the world on how ETH is actually used on Ethereum.

Plain and simple: ETH is money. It’s always been money and labeling it otherwise was a product marketing mistake in Ethereum’s early days.

Yield farming is Ethereum’s latest viral meme. DeFi is a broader category of p2p, self-guarding, KYC-free, Ethereum-based finance apps, but yield farming describes a popular incentive scheme where you often provide cash to a DeFi app in exchange for a combination of rewards.

As IDEO CoLab Ventures’ Dan Elitzer says, Yield Farming is like aquaponics because it creates a symbiotic relationship between DeFi protocols, meaning DeFi participants can earn three or more forms of yield such as interest, market making fees and bundled rewards such as a governance token like BAL or COMP. Due to the more composite incentive designs in DeFi, yield farming (aka “cash extraction”) is like passive income on steroids, with programs offering an average of 10-200% APY per year. day.

Universal appeal

Five years ago, you could tell Ethereum was trying to do too much. Two or three years ago, this was still a valid assumption, with stagnant adoption.

Today, Ethereum’s bold experiment is working. In addition to the $ 4 billion in assets deposited in DeFi, we saw a 227% year-over-year increase in ETH locked in DeFi, and a 20X increase in tokenized BTC on Ethereum (equivalent to ~ $ 220 million) since January 1.

See also: One billion, two billion, three billion, four? DeFi is knocking on TradFi’s door

What was a downside – doing ‘too much’ – is now a strength and a reason why Ethereum’s daily trading volume and daily network fees have eclipsed those of Bitcoin. Although Ethereum is less than half the age of Bitcoin, it has accomplished more over the past five years, building the world’s most advanced permissionless p2p funding system, while Bitcoin has continued to champion the even closer digital gold.

It’s getting easier every day to point to DeFi apps that clearly demonstrate value and utility that you can’t find elsewhere. If you’ve managed to ignore these developments, now is a better time to catch up. The history of DeFi and Ethereum has only just begun.


A leader in blockchain news, CoinDesk is a medium that strives to meet the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.


Please enter your comment!
Please enter your name here