How Decentralized Finance Became Ethereum’s Top Dog

  • Projects like MakerDAO, Compound, dYdX and Dharma realized in 2018 they were a distinct group with shared interests within the cryptocurrency industry.
  • Finance has been part of Ethereum from the beginning, but the first attempt to do finance on the “world computer” ended in disaster in 2016: The DAO.
  • A unit of account was key to make decentralized finance (DeFi) startups usable, so when dai launched during the bitcoin runup of late-2017 and didn’t crash when ether fell, it was a positive signal for the space.
  • Within a year of dai’s launch, a full stablecoin boom was underway.
  • The third big moment for DeFi came this summer when liquidity mining took off on Compound. Some $3.6 billion in crypto is currently touching the industry’s DeFi platforms.

“In May 2018, Dharma hosted a meetup at the Polychain offices in San Francisco, called the ‘Decentralized Finance Meetup,’” Dharma co-founder Brendan Forster told CoinDesk this month.

It included all the early companies – the Maker Foundation, Compound Labs, 0x, dYdX, Wyre – and he said roughly 150 people showed. Forster credited the gathering with a dawning realization at the time that DeFi startups were a distinct “cohort” within the industry.

Now in 2020, that cadre of DeFi upstarts has become the best justification for the persistence of the world’s second-largest blockchain.

The name from that meetup – “decentralized finance” – stuck, because “decentralized” was more specific (and perhaps aspirational) than prior terms like “open finance” or “crypto-finance.”

Its shorthand, “DeFi,” had that double entendre with “defy.” Disruptors gonna disrupt.

And so, that small group of startups would build through the last Crypto Winter, making DeFi the narrative driver of Vitalik Buterin’s Ethereum protocol as it turns five years old.

From that Spring 2018 soiree, assets committed to DeFi broke $1 billion in February 2020, $2 billion on July 1 and $3 billion just 20 days later. At this…

Read More