What is DeFi? A buzzword or the next movement?

Those who are up-to-date with the latest crypto news must have heard about it these last two months. DeFi, short for Decentralized Finance, has been gathering an enormous amount of attention lately. In today’s article, we are going to take a closer look at this growing phenomenon. Is it just another craze, or are we looking at the future of finance?

So, what is it?

Decentralized Finance, is a financial ecosystem where common financial services are decentralized and transparent due to the fact that they use blockchain technology. Via the means of tokens, smart contracts, protocols and dApps, these financial services are automated and self-executed on the blockchain without the need of an intermediary. No banks, no lawyers and no third parties that are normally a given in the financial industry. Some examples of these financial services are Decentralized Exchanges, derivatives, payments/billing, loaning and of course digital assets itself. Normally, for these services to work, people need to trust in another party. For example, you need to trust the corporation that handles your investment. With the help of blockchain technology and cryptography, DeFi projects want to create an open and transparent environment where the trust in third parties is minimized. Visionaries of DeFi state that our entire world is becoming automated and reliant on programs and technology. Why wouldn’t our monetary system change accordingly?

Going Up

To give you a glimpse of how hot DeFi is at this moment, we need to take a look at the numbers and total value. This value is calculated by monitoring the smart contracts on the Ethereum network and by checking all Ethers and ERC-20 tokens on those contracts. On January 1st of this year, all DeFi projects combined had a total value of 675 million dollars. On August 1st, it was more than 4 billion dollars. One month later? On the 1st of September, all DeFi projects combined had a collective worth of 8.6 billion dollars. Doubling its value in just one month! As I mentioned, the value is calculated through Ethers and ERC-20 tokens. This is because Ethereum is the main platform on which the majority of DeFi projects are running.

👑🦄 and Uniswap takes the crown!@UniswapProtocol is now #1 with $1.67B total value locked (TVL) 🎊 🥳 Congratulations pic.twitter.com/52IYW4bMHo

— DeFi Pulse 🍇 (@defipulse) September 1, 2020

The Future of Finance?

The numbers don’t lie. The interest in DeFi is growing exponentially and the hype has become extreme. However, certain parallels with the ICO bubble are clear to see. Multiple experts have stated that although very exciting, DeFi is also extremely overvalued at the moment. Does that mean that the bubble will burst? These same experts don’t expect so since real-life use cases for DeFi are already prevalent. Realistically, the hype will become less and less and DeFi will follow in line with the rest of the crypto market. The future certainly has a place for DeFi. The promise of the Internet of Money will become more relevant as time progresses. Don’t forget that nearly 2 billion people on this planet do not have access to banks or banking services.

In our next DeFi article, we will take a look at the best running DeFi projects of this moment. Stay tuned!