Decentralized Finance: A Primer
DeFi Overview & Irrefutable Growth
Decentralized Finance (DeFi) is a vertical within the digital asset space that allows users to access financial services without centralized intermediaries. It became the first breakthrough application of smart contracts, having been in development since 20171. Leveraging smart contract functionality on different blockchains, DeFi strives to create a more accessible, efficient, and transparent financial system.
DeFi’s breakneck adoption is evidenced by metrics on all fronts. Total Value Locked (TVL), a measure of capital locked inside Layer-1 networks or DeFi protocols, reached $1 billion in May 2020 and breached $250 billion by the end of 2021. Market capitalization of DeFi coins grew from $1.7 billion before peaking at $170 billion in November 2021, representing a 5.6% of total crypto market capitalization. DeFi’s product-market fit also began reflecting in revenue figures, as some of the largest protocols collected a cumulative $4 billion in fees as of February 2022.
Going Back to the Roots
But DeFi hasnâ...Reports you may have missed
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FIGURE: PEPES WEARING CONES TO CELEBRATE NEW CURVE ECOSYSTEM PROTOCOL INVESTMENT THESIS Out of the numerous tokenomic designs that emerged (and failed) last cycle, the vote-escrowed model proved objectively most ‘feasible’, as evidenced by Curve’s dominant position in TVL amongst DEXs. Control over a protocol’s gauge emissions made sense to many, assigning real value to governance tokens. The second-order expectations that liquidity would follow did as well. However, maximizing yield...
FIGURE: PEPE UNSHETH-ING ITS ETH TO SOLVE MULTIPLE DEFI PAINPOINTS Since the Beacon Chain launch in Dec 2020, Ethereum users could stake bundles of 32 ETH to secure the network in exchange for priority fee rewards. While these staked ETH[1] are ‘productive,’ many have opted against staking given its operational complexity and illiquidity. Liquid staking projects solve for this by managing validator uptime and offering liquid staking derivatives (LSDs) to...
FIGURE: PEPE LEARNING ABOUT GHO AFTER BEING RUGGED BY UST Source: Fundstrat INTRODUCTION Founded by Stani Kuchelov, Aave (formerly LEND) is the largest DeFi lending market by TVL (~$8b across v2 and v3) and the fifth largest dApp overall. The protocol is currently live across five networks and 11 markets, hosting more than 30 assets across its platform. In July ‘22, Aave announced that they are launching their native stablecoin,...
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