What is DeFi and why will it help Ethereum?
|Marek Feder|1092x
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What is DeFi and why will it help Ethereum?

The year 2020 is very difficult not only for cryptocurrencies but also for the financial world as such. Nevertheless, cryptocurrencies are growing in value, as earlier this week Bitcoin climbed by 15% in one day. However, this is absolutely incomparable to the growth experienced by the DeFi (decentralized finance) sector, which is doing phenomenally this year.


The boom around decentralized finance, known as DeFi, could be compared to the ICO boom in 2017. Unlike ICO, DeFi has the potential to not only drive the cryptocurrency world crazy but to revolutionize it completely. The DeFi sector represents projects, platforms, digital assets, and decentralized applications (dApps), most of which are built on Ethereum. The aim of these projects is to create a financial system that is so decentralized that people will no longer have to rely on centralized institutions.


The first DeFi projects include, for example, MakerDAO, 0x Protocol, Augur, or Bancor. Each of them, however, has a completely different mission and goals. Currently, the DeFi sector is much larger than it was at the time when these projects were launched. This year alone, the DeFi sector has managed to increase its value four times, from $ 1 billion to more than $ 4 billion (this happened just a few days ago).


MakerDAO is the largest project with a total market value of more than $ 1.01 billion. This is the first DeFi project to reach over $ 1 billion. In addition, the Compound project is also having a great year as it grew to more than $ 700 million this year. At one point it even surpassed MakerDAO, thus making it the most valuable DeFi project.


So far, the DeFi sector could be divided into 4 parts in total. Lending, which includes projects such as Maker, Compound and Aave; another category is decentralized exchanges (DEX), which include, for example, Bancor, Curve, Balancer and Uniswap; derivatives are the third category, with the closely watched projects being Synthetix, MCDEX, and Augur; payments are the last and smallest category, of which the Flexa project is probably worth noting, but many also include the Lightning Network in here.


The growth of DeFi can help one altcoin in particular – Ethereum. It should be noted that the vast majority of DeFi projects are based on Ethereum. According to various estimates and studies, up to 90% of all DeFi projects are built on Ethereum, so it is more than clear that if the DeFi sector grows, Ethereum will grow with it.

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