The Evolution of DeFi and Why Crypto Asset Collateralisation is Its Next Major Step

cryptonews.com:

Disclaimer: The text below is a press release that was not written by Cryptonews.com. 

For the majority of 2020 and 2021, DeFi dominated the crypto industry. The total value locked (TVL) across DeFi protocols went from under USD 1 billion in June 2020 to over USD 250 billion at its peak. This growth did not happen in a single wave of events. There were multiple periods impacting the whole ecosystem. 

In the beginning, Bitcoin and Ethereum laid the foundation and provided the required architecture for DeFi applications. With the architecture ready, it enabled developing the first level of trust, i.e., to execute value-based transactions. When these transactions were made using a smart contract, we saw the emergence of different DeFi models. 

The applications of DeFi then started addressing key areas of traditional financial markets, such as loans, savings, trading, insurance, and payments. As a result, the DeFi landscape evolved rapidly, adding over a dozen verticals with hundreds of projects in development. We now have many “next-generation networks” expanding on the functionality created by Ethereum’s smart contracts. 

The DeFi ecosystem evolved in multiple stages, with different projects identifying market inefficiencies and making significant changes in the industry. In the early stages, we majorly saw lending and borrowing platforms like Aave and Compound. Lenders earned rewards for providing liquidity, and borrowers got their required capital at lower interest rates than traditional banks. 

The next significant change to DeFi that fueled its growth were decentralized exchanges powered by automated market makers or AMM. DEXs like Uniswap and Sushiswap helped find the balance between decentralization and capital