A Look at the Origins of DeFi
Most of us think “DeFi” aka Decentralized Finance began in 2020 when we started to hear about yield farming. In reality — the beginnings of DeFi can be traced back to quite before that — during the early days of the Ethereum ecosystem.
The First DeFi App — MakerDao
The very first DeFi app was launched way back in 2015 — MakerDao. Anybody with an ETH wallet could mint DAI, which was the first decentralized stablecoin ever to be created. DAI is backed by Ether (ETH), and is pegged to the US Dollar.
MakerDao was not only the first “DeFi app” but also gave the industry a pretty significant jumpstart
The project received a lot of attention from the Ethereum community. There were three primary components that this project brought into the Defi space. The Maker governance token enabled the following
1- Issue a fully decentralized stable coin
2- The ability to borrow and lend money while doing so
3- Holding the maker token also allowed users to vote on certain proposals in the project
Key milestones in DeFi — Aave, Uniswap, and the Yield Farming Craze
📌 ETHlend (Now called Aave) played a big role in paving the way to DeFi as it exists today. This project was established in 2017. It was an ethereum based protocol that set standards for the projects to come after it in this space. They defined how decentralized borrowing and lending would look like.
📌 Havven (now Synthetix) was a project that started around 2018 — it enables issuance of traditional assets like stocks or bonds on the blockchain and also had decentralized derivatives trading as a feature
📌 Another key milestone was the launch of Uniswap in 2018, the first automated market maker (AMM) on Ethereum, and still the most popular one as of today.
📌 Opium is another protocol that provided similar features while adding decentralized insurance for smart contract hacks — in the process, adding a layer of security to DeFi
📌 However — the DeFi industry was really launched into orbit when”yield farming” came in. Compound was a project that kickstarted the liquidity farming craze in 2020 (it was backed by Coinbase) — and provided added rewards in form of COMP, the governance tokens. In a short time period, multiple DeFi protocols offering yield came into existence.
📌 Things moved into the next gear when Yield.Finance appeared — a dapp that automated the yield farming process. It allowed users (“farmers”) to pool funds into vaults with varying rewards and risks, reducing fees in the process.
At this point, DeFi was showing growth across all measurable metrics — be it TVL (Total Value Locked) , Transaction Volumes, or even the wild price movements.
The pace of growth was fastest in Q1 2021 but started slowing a bit after that. However, these developments had unlocked the proverbial “doors of DeFi” — we can safely say that DeFi is here to stay !