A comprehensive overview of DeFi in 2020.pdf

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About the Author................................................................................................................................................................................
Introduction .......................................................................................................................................................................................
Key Metrics on DeFi’s Growth .......................................................................................................................................................
Assessing Risks in DeFi ....................................................................................................................................................................
Lending Overview .............................................................................................................................................................................
Decentralized Exchanges (DEXes) Overview .............................................................................................................................
Other Notable DeFi Sectors & Protocols ....................................................................................................................................
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The Road Ahead for DeFi on Ethereum ....................................................................................................................................... 16
Lucas examines crypto from a data-centric perspective at IntoTheBlock, a
crypto-analytics platform. He leads research and product management efforts
into new IntoTheBlock sections such as Derivatives and DeFi Insights. He also
writes content for The Defiant, Deribit Insights, CoinMarketCap Blog,
CryptoBriefing, Our Network and his personal Medium page. Lucas has been a
speaker discussing DeFi at the Blockdown Conference and in several
IntoTheBlock webinars.
Lucas graduated with a Bachelor of Commerce in Entrepreneurship from the
University of British Columbia, where he worked as a Research Assistant in
blockchain technology. Prior to IntoTheBlock, he had three years of startup
experience in business development and ambassador roles.
“
Commerce on the Internet has come to rely almost exclusively on financial institutions serving as
trusted third parties to process electronic payments. While the system works well enough for most
transactions, it still suffers from the inherent weaknesses of the trust based model.”
While Bitcoin narratives have shifted significantly over the years from peer-to-peer cash to darknet currency to
digital gold, finance has arguably been a core part of Bitcoin and the crypto space since its early days. In its 12
years Bitcoin has progressed remarkably, but its use-cases have been limited mostly to trading and investing.
Following the ethos of Bitcoin, an ecosystem of decentralized finance (DeFi) applications has emerged on the
Ethereum blockchain. A few of these applications have been around since 2017, but it was not until 2020 that the
DeFi space started to materialize its potential towards the goal of offering financial services without the need for
trusted third parties at scale.
These DeFi applications are organized as protocols, or blockchain-based software where rules are set in code and
decision-making is typically left up to network participants and token holders. Protocols are tackling use cases
such as lending/borrowing, trading, asset management, derivatives and insurance. They share the common traits
of being permissionless, trustless, global and composable. Lending protocols and decentralized exchanges will be
analyzed in-depth in this report, while other sectors within DeFi will be briefly discussed.
DeFi’s permissionless nature means anyone around the world can access services from these protocols regardless
of their background or credit score as long as they have access to the internet. Protocols are trustless as they do
not rely on central third parties or intermediaries, instead delegating the trust to systems of smart contracts
which anyone can review and audit. These two traits allow DeFi to be composable: any protocol is able to freely
integrate with and build on top of existing solutions. This accelerates protocols’ time to market and allows
cross-protocol interaction unlike anything in the existing financial industry.
Throughout this report, readers will dive deep into the expanding universe of DeFi. It will provide a holistic
overview of the DeFi space focusing on its growth and risks, an analysis of two of the sectors within DeFi thriving
the most, and finally explore the relationship between these protocols and the underlying Ethereum network as it
prepares for the initial phase of the so-called ETH 2.0 upgrade.

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