Decentralised Finance (DeFi)

02 Mar 2022

Mitchell Nixon


It is the elimination of central intermediaries such as banks, allowing individuals and entities to conduct financial transactions through emerging technology without the need of a third party. DeFi utilises blockchain technology, a distributed ledger, in order to collect and aggregate all data from all users and uses consensus in order to verify (ie Bitcoin’s PoW). This creates an open source, peer-to-peer system, publicly accessible by everyone without the need for a central intermediary. DeFi typically centres around decentralised applications (dApps), that execute financial functions on blockchains.

Whilst Bitcoin laid the foundations for peer-to-peer financial services in 2009, it wasn’t until Vitalik Buterin’s launch of Ethereum’s whitepaper in late 2013 that introduced the world to the next-generation smart contracts and decentralised application platform. Although Bitcoin is not generally classified as DeFi, it was integral in the inception of the cryptocurrency industry in which Ethereum and DeFi is a part of. 

Launched in 2015, Ethereum built steam very quickly, with large amounts of developers jumping on board in order to begin an array of decentralised applications. With the ERC20 standard in place for the creation of new tokens, Ethereum as a platform became the go-to smart contract technology for DeFi to build on, popularising it in 2017. This includes Single-Collateral Dai (SCD) which launched on Ethereum mainnet, becoming a leading lending DeFi platform based on a stablecoin. Users of the Maker Protocol (the Dai Stablecoin System) are able to produce Dai tokens against ETH collateral. Aiming to maintain the stable value of Dai in a decentralised approach, SCD provides proof of concept for the idea of a decentralised stablecoin. What has followed in the years since is large decentralised finance projects such as Polkadot, Solana and Cardano following suit in implementing smart contracts, and decentralised exchanges such as Uniswap launchin