A brief history of Decentralized Finance

Jay Crypto

Blogger

DeFi (decentralized finance) is a financial system based on blockchain technology, and it is one of the hottest topics in the cryptocurrency and blockchain community.

Decentralized finance is a financial system that works on decentralized blockchain technology that allows users access to financial services without the help of traditional financial intermediaries such as banks, mutual funds, or investment funds. Decentralized finance has gained a lot of popularity due to its decentralized nature, improved transparency, and faster transactions.

Centralized vs Decentralized Finance: A difference

For the past couple centuries, all financial activities have been completely centralized and controlled by banks or other financial institutions. However, with the emergence of cryptocurrency, all financial practices and activities are being reconsidered and disrupted.

Decentralized finance has no centralized authority to control the assets; rather, users control and trade their assets with help of private keys. Overall, decentralized finance is a more user-oriented financial system.

History of Decentralized Finance

Here we give a brief history of decentralized finance to show how it has evolved over time.

Emergence of Bitcoin

The concept of decentralized finance is not new. Its origin can be traced back to 2009 when the first cryptocurrency, Bitcoin, emerged on the blockchain. It was created by a person or a group of persons under the pseudonym Satoshi Nakamoto as a response to the 2008 financial crisis that challenged the competency of traditional financial institutions, and people were looking for an alternative financial system.

Bitcoin's decentralized nature attracted the attention of many people who were looking for an independent and more transparent currency. It was the first blockchain-based peer-to-peer currency enabling users to trade and make transactions without the help of a bank or any other financial intermediaries.

Introduction of Ethereum and smart contracts in 2014

After the success of Bitcoin, many other cryptocurrencies like Litecoin and Peercoin were also launched. Ethereum, the second most valuable cryptocurrency after Bitcoin, was introduced in 2015. It was the first smart contract-powered blockchain and introduced the maker's protocol that allowed users to develop Decentralized applications. Vitalik Buterin, a Russian programmer and founder of Ethereum, launched the concept of smart contracts, programs that allow users to create decentralized applications that could automate a transaction without any intermediary involvement and time loss when certain conditions are met.

MakerDAO

MakerDAO was the first DeFi application built on the Ethereum blockchain to allow the lending and borrowing of cryptocurrency without any intermediary or middleman. Before MakerDAO, it was very risky and tricky to borrow cryptocurrency using cryptocurrency. Due to the highly volatile nature of cryptocurrencies, the amount someone was borrowing and the amount he had to pay back were very different.

MakerDAO allows users to combine loans with a stablecoin DAI so that they can predict how much they have to pay back. Users receive loans by securing their Ethereum in DAO smart contracts, and they receive their collateral Ethereum back when they pay off the loan and any associated fees.

Launch of Compound

Compound was another DeFi application launched on the Ethereum blockchain in 2018. Equipped with its ERC-20 token, it allows users to lend and borrow money through smart contracts and also rewards them with interest on their crypto holdings.

Uniswap

Uniswap is a leading crypto exchange with its own token, UNI. It was also launched in 2018 and quickly became popular because it is fully decentralized, meaning it is not owned by a single entity and operates on a relatively new trading model called an automated liquidity pool Almost 8 years after its launch, the Ethereum blockchain has advanced significantly, and now supports a $42 billion ecosystem of decentralized applications that offer a wide range of services that were previously only accessible to affluent or institutional investors.

Conclusion

As DeFi continues to diversify and evolve, it is possible that it could overtake the traditional financial system. With the right balance of innovation and regulations, DeFi has the potential to transform the financial industry.