DeFi, Decentralized Finance refers to decentralized finance. This concept is derived from its opposite: centralized finance. Generally speaking, centralized finance refers to the traditional financial services industry where users obtain services through centralized financial intermediaries. The concept of DeFi is exactly the opposite, which means that when users obtain financial services, they no longer rely on centralized financial intermediaries.

DeFi can be traced back to 2008 when Bitcoin was invented. When Bitcoin first appeared, it was defined as a decentralized, P2P form of cash. That is to say, when users use Bitcoin, they no longer need any centralized institutional assistance, but directly interact with other users.

What really promoted the concept of DeFi was after the birth of Ethereum. The reason is also very simple. Bitcoin can only support the simplest transfer function. Common lending, insurance, and transaction functions in the financial system cannot be realized solely through the decentralized Bitcoin network. The birth of Ethereum and the blessing of smart contracts make it possible to realize these complex financial functions.

A simple timeline of DeFi development

• In 2013, programmer Vitalik Buterin came up with the idea of Ethereum based on Bitcoin.
• In 2014, Ethereum began formal development and crowdfunding with the efforts of several other co-founders.
• On July 30, 2015, Ethereum was officially released as the first decentralized public chain platform to support smart contracts.
• In 2015, Danish entrepreneur Rune Christensen proposed the concept of MakerDAO and DAI on the reddit forum, called eDollar. For the first time, the concept of decentralized stablecoins began to appear on Ethereum.
• In 2016, OasisDEX, the first decentralized exchange on Ethereum, was officially launched. OasisDEX is also an order book-based DEX. Nowadays, Oasis’ main product is no longer DEX, but a DAI lending market.
• Bancor went online in 2017. Bancor is one of the first (some say the first) decentralized exchanges built with AMM (Auto Market Maker). The concept of Bancor was created in 2016, but the white paper was not officially released until February 2017, and the project was officially launched in the following months. In addition, Bancor’s launch was also accompanied by crowdfunding, raising a total of US$153 million, which was the largest at the time.
• At the end of 2017, MakerDAO’s contract was activated and listed on Ethereum for the first time, with $ETH as the only collateral at the beginning.
• In November 2018, Uniswap was officially released and listed on Ethereum. The founder of Uniswap is Hayden Adams. Interestingly, Hayden Adams was a mechanical engineer at Siemens before developing Uniswap, but he was fired in June 2017. Later, on the recommendation of my friend Karl Floersch who worked at the Ethereum Foundation, I started researching smart contracts and started preparing for Uniswap.

• In 2019, the famous Ethereum lending protocol Compound Finance v2 was officially launched. Compound was conceived and founded in 2018 by Robert Leshner and Geoffrey Hayes, who worked at Postmate, a food delivery company in the United States, before developing Compound.
• In June 2020, Compound officially launched the COMP Token, transferred the governance authority of the Compound protocol to the DAO organization, and used the COMP coin as the core governance token. When COMP Token was launched, the main purpose was actually to encourage lenders and borrowers to use the Compound protocol. Such behavior was extremely popular at the time, and a large number of users used the protocol in order to obtain COMP Token.
• In July 2020, Yearn Finance was officially released. The founder of Yearn Finance is Andre Cronje. The reason why Yearn has received great attention is not only to catch up with DeFi Summer and serve as the first DeFi revenue aggregator, but more importantly, Yearn is completely released as a community project. Andre Cronje did not provide any financing for the project, and he did not personally reserve any YFI tokens.
• SushiSwap was officially released by anonymous developer ChefNomi in September 2020, and launched a "vampire attack" on Uniswap. During those days, a large number of DeFi projects were launched every day, and the reason why SushiSwap received great attention was due to the “vampire attack”. The so-called "vampire attack" means that SushiSwap rewards users who provide liquidity for themselves with SUSHI Tokens. At that time, Uniswap had not yet issued Tokens, which meant that users who provided liquidity did not receive any additional rewards. Through additional SUSHI Token rewards, SushiSwap quickly gained a large amount of liquidity and once surpassed all similar DEXs. In order to respond to SushiSwap's attack, Uniswap had to issue its own Token UNI in mid-September of that year, and also began to provide liquidity incentive rewards.
• The market will usher in a bull market in 2021. The development of the protocol and the increase in users on Ethereum have also contributed to the low cost of using Ethereum, that is, the rise in Gas Fee. During the bull market, Ethereum’s Gas Fee is basically above 100. The expensive Ethereum has also prompted the emergence of new competitors, and users need an affordable public chain. BSC, Binance Smart Chain came into being. With the blessing of Binance Exchange, BSC has developed rapidly, and a large number of projects on Ethereum have also been established on BSC in a nearly replicating manner. With the transaction cost advantage brought by greater centralization, BSC has developed rapidly. As the gas currency of the platform, BNB has also risen, rising from a few dozen dollars to a maximum of more than 600 dollars.
• In 2022, the market was affected by LUNA/UST and FTX, and the overall market has been in a downward trend. Even so, Layer 2 is growing rapidly. Layer 2 began to appear a long time ago, also in the context of Ethereum’s high gas fees and slower processing speeds. It’s just that a large number of ecological projects on Layer 2 will begin to appear in 2022.
• On September 5, 2022, the consensus layer of Ethereum officially switched from Proof of Work to Proof of Stake. This process is also known as ‘the Merge’. This lays a good foundation for the future upgrade and expansion of Ethereum. More importantly, the change in the consensus mechanism has greatly reduced the new issuance of Ethereum. A high gas fee would even make Ethereum a deflationary cryptocurrency.
• In 2023, we ushered in the official outbreak of Layer 2. Optimism issued OP Token as early as 2022, while another strong competitor, Arbitrum, was only officially released in March 2023. ARB Token. Arbitrum is currently the largest Layer 2 ecosystem, with star projects such as GMX and MAGIC. If you are interested in Optimism and Arbitrum, you can read Comprehensive comparison of Optimism and Arbitrum

The development of DeFi has experienced many major events. The above-mentioned simple timeline It cannot cover the complete development context of the DeFi field. For example, in addition to the above-mentioned Ethereum and BSC, there are also many Alt L1, that is, public chains that emerged under a similar background to BSC and also developed rapidly during the bull market.

Solana relies on a different architecture from Ethereum to achieve faster and cheaper transaction processing speeds. At the same time, coupled with the support of the FTX exchange and the launch of some star projects, it also gained a large number of users during the bull market, and the platform currency SOL quickly soared from a few dollars to more than 200 dollars.

The development of Avalanche was also one of the famous Layer 1 at that time. It also provided faster transaction processing speed and achieved a more friendly user experience. In addition, there are Polygon, Tron and Polkadot’s Parachain, etc.