If you’ve perused Crypto Twitter at all over the past few months, you’ve likely heard the term “decentralized finance” or “DeFi” tossed around in relation to Ethereum, the second-largest blockchain by the market capitalization of its cryptocurrency.
To put it simply, DeFi is applications that the regular world of finance handles today put onto a decentralized blockchain and implemented with Ethereum and tokens based on the network. Many DeFi applications that have launched have centered around the act of lending and borrowing stablecoins tied to the U.S. dollar; others have been focused on giving crypto traders a chance to trade with leverage in a decentralized fashion, instead of having to go through a central service like BitMEX.
Whatever the case, this segment of the Ethereum ecosystem is quickly gaining traction, with more than 2% of all Ether in circulation currently being tied up in applications related to the DeFi ecosystem, which includes MakerDAO, Synthetix, IDEX, and so on and so forth.
According to a discussion we had with Jon Jordan of Dapp Radar, a service tracking information about blockchains, DeFi is Ethereum’s first killer app, not digital kitties or on-chain gambling:
Depends on how you define ‘killer dapp’. DeFi certainly is the first category of dapps to attract significant amounts of value (both ETH and ERC20 tokens). In terms of wider issues such as user numbers, however, it’s not clear DeFi will attract millions of users. But, yes, DeFi is the first killer dapp category on Ethereum.
Ethereum DeFi Being Acknowledged
Large companies in and out of the cryptocurrency space are picking up on the potential (or threat, rather) of DeFi.
Coinbase, one of the most well-recognized crypto firms, earlier this year invested $2 million worth of USDC into protocols running finance applications to bootstrap said protocols. The premise of the fund was explained to CoinDesk by Coinbase product manager Nemi Dalal as:
The USDC tokens we deposit cannot be used for items like salaries or user acquisition. It simply provides more liquidity in the protocol, making it easier to attract borrowers (for decentralized lending protocols) and takers (for decentralized exchanges).
Binance, the world’s largest cryptocurrency ecosystem, also made a strategic acquisition of a decentralized application information and analytics service, specifically to better focus its efforts on things like DeFi and on-chain gaming.
As reported by Ethereum World News previously, the exchange just last week acquired DappReview, “the world’s leading information and analytics platform for blockchain-based decentralized applications (dapps).” CoinDesk reports that the acquisition will give users “easy access to explore new dapps and crypto games, as well as more insight into DeFi.”