The decentralized finance or ‘DeFi’ sector has exploded in popularity in 2020, as new Defi coins like UMA, COMP, and BAL introduce the concept of an ‘Initial DeFi Offering’ — and move traders onto booming decentralized exchanges.
In 2020 the DeFi sector is booming and cryptocurrency users around the globe can make use of traditional financial services such as borrowing, lending, trading, and investing in a decentralized and transparent manner — with just an internet connection and a cryptocurrency wallet.
The rise of DeFi
Bitcoin (BTC) was the first implementation of decentralized finance. It enabled people to make financial transactions with other individuals without the need for a financial intermediary in the digital age. Bitcoin and similar cryptocurrencies were the first wave of DeFi.
The second wave of DeFi was enabled by the Ethereum blockchain which added another layer of programmability to its blockchain. Now in 2020, individuals (and businesses) can borrow, lend, trade, invest, exchange, hedge, and store cryptocurrencies in a trustless manner thanks to the growing number of decentralized finance applications on the Ethereum network.
According to data compiled by DeFi Pulse, the US dollar value of ETH locked in DeFi protocols has grown from $674 million at the start of January to over $8.2 billion today — a 1116% increase in just over eight months. Compare this to 2019, when the value of ETH locked in DeFi protocols grew by just 130 percent over the course of the year, from $293 million to over $687 million
New DeFi Coins 2020
The new DeFi coins are often governance tokens, that confer token holders the right to vote on, and thus manage, the direction of an underlying protocol. This has become an increasingly valuable commodity in the growing DeFi sector with a number of DeFi governance tokens enjoying periods of bullish price performance in 2020. These tokens allow DeFi protocols to hand over governance rights to token holders allowing the protocols to operate without a central power-broker and in a decentralized form. With a governance token, the community of token holders supply decision-making apparatus and earn rewards for their services.
DeFi coins can also launch with distribution schemes where tokens are allocated to users who have provided services such as liquidity provisions to the platform, or, where users are incentivized to provide services to the platform in order to earn tokens set to be allocated in the future. In many cases such as with Compound and the COMP token, the Initial DeFi Offering (IDO) may be issued by protocols that have finished products with a history of activity on the Ethereum mainnet. Unlike with the Initial Coin Offering (ICO) or Initial Exchange Offering (IEO) model, many IDOs launch to an existing community of users who may already have a stake in the governance of the platform.
