The DeFi sector has continued to grow in popularity in 2020. DeFi applications and products include borrowing and lending protocols such as Compound and Synthetic asset builders such as UMA.
Increasingly DeFi projects like these are choosing to launch their native tokens or ‘DeFi coins’ on Decentralized Exchanges (Dexes), which allow tokens to launch without having to pay the hefty listing fees charged by centralized exchanges. They are permissionless — allowing any DeFi builder to make use of a publicly available trading infrastructure to launch tokens via decentralized smart contracts.
Liquidity pool based platforms like Uniswap have increasingly become the system of choice for distributing this new class of DeFi tokens, and trade volume on these decentralized exchanges has boomed in 2020. Uniswap uses an alternative method to settle cryptocurrency trades. Instead of pairing up buyers and sellers, tokens are bought and sold at a rate determined by a bonding curve. With this mechanism as tokens are purchased, the price goes up. As tokens are sold, the price goes down. In both cases, the exchange rate is determined by a supply curve instead of a market of orders placed by buyers and sellers.