DeFi and the Future of Money

Abstract

Decentralized finance (DeFi) was not well understood when it came into the spotlight in 2019. In 2020, it scaled fast and increased from $700 million at the beginning of 2020 to $15 billion by the end of 2020, and as of June 2022, the total value locked (TVL) reached a high of $256 billion. What explains this remarkable increase? The current financial system has left 1.7 billion people unbanked. The barriers to entry are high, the costs are high, transparency is low, and a small group of powerful elites dominates it. DeFi offers an accessible alternative to the current financial system. It explains its exponential borrowing, lending, yield farming, and insurance growth. Early results suggest that DeFi will redefine the financial system. This chapter provides an overview of DeFi, an analysis of its ecosystem, and its likely trajectory.