The DeFi Revolution, Part 1

I was approached 3 months ago to give a presentation on DeFi. Back then I couldn’t even spell DeFi much less explain what Decentralized Finance (DeFi) was all about. However, I took it as a challenge and figured it would be a great opportunity to really dig deep into the topic.

The TL;DR version is that DeFi is the rewiring and rewriting of the entire financial ecosystem. The technology behind DeFi is here to stay for the long haul however the existing projects/coins may not be around in the future. It reminds me of the dot com bubble where the valuations for “eyeballs” all went to hell but the money spent on the infrastructure was used to power the next generation of the internet.

While researching the DeFi space it was clear there are 3 types of people/groups in DeFi:

1. Speculators
2. Consumers
3. Developers

This blog post will talk about #1 and #2. In my next blog post I will talk about #3.

Speculators

The speculators are the ones that will only talk about the current price of $BTC, $ETH or $DOGE and probably don’t care about the underlying technology. Most of these people live on cryptocurrency trading sites like Coinbase or if you are in India then WazirX, CoinSwitch or ZebPay. Most of the press will talk about these folks with headlines like “This guy bought a pizza worth $300 million in Bitcoin“, attention grabbing but not really interesting.

Consumers

The 2nd category is where ALL the action is taking place in the DeFi and NFT (non-fungible token) space, the innovation is just amazing to see.

I’ve put together a presentation which you can view on SlideShare and also download the PDF from there.

DeFi 101 from Manish Jain

The presentation has a lot of great information on the apps that are driving the high levels of DeFi adoption. But, the one that is really interesting is Uniswap. Uniswap is a decentralized automated market maker. The original code for the platform was written by Hayden Adams who had a couple of computer science courses under his belt. Uniswap will most likely eclipse Coinbase in aggregate trading volume in the coming months. Coinbase ($COIN) recently got listed on the Nasdaq and its market capitalization is around $50 billion.

With Coinbase all the value/money goes to them for making trades and providing the platform. With Uniswap, if you have some Bitcoin or Ethereum lying around you as an individual can provide liquidity and make money from it. And since the protocol code is open-source, people can fork it and improve upon it in a decentralized manner.

One of the things I kept reading about in DeFi was “yield farming” and how great it was. It took me awhile to figure it out and come up with a comparison to existing financial products. Yield farming is nothing but leverage, of course it’s great when things are going well but when things go sideways it can wreck you.

Developers

In my next blog post I will talk about the tools to be a developer in the DeFi space and explain Solidity, Open Zeppelin, ERC-20, ERC-721, MetaMask, Mainnet, Ropsten, Truffle, Ganache, Web3, Ethers, Hardhat, Infura and much more. If that all sounds like a word salad, not to worry I’ll explain it all.