Decentralized Finance: The Rise and Fall of the DeFi Revolution
Decentralized Finance (DeFi) emerged from Ethereum's smart contract capabilities to create an alternative financial system without intermediaries. From MakerDAO's stablecoin in 2017 to the Terra collapse and subsequent recovery, DeFi reshaped cryptocurrency markets with innovations in lending, trading, and yield generation.
Timeline
MakerDAO Launches the First DeFi Stablecoin
MakerDAO launched on the Ethereum blockchain, creating the DAI stablecoin - a decentralized, collateral-backed cryptocurrency pegged to the US dollar. The protocol introduced collateralized debt positions (CDPs) and became the foundational "money lego" of the DeFi ecosystem.
Uniswap Launches Automated Market Maker Protocol
Uniswap launched on Ethereum, introducing the automated market maker (AMM) model that allowed decentralized token swaps without an order book. Created by Hayden Adams, the protocol used liquidity pools and the constant product formula to enable permissionless trading.
Aave Launches on Ethereum Mainnet with Flash Loans
Aave launched on the Ethereum mainnet, introducing flash loans - uncollateralized loans that must be repaid within a single transaction block. The protocol pioneered new forms of on-chain arbitrage, liquidation, and capital efficiency.
Compound Launches COMP Token, Ignites Yield Farming
The Compound lending protocol distributed its COMP governance token to users, initiating the "yield farming" phenomenon. Total value locked in Compound quadrupled within a week, and DeFi TVL grew from under USD 1 billion to over USD 10 billion within three months.
DeFi Total Value Locked Surpasses USD 1 Billion
Total value locked across DeFi protocols exceeded USD 1 billion for the first time, driven by yield farming demand on Compound, Aave, Uniswap, and Yearn Finance. The "DeFi summer" of 2020 brought mainstream attention to decentralized finance.
Uniswap Launches UNI Token and Airdrop
Uniswap launched the UNI governance token, retroactively distributing 400 UNI to every address that had ever used the protocol. The airdrop, worth thousands of dollars per recipient at peak prices, became one of the most significant token distributions in crypto history.
DeFi Total Value Locked Reaches All-Time High of USD 178 Billion
Total value locked across all DeFi protocols peaked at approximately USD 178 billion. The market was dominated by Curve Finance (stablecoin trading), MakerDAO (lending), Uniswap (DEX), and Aave (lending), reflecting peak speculative demand for decentralized financial services.
TerraUSD Stablecoin Collapse Wipes Out USD 45 Billion
The algorithmic stablecoin TerraUSD (UST) lost its peg to the US dollar, triggering a death spiral that wiped out approximately USD 45 billion in market capitalization within a week. The collapse exposed critical vulnerabilities in algorithmic stablecoin designs and caused contagion across the DeFi ecosystem.
DeFi Begins Recovery with Real-World Asset Tokenization
DeFi protocols began recovering from the 2022 crash, with a new focus on tokenizing real-world assets such as US Treasury bills, real estate, and carbon credits. MakerDAO and Centrifuge led institutional adoption of on-chain yield tied to off-chain assets.
MakerDAO Rebrands to Sky with New USDS Stablecoin
MakerDAO rebranded as Sky, and its DAI stablecoin was renamed USDS. The rebranding marked a shift toward a dual-token model with Sky (SKY) governance token alongside the upgraded stablecoin, while maintaining compatibility with existing DeFi infrastructure.
Uniswap Activates Protocol Fee Switch
Uniswap governance approved the "UNIfication" proposal, enabling protocol fees for the first time. The upgrade shifted v2 pool fees from 0.30% to 0.25% for liquidity providers plus 0.05% for the protocol, and included a one-time burn of 100 million UNI tokens.