Who supports DeFi?

Proponents of DeFi espouse Utopian visions of a future without the fees and frictions of the current financial services industry. “We are seeing things like hedging, shorting, derivatives, and more, all built on a decentralized platform where there are no intermediaries, no clearinghouses, and the need for trusted third parties is much less, sometimes not at all,” wrote Fred Wilson of Union Square Ventures in March. “I do not think DeFi will be the only thing that blockchain/crypto is good for. I think we will see blockchains scale in the next few years to allow mainstream consumer applications to be built. But until then, DeFi is a good place to hang out. It uses all of the same technologies, architectures, and value systems that we have come to know and love in crypto.”

But DeFi applications could serve as the foundation of a fully-fledged alternative, digital economy.

What’s now emerging is a vast spectrum of decentralized finance: on one end, open finance platforms that empower individuals around the world in engaging with new and remodeled financial systems. On the other, decentralized finance solutions are changing the approach of established institutions by bringing decentralized solutions into play. All in all, decentralized finance projects now range in the thousands, and we’re seeing the early stages of a whole new industry.

Lending protocols, security tokens, derivatives, exchanges, and more, Ethereum’s DeFi landscape is playing out as one of its most profound application environments so far.

DeFi is essentially just conventional financial tools built on a blockchain — specifically Ethereum. They are mostly predicated on open-source protocols or modular frameworks for creating and issuing digital assets and are designed to confer notable advantages of operating on a public blockchain like censorship-resistance and improved access to financial services.

An alternative term that is more encompassing of the ongoing focus on financial products is open finance, where an ecosystem of integrated digital assets, blockchains, and open protocols are ingratiating themselves with conventional financial structures.

The striking shift in Ethereum’s application narrative has coincided with the sheer popularity of open financial tools on the products. For example, a recent report by Bloqboard on open lending protocols highlighted that active outstanding loans from four open lending protocols — MakerDAO, Dharma, dYdX, and Compound Finance — rose 1,200 percent in 2018 to reach $72 million.

So, what exactly are some of the primary open financial sectors on Ethereum? Let’s look at some of the most popular: