What The Fi?

4 min readAug 31, 2020

A tl;dr and visual survey of all things DeFi

What is DeFi?

DeFi stands for decentralised finance. Lots of people would prefer ‘open finance’, but ‘DeFi’ is catchier.
DeFi is a collection of decentralized applications (typically on Ethereum) that enable lending, borrowing, exchanges, derivatives, leverage, trading, and more.
In contrast to traditional centralised finance (‘CeFi’), there are no custodial third parties.

Bottom-line: DeFi allows anyone with crypto to gain access to financial products that are normally out of reach to non-accredited investors.

What’s the big deal?

For most users, DeFi represents an opportunity to put their cryptocurrency to use in financial products that earn interest.
For holders of significant amount of cryptocurrency or ‘whales’, it’s an opportunity to put their capital to work to earn interest and earn new tokens (with potential speculative value) that govern some of these DeFi applications.

A brief history of DeFi — https://twitter.com/drwasho/status/1299195362456907776

For the cryptocurrency ecosystem, a substantial amount of liquidity is being funneled into DeFi and some of these applications are beginning to rival their centralised counterparts:

DeFi products

Let’s do a quick survey of the top DeFi apps out there. I’m going to lean on DeFi Pulse’s categorisation and summaries of the ecosystem:

Lending
DEXes (decentralised exchanges)
Derivatives
Payments
Assets

A key abbreviation to keep in mind is TVL or ‘total value locked’, which is how much value is held by these smart contracts.

The purpose of this series of articles is to aggregate the descriptions and UI of the top DeFi apps in the ecosystem.

It’s useful to me as quick reference, and hopefully it’s useful to you too.

Part 1: Lending

The lending segment of DeFi is arguably the cornerstone of the ecosystem. It is used to mint a USD-pegged stablecoin called ‘DAI’. The mechanisms used to create DAI were then adapted to enable users to borrow and lend assets, creating an entire class of interest-bearing tokens.

Top 10 lending DeFi products by TVL (total value locked) as of 31/08/2020

This segment can further be sub-categorised below:

Lending-based DeFi apps are typically characterised by this user flow:

A user deposits an asset (e.g. DAI) into a smart contract, and receives a derivative of that asset (i.e. cDAI)
The deposited asset can be borrowed by other users, who must deposit collateral in the form of some other asset (e.g. ETH). Unlike centralised finance, the collateral must significantly exceed the value they are borrowing.
Borrowers must over-collateralise to insure that lenders will always get their money back.
Lenders earn interest from the interest payments from borrowers. The interest rate is variable as it is a function of the ratio of capital being lent and borrowed.