Although there is no one agreed-upon date for the birth of decentralized finance, there were a few key events that paved the way for DeFi. The first of them was Satoshi Nakamoto's development of Bitcoin in 2009. Whether or not Bitcoin should be categorized as DeFi, its creation was a crucial enabler for the whole cryptocurrency sector, which includes decentralized finance. Bitcoin also enables decentralized payment transfer throughout the world. Most importantly, Bitcoin paved the way for the development of Ethereum, which is now the default blockchain for all major DeFi protocols. 

Although it is exciting to transfer Bitcoin throughout the world, finance does not end there. Lending, borrowing, trading, financing, and derivatives are all vital services that any strong financial system need. Bitcoin's Script language, which is basic and restricted, was simply not appropriate for these kind of applications. The restrictions of scripts were one of the most fundamental considerations in Vitalik Buterin's decision to create Ethereum. When Ethereum was debuted in 2015, it immediately drew in a growing number of developers looking to create a variety of decentralized apps, ranging from games like CryptoKitties to financial applications. Ethereum soon became the go-to smart contract platform to build on, thanks to its Turing-complete programming language Solidity and the ERC20 standard for generating new tokens.

This brings us to Maker, one of Ethereum's oldest DeFi projects. Maker is a technology that enables the creation of DAI, a decentralized stable coin. Rune Christensen founded the project in 2014 after being inspired by another project, BitShares, a blockchain established by Dan Larimer. Maker was developed with the help of venture capital, and it was released towards the end of 2017. The protocol's original iteration, Single Collateral DAI, only accepted ETH as collateral. This was then expanded to the Multi Collateral DAI, which was introduced in late 2019. Maker is still one of the most important DeFi projects, and it is unquestionably one of the first pioneers of all decentralized finance.

EtherDelta was another initiative that gained a lot of traction in 2017. EtherDelta was one of the first Ethereum-based decentralized exchanges that allow for the permissionless trade of ERC20 tokens. An order book was used to facilitate the transaction. Building order-book exchanges on layer 1 is difficult, as we all know, and typically results in a bad user experience. Despite this, EtherDelta was a popular exchange for trading various ERC20 tokens, particularly during the ICO era. Unfortunately, in the end of 2017, the exchange was hacked. The hacker got access to the EtherDelta interface and redirected users to a phishing site, defrauding customers of $800,000. In addition, the SEC accused EtherDelta's creator with operating an unlicensed securities exchange in 2018.

ICOs, one of the first major use cases for Ethereum, were popular in 2017. Instead than utilizing traditional means to raise funds, new companies have begun to issue their own tokens in exchange for ETH. Although the concept of decentralized fundraising was not inherently terrible, it resulted in a slew of overhyped initiatives raising far too much money with little to show for it other than a few pages of a whitepaper. There were several initiatives that we would now label as DeFi among the variety of ICOs. Aave; lending and borrowing, Synthetix; a derivatives liquidity protocol, REN; a protocol for providing access to inter-blockchain liquidity, Kyber Network; an on-chain liquidity protocol, 0x; an open protocol that enables peer-to-peer asset exchange, and Bancor; another on-chain liquidity protocol were some of the most notable DeFi projects from the ICO era.

It's fascinating to observe that, despite the bad press surrounding the 2017 ICO hype, several of the projects that appeared at the time are today considered to be among the best DeFi protocols. Users engaging with smart contracts holding pooled funds from numerous users, rather than interacting directly with other users, was one of the major advances at the time. This effectively established a new “user-to-contract” model that was more suited for decentralized applications since it required less interactions with the underlying blockchain than the user-to-user model. After the ICO hype died down and the bear market set in, DeFi went through a pretty calm time, at least from the outside. In truth, important DeFi protocols were being developed behind the scenes. 

The first version of Uniswap was released to the Ethereum mainnet on November 2nd, 2018. Hayden Adams had put in over a year of effort to bring this to reality. Uniswap is unquestionably one of the most important DeFi initiatives. Uniswap, unlike EtherDelta, was founded on the idea of liquidity pools and automated market makers. Using the user-to-contract model that was previously mentioned. The Ethereum Foundation provided all of the funding for the first release of Uniswap. 

Another significant event occurred in July of this year. Synthetix introduced the first liquidity incentive program, which went on to become one of the most important catalysts for the DeFi Summer of 2020. Between 2018 and 2019, a number of additional DeFi projects released their protocols on the Ethereum mainnet. Compound, REN, Kyber, and 0x were among them.

As a result of worries of a global pandemic, the price of ETH plummeted by more than 30% in less than 24 hours on March 12th, 2020. This was one of the most important stress tests for the DeFi business, which was still in its inception. As a result of many individuals attempting to enhance their collateral in various loans or trade between other assets, Ethereum gas fees skyrocketed to above 200 Gwei. Maker was one of the most affected protocols as a result of this incident. The Keeper bots, external actors responsible for liquidations, were able to bid 0 DAI for the auctioned ETH collateral as a result of the wave of liquidations triggered by users' ETH collateral decreasing value. This resulted in a $4 million ETH shortage, which was eventually made up by generating and auctioning extra Maker's MKR tokens. Even though incidents like Black Thursday might be extremely severe, they generally result in the overall DeFi ecosystem being strengthened, making it more anti-fragile. 

The liquidity mining scheme for COMP coins, which was introduced by Compound in May 2020, was the major trigger for DeFi Summer. On Compound, DeFi users began to get paid for lending and borrowing. The additional incentives, in the form of COMP tokens, led in a significant increase in supply and borrow APYs for various tokens. Users were motivated to constantly switching between borrowing and lending various tokens to get the greatest return possible, which led to the creation of yield farming. This incident also triggered a wave of additional protocols to distribute their tokens through liquidity mining, resulting in an increase in yield farming chances. It also established Compound governance, allowing COMP token holders to vote on various protocol modifications. The governance model developed by Compound was eventually adopted by a number of other DeFi initiatives.  

Yearn is a yield optimizer created by Andre Cronje in early 2020 that focuses on boosting DeFi capabilities by switching between different lending protocols automatically. Andre decided to give a governance token, YFI, to the Yearn community in July 2020 to further decentralize the platform. There were no VCs, funder awards, or developer rewards, and the token was allocated entirely through liquidity mining. The DeFi community embraced this approach, with money pouring into the incentive liquidity pools totaling $600 million in locked value. The token price went from about $6 when it was originally listed on Uniswap to more than $30,000 per token less than two months later. Yearn's success was immediately followed by many other teams starting comparable projects with a few small changes, as with pretty much all pioneering efforts in DeFi. 

Ampleforth was another initiative that began to acquire traction as a result of its unique elastic supply concept. Another DeFi protocol, Yam, rapidly adopted and expanded upon this model. Yam was introduced on August 11th, 2020, after only 10 days of development. The protocol immediately attracted a lot of liquidity when YAM tokens were released in the spirit of YFI. By rewarding holders of COMP, LEND, LINK, MKR, SNX, and YFI for staking their tokens on the Yam platform, the protocol intended to increase interest in strong DeFi communities. A significant flaw in the rebase process was discovered just one day after the debut, with $0.5 billion in total value trapped in the protocol. Even though the problem only affected a small percentage of liquidity providers in one of the pools, it was enough to cause many to lose interest in Yam, despite later attempts to restart the protocol.

SushiSwap is the next stop. The protocol, which was launched by an unknown team at the end of August 2020, presented a novel idea of a vampire attack targeted at syphoning liquidity out of Uniswap. SushiSwap was able to attract as much as $1 billion in liquidity by rewarding liquidity providers with Sushi tokens. The protocol was able to move a lot of Uniswap's liquidity onto their new platform after some controversy with the primary SushiSwap creator ChefNomi losing his entire interest in SUSHI tokens. 

There were a number of additional projects released during the DeFi Summer, all of varied merit. The majority of them were just variations of existing open-source projects attempting to profit off the excessive of a brand-new industry. Following the debut of Yam and Sushi, a slew of new projects named after other meals were announced. Pasta, Spaghetti, Kimchi, HotDog, and other foods were dubbed "food DeFi," or "food finance." After a day or two of curiosity, almost all of them failed. 

The introduction of the Uniswap token UNI was one of the final significant events of DeFi Summer. A historical airdrop worth well over $1,000 was given to all prior Uniswap customers and liquidity providers. Furthermore, Uniswap began its liquidity mining program across four distinct liquidity pools, attracting almost $2 billion in liquidity. The majority of it was returned to SushiSwap. All of the major DeFi indicators improved substantially during DeFi Summer. The monthly volume of Uniswap increased from $169 million in April 2020 to nearly $15 billion in September 2020. It's an almost 100-fold rise. DeFi's total worth has increased from $800 million in April to $10 billion in September. A rise of more than tenfold. Bitcoin transfers to Ethereum increased from 20,000 in April to almost 60,000 in September. A threefold rise. 

DeFi's meteoric rise was, of course, unsustainable in the long run. At the start of September 2020, the market attitude swiftly shifted. The value of major DeFi coins began to plummet. Liquidity mining returns, which are generated from the value of distributed tokens, have also been declining. Winter has arrived at DeFi. Despite the fact that the DeFi ecosystem is still highly active, with developers continuing to design new DeFi protocols, the negative mood persisted throughout September and October. In early November, the DeFi market finally bottomed out, with some of the leading DeFi protocols selling 70-90 percent lower than their all-time highs only a few months prior.

The DeFi market began to trend up again after a rapid comeback of more than 50%. Surprisingly, Uniswap traffic remained considerably greater during the DeFi Winter than it was in early 2020. In addition, the total value locked in DeFi continued to rise, surpassing $15 billion at the end of the year. This was despite the fact that the DeFi sector was hit by several hacks throughout 2020, including bZx, Harvest, Akropolis, Pickle, and Cover, to mention a few. With Bitcoin shattering its previous all-time high in 2017, it appears like DeFi is gearing up for another parabolic surge before the end of 2020.