In brief

  • Decentralized finance boomed in 2020.
  • The amount locked in DeFi protocols has gone from $700 million at the start of 2020, to $15 billion in December.
  • Yield farming took DeFi to new heights in 2020, though Bitcoin's recent bull run has diverted attention away from the DeFi space.

If there’s one word that sums up crypto innovations in 2020, it’s DeFi. DeFi is a portmanteau of two words—decentralized finance—which itself is an umbrella term for hundreds upon hundreds of crypto projects started this year in the vein of non-custodial financial projects.

But there’s a lot to unpack from 2020. What was once an industry full of fledgling protocols struggling to get investors to invest a total of $1 billion into them is today worth multitudes of that. As of December 2020, there is $15 billion locked into DeFi protocols; the industry, however, is today worth far more if you consider the market cap of DeFi coins as well as the traditional financial institutions now considering integrating DeFi services.


As the year comes to an end, Decrypt’s here to weave the DeFi story into one neat package, fit for consumption along with buckets of mince pies and bottomless glasses of sherry.

January - March: DeFi products arise

On January 1, decentralized finance wasn’t really a thing. Sure, there was about $700 million locked into various DeFi smart contracts, per DeFi Pulse, but the industry was still fledging and nascent and burgeoning and in utero. It was, however, a marked increase from the previous year; on January 1, 2019, there was $278 million locked into DeFi smart contracts.

Investing in DeFi was like sticking your neck out. Decrypt ran a profile on Framework Ventures, a venture capital firm devoted to investing in DeFi. Michael Anderson, a co-founder, predicted that there would be more than $3 billion in DeFi assets by the end of the year, much to the surprise of Decrypt. All of the tokens they told Decrypt they had invested in blew up later in the year. “2020 is really the year that it scales,” said Anderson.

And it was!

DeFi’s 2020 vision got off to a rocky start. In February, a series of exploits took millions of dollars from bZx’s Fulcrum protocol in a flash loan oracle manipulation exploit, the first major incidence in dozens of similar attacks. This involved taking money from a DeFi lending protocol, then using that to manipulate the prices of money held in other DeFi protocols, and buying those tokens for a small amount of money.


Things looked like they were going well once more by March, just as Bitcoin’s price increased to around $10,000. DeFi lending protocol Aave, a smart contract protocol that then held $35 million (as of this writing, it holds $1.37 billion), integrated Tether.

March - May: coronavirus blues

Then, out of nowhere, the pandemic struck. Bitcoin fell to lows of around $4,500 in the middle of March. The ruckus caused problems for DAI, MakerDAO’s decentralized stablecoin. The crash caused a massive exodus of ETH that was backing DAI, leading the price of the stablecoin, supposed to be worth $1, to increase to beyond $1.1. To stop the bleeding and to save DAI, MakerDAO proposed that USDC, a centralized stablecoin, be used to collateralize DAI.

But as governments patched the economic collapse caused by the pandemic, Bitcoin recovered, and DeFi was back on track. The remainder of the first half of 2020 was overshadowed by the Bitcoin halving, which cut the block reward of Bitcoin miners in half. Andre Cronje, creator of, threatened to quit, then, uh, didn’t.

June - October: DeFi steals the show

Things started to get crazy for DeFi in June. It was toward the end of that month that Compound issued $COMP, a so-called “governance token”, to everyone who used it. COMP is designed for use in Compound’s governance protocols; a way of putting your money where your mouth is and have an active say in the future direction of the protocol. But in practice it became a form of speculation on the future worth of Compound, and people started using Compound for the express purpose of farming the token. The game, known as yield farming, was afoot.

Other protocols, like Aave and, launched their own governance tokens.’s YFI soared to highs of around $40,000—though its token supply is capped at just 30,000. Yield farming kicked the industry into action. The amount locked into DeFi protocols would increase by about $1 billion every week, and sometimes far sooner.

DeFi spawned a whole subculture. So-called “DeFi Degens” would scour the web, looking for new yield farms to play. And new projects sprung up, a dozen every day, offering high yields. Some farms offered yields of over 1000%. Many, obviously, were scams, and a lot of investors got burned. And others, rushed to market in an effort to jump on the hype train, were full of vulnerabilities.

The boom of activity surged volumes on decentralized exchanges. The biggest, Uniswap, handled volumes that at some points beat Coinbase Pro, one of the largest centralized exchanges.

The subculture also found its sense of humor. All of a sudden, so-called “meme” coins sprouted from thin air, all based around a specific theme—food. There’s Tendies, YAM, Pickle Finance, MEME (whose icon is a pineapple), SushiSwap, BurgerSwap, Kimchi, Cream Finance, and dozens of others.


SushiSwap, a spinoff of Uniswap that incorporated yield farming mechanics, grabbed the DeFi community's attention when its creator, the so-called "Chef Nomi", cashed out in September, taking $14 million of Ethereum earmarked for development funds. The community was so incensed that they guilt-tripped Nomi into returning. Eyes to the floor, he returned the money and handed control of SushiSwap over to Sam Bankman-Fried, the CEO of FTX. Bankman-Fried later handed the reins back to the community.

The industry grew and grew, but everyone knew that it couldn’t sustain itself. To convince investors to keep their money in DeFi protocols, developers kept minting more and more tokens. But at some point, the market would become so inflated that yield farmers wouldn’t make as much anymore, and any protocol fuelled entirely by speculation collapsed.

But until that happened, the DeFi industry looked set to keep growing and growing. The only thing nagging at its side were those pesky Ethereum fees; DeFi had outgrown Ethereum, which wasn’t fast enough to handle all of the traffic. Ethereum’s transaction fees rose to exorbitant levels, in some cases hitting highs of about $15 for a single transaction.

October - December: Bitcoin bites back

Much of the fun came to an end in October. DeFi yields started to dry up and all the low-hanging innovations available to DeFi developers had been picked. The amount locked in DeFi protocols was still increasing, but at a slower pace. Volumes at Decentralized exchange such as Uniswap were telling. DEX volumes, which had been $8 billion per week at the end of August, fell to $6 billion in September, and then fell by more than 40% in October to just under $3 billion.

DeFi had lost its shine, but in its place was a new wave of finance that took the crypto world by storm once again: Bitcoin. Bitcoin had remained stagnant all through the summer; starting in October, Bitcoin was worth around $10,500. Then it started to rise. And rise. And rise. By the end of November, Bitcoin had broken its all-time high, set in 2017.

Much of the attention showered on DeFi stopped, but the industry still benefited from all the extra money flowing into crypto. DeFi, after all, had become a valuable way of earning extra money on crypto that would otherwise sit idle in wallets. So while new products weren’t coming to market as thick and fast as they did over the summer, DeFi still grew. At the start of October, there was about $11 billion locked in DeFi protocols, per DeFi Pulse. At the start of December? Close to $15 billion.

DeFi in 2021 and beyond

Decrypt doesn’t yet own a crystal ball. But there are a few directions DeFi looks set to take next year. The first is obvious: As big players, including large financial institutions, continue to invest in crypto, many may seek to integrate crypto into their offerings.


Diem, formerly Libra, will introduce its stablecoin next year; PayPal will continue to roll out its crypto offerings worldwide; and large US financial institutions may hold custody over their customers’ cryptocurrencies as applications to become crypto banks make their way to the top of bureaucrats’ pile.

And closer to home, crypto exchanges will continue to dip their toes in DeFi as the projects become more stable. Several exchanges, such as Binance and Huobi, have invested big into DeFi. Huobi, for instance, has its own DeFi research lab, which may bring new products to market next year.

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