Twelve months ago, decentralized finance was exceedingly niche. But over the course of this year, it’s become one of the biggest buzzwords in crypto — attracting billions of dollars in investment as a result. Here, we take a look at the highs (and lows) in a countdown of DeFi’s 10 biggest moments in 2020.
10. The year of the DeFi token
We’ve seen some crazy launches this year — and yearn.finance’s YFI token, which was designed to be worthless, springs to mind. It was designed to be worthless, but that didn’t stop it from hitting highs of $43,873.82 in September… quadruple Bitcoin’s value. Compound’s COMP token surged upon launch, only to crash shortly afterwards. Then there were the airdrops.
9. Uniswap dishes out 150 million tokens...
Also in September, when DeFi hype was at its peak, Uniswap caused a splash when it announced plans to distribute 150 million UNI to everyone who has used the decentralized exchange. Each UNI was worth $3 at the time and it quickly hit highs of $8.44 — meaning lucky recipients could have cashed out with a profit of $3,376.
8. ...but then suffers a lot of drama
Uniswap’s status as the world’s biggest DEX was threatened through a dramatic fork. SushiSwap’s debut saw millions of dollars in liquidity leave Uniswap, but this new upstart itself faced ruin when its creator withdrew $14 million from a fund intended for developers. Uniswap suffered further headwinds when its yield farming program came to an end in November — with the total value locked in the platform decreasing by $1 billion in under 24 hours.
7. Bitcoin steal’s DeFi’s thunder
As November began, BTC was the center of attention once again as prices began to surge. Binance’s DeFi Composite Index declined by more than 60% at one point, with the exchange revealing that some DeFi tokens had lost up to 90% of their gains. Curiously, this didn’t appear to have much of an effect on the total value locked in protocols.
6. Tokens rebound — and user numbers surge
It wasn’t all doom and gloom. Several tokens staged an impressive recovery, and figures from Dune Analytics showed that the number of DeFi users has climbed substantially as the year drew to a close. There were about 580,000 people using these protocols at the start of October — but by mid-December, this had almost doubled to 1.12 million.
5. DeFi crimes go through the roof, too
Sensing an opportunity, cybercriminals increasingly turned their attention to DeFi over the course of 2020. According to CipherTrace, about 20% of the funds lost to hacks and theft in the first 10 months of the year came from the decentralized finance space — an alarming statistic given how DeFi hacks were “virtually negligible” back in 2019.
4. MakerDAO suffers in dramatic flash crash
Crypto’s flash crash in March caused carnage for MakerDAO. On Black Thursday, the value of Ether fell sharply — meaning that the collateral used to secure loans was automatically auctioned off. In some cases, those buying the debt were able to put in bids of 0 DAI and get significant chunks of ETH in return, creating millions of dollars in debt. New MKR tokens needed to be minted to plug the gap and save Maker from collapse.
3. Angry investors take MakerDAO to court
In the aftermath of the sell-offs, a class action lawsuit was filed in which investors claimed they suffered six-figure losses when their collateralized debt positions were abruptly liquidated. The organization was accused of “intentionally misrepresenting the risks” that investors faced. Arbitration proceedings in the $28 million lawsuit began in late September.
2. Report identifies serious risks connected with DeFi
Aside from the danger of losing all your money, a report by BraveNewCoin unveiled a series of other serious risks associated with DeFi. They included the threat of Ethereum experiencing network congestion that results in higher fees and failed transactions, critical vulnerabilities in smart contracts, poor design, and regulation that could result in protocols getting shut down.
1. A record-breaking year
It hasn’t all been doom and gloom though. The total value locked in DeFi protocols has continued to rise steadily despite all of this drama — increasing by a staggering 2,300% over the course of 2020. With institutional interest at unprecedented levels, and new applications emerging all the time, it’s going to be fascinating to see how DeFi evolves in 2021.