De Fi

DeFi Adoption 2020:
A Definitive
Guide to Entering
the Industry
DeFI Adoption 2020: A Definitive Guide to Entering the Industry 1

Disclaimer
This work is copyrighted in 2020 by Cointelegraph Consulting. The paper is
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We suggest the following citation: Cointelegraph Consulting. DeFi Adoption 2020: A

Definitive Guide to Entering the Industry.
The content in this report is for informational purposes only, you should not
construe any such information or other material as legal, tax, investment, financial,
or other advice.

Part 1.1
What is Decentralized
Finance (DeFi)?
Decentralized Finance (“DeFi”), is the idea that traditional

financial service offerings such as banks, markets, and other
investment services can be recreated or improved upon using
applications created on the blockchain.
DeFi is an ecosystem of blockchain-based financial instruments

designed in the decentralized way:
ā outside of companies’ and governments’ regulation

ā running on smart contracts
There is no reliance on centralized authorities and stakeholders

come together to build a permissionless ecosystem. The idea driving
the majority of the industry players is to open financial services to
everyone by building a permissionless ecosystem.
DeFi recreates traditional financial services — i.e. lending & borrowing,

trading, and even insurance — tailored for storing, earning, or Learn DeFi: Smart Contracts:
transferring digital assets. Decentralized applications (dApps) can A smart contract is a self-executing
programmable contract between
come in varying degrees of decentralization, simplicity, and security,
users and platforms that allows users
providing users with flexible options. to trade, invest, and send tokens
without any third-party involved.
DeFi has some unique traits making it a phenomenon in finance. Many
platforms have some or all of these characteristics:
Learn DeFi: Non-custodial

No third parties. DApps rely on smart contracts instead of “Non-custodial” in DeFi means a
the humans responsible for operations. DeFi products need platform that does not store the
private keys for users’ funds. Keys are
no intermediaries to process transactions. No middleman has
managed by the user, giving more
control over or access to your assets as the majority of DeFi security.
platforms are non-custodial.
Read more on CT: Crypto Custody, Explained

Governed by users. When it comes to governance, DeFi
Learn DeFi: Governance tokens
is also special since it moves towards decentralization and Governance tokens are designed
should eventually be based on the wisdom of the crowd. By as a tool for holders of the token to
vote for the risk management and
holding the governance tokens users can take part in voting
business logic of the system3. The
on platform governance decisions. more tokens you hold, the more
power you have in terms of decision-
Easy to enter. Thanks to the permissionless nature of DeFi, making.
anyone can start using the platforms without the need to
disclose personal information and applications for access.
All you need is to connect the wallet to the platform and
start lending, borrowing or trading. Your account is not
tied directly to your real-life identity as the platform and
other users only know your wallet number (no name / age /
country mentioned). However some wallets does have KYC/
AML requirement and therefore DeFi does not guarantee
anonymity if these wallets were used.
Community driven. In the DeFi space, communities are

one of the crucial aspects of each project as they help create
value through usage and organic marketing. With many DeFi
applications and protocols being open source, community
developers can add features and build new apps. Projects
can be “forked” to launch tweaked versions of the original Learn DeFi: Forks
product. Fork is a term for creating a new

variation of an existing platform by
replicating and modifying the code.
Truly Global. The products are not customized for specific
The goal of forks usually is to add
countries and are developed in a way that a person from new functionality to the platform or
Europe and a person from Asia will have the very same to fix security issues. Outside the
experience and access to features. DeFi space a well-known example
of a hard fork was the appearance
of Bitcoin Cash as an alternative to
Bitcoin with improved transaction
speed and smaller fees. In the DeFi
DeFi structure industry, forks of the popular DeFi
protocols have started popping
The DeFi industry is often classified into different layers, starting with
up with Sushi Swap forked from
the base layers (infrastructure and blockchain protocols), the assets decentralized exchange Uniswap and
themselves and other frameworks, before reaching the consumer layer Swerve being the fork of stablecoin
on top, which most users interact with. Whereas the ICO trend of 2017 swap protocol Curve Finance.
seemed more about competing base-layer blockchain protocols vying

to be the next-Ethereum killer, the 2020 DeFi trend seems more about
connecting as many existing protocols and assets as possible with a
focus on collaboration and cross-chain applications. This offers the
advantage of specialization, as certain projects are able to focus
on niche use cases, technologies, or markets, after which they can
be integrated into multiple platforms for more rapid growth.

Prediction Markets Synthetic Assets & Derivatives Insurance
Consumer layer
DEXes & Liquidity Lending & Borrowing
Wallets & Asset management
Cryptocurrencis
Digital
assets
layer
Oracles
Cross-blockchain Networks
Infrastructure layer
Blockchains
Risks and security

DeFi is rapidly developing, but not all of the projects entering the space have passed
through comprehensive security audits and formal verification. Therefore, it is
imperative that all users understand the risks involved with DeFi as bugs, exploits,
thefts, and loss of funds through user error are not uncommon in this space.
Always exercise best practices with wallet and private key management while being
sure to invest responsibly to avoid severe losses. Furthermore, many analysts regard
some of the protocols and investment practices to be entering an investment ‘bubble’
where tokens could quickly devalue in a changing market environment. The purpose
of this guide is to encourage responsible use of DeFi platforms, rather than mere
speculation on future token value.

Part 1.2
CeFi vs DeFi —
Mapping the Difference
DeFi is not the only alternative to traditional finance: CeFi, or Centralized Finance, is another branch of
blockchain-based finance disrupting the banking industry. Before diving deeper into the DeFi space, it is
necessary to distinguish DeFi from CeFi. Both DeFi and CeFi are related to digital asset management,
represent the movement for better financial inclusivity and offer high potential yields.
Centralized Finance Decentralized Finance
Underlying Blockchain-based
technology
Attitude towards Focused on digital assets (including cryptocurrencies)

digital assets
Private keys Custodial Non-custodial

possession
Governance By platform management decision By community voting

execution
Interest rate Discretionary rate Market rate

determination
Price oracle Relies on a sole provider Queries multiple oracle sources

type of information
Main type of Risks associated with centralized Risks associated with flaws in code
risk exposure custody
Platform YouHolder, Nexo, Cred, Binance MakerDAO, Compound, Aave

examples
Exhibit / CeFi vs DeFi

Private key management. From this point, CeFi bears a striking resemblance
to traditional finance as centralized corporations bear custody, and,
consequently, the risks for safekeeping their users’ funds and information. On
the other hand, DeFi sticks to a non-custodial approach.
Governance. In the CeFi, corporate management is responsible for decision-

making in terms of both current and future state of their companies. Many
centralized exchanges such as Binance, Huobi, and OKex are getting involved
by rewarding users for storing assets in interest-yielding savings accounts. In
the case of DeFi, the communities — consisting of platform governance token
holders — are responsible for managing platforms.
Interest rates. CeFi and DeFi are also different in terms of the interest
determination. As the result of the CeFi governance architecture these
platforms solely hold the power to define the interest rate. DeFi platforms
rely on market data and proprietary data provided by market participants,
and then let governance token holders vote on whether an adjustment of the
interest rate is necessary or not.
Oracles. Centralized oracles function as a single entity providing data from an

external source to a smart contract operating with a set of security features.
On the other hand, decentralized oracles rely on multiple external sources to
increase the credibility of the data provided to the smart contracts. Within the
DeFi ecosystem, decentralized oracles are primarily used, as using centralized
oracles goes against the ethos of DeFi products / applications.
Risks. For CeFi the most considerable potential risk is getting hacked,
the situation that could compromise any centralized system. If someone
penetrates the custodian's wallets, users’ funds would not be secured anymore
and they would need to rely on the platform to compensate them. In the DeFi
space, there is a much greater risk variation: users have to worry about core
development team integrity, security of the code and even correct operation to
avoid losing their funds due to a misclick.
Despite both sides having different benefits and tradeoffs, DeFi and CeFi are
representing a brand new paradigm in finance and spurring innovation in the sector.
Whether DeFi and CeFi are a success and can overtake traditional finance is yet to be
seen, the rapid development of alternative finance is a long-term trend.

Part 1.3
The Technology
1.3.1
The Blockchains
To date, the DeFi industry is dominated by projects on the Ethereum blockchain
network, as they enjoy more compatibility with exchanges, wallets, stablecoins, and
other tools.
As a first mover, Ethereum has built up a powerful advantage with it’s thriving developer
community. The reason for the Ethereum dominance in the DeFi market is its better
composability standards compared to the other blockchains. Composability helps to
create a network effect, a situation whereby a product or service gains additional value
as the number of users increases.
Thanks to the network effect, the value of the new solutions built on top of the
Ethereum blockchain grows, and the ecosystem attracts even more users and
developers. This results in a more robust and ever-growing ecosystem. To date, there
are more than 200 Ethereum dApps according to DeFi Prime data, but the real number
tends to be even higher.
The bigger the There are better

audience of chances to expose the
users becomes product to more people
The more dApps

become available The more attractive
on the network the protocol becomes
for developers
The more developers

are building on the
blockchain network
Exhibit / The network effect phenomenon in the DeFi industry

As a result of the network effect, we see Ethereum leading the market
with more dApps and users. However, lack of scalability poses a
serious problem to the Ethereum network. The number of active
dApps on the network surges and so does the number of transactions
performed by users. To explain the scalability problem, we take a quick
look at the Ethereum fees structure.
In the whole Ethereum DeFi ecosystem users have to pay gas fees for Learn DeFi: Gas fees
each transaction, whether they are sending tokens or interacting with Gas is the internal pricing on
Ethereum blockchain required
dApps. In this respect, gas fees are similar to bank commissions in
for processing transactions; the
traditional finance. Each transaction on the Ethereum network has to amount is determined by miners
be validated by miners who are paid in gas in return for their services. who validate the transactions and get
paid for it. The Ethereum blockchain
is notoriously over congested,
Ethereum Network Transaction Fee Chart
Pinch the chart to zoom in meaning that fees on that blockchain
45 k
are prone to extreme volatility. An
optimistic viewpoint sees this as a
40 k
temporary growing pain, while more
35 k negative users might see this as a
reason to explore other blockchain
30 k
platforms.
The current gas price, multiplied by
Txn Fee (Ether)
25 k
the gas limit, will result in the gas

20 k fee, or the total amount of Ether to
be paid.
15 k
Gas fee = gas limit × gas price

10 k
As for the gas limit, this refers to the

5k maximum value that a user is willing
to pay for the transaction or function.
0
2016 2017 2018 2019 2020 Despite users being able to set the
amount of gas units that can be
Exhibit / Ethereum network transaction fees Source: Etherscan taken from them, gas limit is usually
pre-determined by the complexity of
a transaction.
And here the Ethereum scalability problem comes to the stage. The Transaction complexity stands
growing number of users actively interacting with the dApps in the for the amount of computational
Ethereum ecosystem means a surge in demand and gas price for power the transaction involves to go
through successfully. The more code
validation of transactions. The main upgrades that will make Ethereum
that is executed on the blockchain,
more scalable are highly anticipated, but as of now remain in a testing the more computational power
phase. is needed, the higher the gas
limit should be as miners need
As a short-term fix seems unlikely, this issue of congestion opens the to compensate for the resources
door for other blockchains including NEO, Polkadot, Cosmos, EOS, consumed. Different transactions
will bring about different gas costs,
Ontology, Tron and others to seize a part of the rising market share.
but a regular Ether (ETH) transaction
Examples mentioned later in the report such as Wing and Equilibrium would take at least 21,000 gas units,
show how DeFi solutions can be built on other blockchains. whereas a more complex DeFi
45%
application might be 10 times as
much.
of the platforms built on
Ethereum name scalability
and high gas costs among
top‑3 problems constraining
mass DeFi adoption1
1
Cointelegraph Consulting conducted this survey between July 10 and August 25, 2020. The survey polled a sample of 26 senior executives of
the platforms currently operating in the DeFi industry. Survey respondents represent 12 countries (Australia, China, Cyprus, Estonia, Kenya, New
Zealand, Serbia, Singapore, Switzerland, South Korea, UK, USA) and a wide range of DeFi services, including but not limited to lending & borrowing,
exchanges & liquidity, asset management.
Read more on CT: Ethereum Rivals Are Seizing the Moment

Scaling DeFi
There seem to be three possible consequences for users and
Learn DeFi: Cross-chain
developers if upcoming Ethereum upgrades don’t solve the Cross-chain is the process of using
problem of over-congestion. tokens, dApps, or smart contracts
on more than one blockchain. Many
believe this can solve the issues of
Diversify from Ethereum — Recreate the platforms on
1 scaling, as users would be able to
newer, more flexible platforms. Certainly there is no trade assets with crowded native
shortage of players in this space at the present, but would blockchains (such as Bitcoin and
further complicate the DeFi landscape and become “less Ethereum) on secondary blockchains.
The blockchain platforms that
interoperable”. In this scenario, CeFi and cross-chain
successfully solve this problem
platforms would thrive, as users opt for simplicity. stand to gain a lot of overflow traffic,
provided they can achieve this in a
Build “Layer Two” solutions — these involve creating
2 secure and efficient manner.
secondary chains or networks that can track multiple
transactions before syncing with the main network. This is
what most Bitcoin and Ethereum backers would prefer as it Know your platform:
would keep the balance of power in their favor. Binance Smart Chain
Another possible solution to the
Remain stuck at this level — This would create a ‘whale’s only’ Ethereum scaling situation is
3 Binance Smart Chain, an optimized
ecosystem where increasing transaction fees would only be
Ethereum fork created by Binance.
accepted by those making high-value transactions. This is the The benefit of maintaining nearly
most unlikely, as it would imply that DeFi development and complete parity with Ethereum is
user growth stagnates. that existing DeFi platforms can be

easily ported, and that browser tools
and wallets (such as MetaMask) will
Regardless of what happens in the future, at the moment, most of be highly compatible. Instead of
consuming ETH as gas, it consumes
the projects built on Ethereum are making plans to switch to another
BNB, and with faster block times
blockchain even if there are difficulties with the upcoming Ethereum and improved performance due to a
2.0 release. As it stands, the development community is still showing Proof-of-Stake consensus. Having the
leading exchange as an initiator is a
some loyalty.
major advantage, as certain existing
ERC-20 tokens can be converted to
the nearly identical BEP-20 (Binance
Smart Chain’s naming standard)
20% simply by withdrawing them from
Binance.
Are scalability issues a threat
to Ethereum's future?2
Know your platform:
Enjin
68% Yes No Possibly Famous for its blockchain gaming
12%
solution, Enjin has developed a new
layer-two scaling solution known
as Efinity to allow dApp and game
developers to rapidly complete token
transfers. After completing gameplay
Exhibit / The DeFi platforms’ attitude towards migrating from Ethereum blockchain network or dApp usage, Efinity then closes
Source: Cointelegraph Consulting DeFi Survey 2020 the channel and settles the result on
Ethereum’s main network.
Read more on CT: Ethereum 2.0 Staking, Explained

2
Cointelegraph Consulting DeFi Survey 2020

1.3.2
The tokens
One of the primary drivers in retail investment interest for 2020 was the growth of the
DeFi token value. Many evoked memories of the 2017 ICO craze with early investors
finding themselves with exponential gains on seemingly unknown platforms.
From a technology From a utility

perspective perspective
Native tokens Governance tokens
Ethereum ETH Compound COMP
Bitcoin BTC Aave LEND
Polkadot DOT Balancer BAL
Cosmos ATOM
Stablecoins
ERC-20 & Wrapped tokens
MakerDAO DAI
Chainlink LINK USD Coin USDC
MakerDAO MKR Equilibrium EOSDT
Tether USDT TrueUSD TUSD
Wrapped Bitcoin WBTC
Fee tokens
ERC-721 (NFT) tokens
Synthetix SNX
CryptoKitties Kyber Network KNC
NBA Top Shot Looping LRC
Decentraland LAND
Exhibit / DeFi tokens types and examples
Native tokens
Native tokens are the main tokens of public & permissionless
blockchain networks like Bitcoin and Ethereum. Most of these saw
steady growth from January to August of 2020 as DeFi burst on to the Learn DeFi: Wrapped tokens
mainstage. Wrapped tokens are a specific

subtype of the ERC-20 tokens. Token
wrapping mechanisms are used for
ERC-20 tokens the tokens not compatible with the

ERC- 20 standards, including but
ERC-20s are a type of secondary tokens on the Ethereum blockchain not limited to native tokens (ETH)
or tokens from other blockchains,
that are designed to interact with smart contracts, making them
such as BTC. The goal of converting
ideal for DeFi use cases. The upside to having so many different digital assets to wrapped tokens is
tokens created with the same standard is that they are easy to add to increase their functionality since
to exchanges, platforms, and wallets as they all align to the same most dApps are configured to handle
ERC-20 standards.
standard. Tokens with similar features to ERC-20 exist on platforms
A wrapped token represents an
other than Ethereum, but use a different name and standard. At the underlying asset 1:1 ratio and
same time, there is a mechanism called wrapped tokens designed to conforms to the ERC-20 standard.
Wrapped Bitcoin (wBTC), for instance,
represent the tokens of other blockchains on Ethereum.
is a token that is worth the same
as one BTC at any given moment,
ERC-20 tokens are fungible, which means each ERC-20 token has
only it's traded and stored on the
exactly the same value as the others. Like each $1 banknote has a Ethereum blockchain.
value of $1, one LEND token is identical to all the others.
Read more on CT: ERC-20 Tokens, Explained

Read more on CT: Wrapped Crypto Tokens, Explained

ERC-721 tokens
ERC-721 tokens are different from ERC-20 tokens as they are non-fungible. Each
ERC-721 token has different characteristics, each one is unique and individual, and
this is why they have different values. In the DeFi space these non-fungible tokens
(or NFTs) are mostly used for issuing collectibles and may also serve as investment
vehicles.
Governance tokens
At the forefront of the DeFi craze were governance tokens which were created
alongside DeFi platforms in an attempt to decentralize certain aspects of
governance and encourage user participation (in some cases, as a method to
raise funds, as well). Users holding tokens could stake them on voting platforms to
decide key administrative rules such as new features and other policies.
Stablecoins
Stablecoins are digital assets designed to combat the volatility of cryptocurrency
prices. They have their value pegged to another asset price such as US dollars,
other cryptocurrencies, or precious metals. Stablecoins are a convenient medium
of exchange and a means of risk hedging.
Fee tokens
Fee tokens stand for a specific type of digital assets deployed to allow for some
additional functionality, serve as a collateral and a means of payment for the
services on the platform. These tokens are different from governance since the first
ones do not give any management rights to holders. Fee tokens are also different
from stablecoins as there is no price stabilization mechanism behind the token —
the price is set by the market.
Project Name Project Type Token Symbol Token Icon Governance/

Stablecoin/Fee
Chainlink Oracles LINK Fee
Synthetix Synthetic Assets & Derivatives SNX Fee
Aave Money Markets LEND Governance
Maker Lending MKR Governance
Compound Lending COMP Governance
Dai Stablecoins DAI Stablecoin
0x Protocols and Frameworks ZRX Fee
UMA Protocols and Frameworks UMA Fee
Ren "Cross-chain Liquidity Providers" REN Fee
Kyber Network DEX Tokens KNC Fee
Band Protocol Oracles BAND Fee
Yearn Finance Yield Farming YFI Fee
Equilibrium Money Markets EQ Governance
Uniswap DEX Tokens UNI Governance

Part 1.4
DeFi Key Metrics
Total Value Locked

The key metric for tracking the pace of DeFi development is Total Value Locked (TVL).
TVL stands for the aggregated amount of money locked in the smart contracts of the
DeFi platforms and is calculated by multiplying the total number of tokens held by a
protocol by their value in USD.
$7B
$6B
$5B
TVL (USD)
$4B
$3B
$2B
$1B
$0
Jun Jul Aug
Exhibit / Total Value Locked (USD) in DeFi Source: DeFi Pulse
Still, TVL can be deceptive for two reasons: well-backed projects can park large
quantities of digital assets into the platform, while not necessarily achieving much
with the funds, in an attempt to look more credible or active. More worryingly, some
platforms, particularly those that encourage a practice known as yield farming, can lend
funds to users which can then be relocked in the same platform or other platforms in
order to receive even more loans. This cyclical process inflates TVL, and casts doubt
over the legitimacy of parts of the DeFi space.
Daily Active Users

Daily active users is the most unbiased metric for measuring DeFi usage and growth.
This is calculated by the number of unique addresses interacting with each of the
DeFi platforms. However, when totalling the users of the whole DeFi ecosystem, it is
essential to take into account the double counting of users interacting with several
platforms a day, which makes the DAU index biased.

April May June
8K
aave
7K
6K
Daily Active Users
curve
5K
4K
3K
compound
2K
1K
uniswap uniswap uniswap
0
Apr 9 Apr 19 Apr 29 May 9 May 19 May 29 Jun 4 Jun 9 Jun 14 Jun 29
Day of Date [April 2020] Day of Date [May 2020] Day of Date [June 2020]
bzx ddex dydx maker mcd curve uniswap

lendf aave maker scd balancer compound
Exhibit / Daily Active Users — 2020 Q2 Source: Consensys Codefi DeFi Report Q2 2020
Market Cap
DeFi can be also measured through the lens of its market capitalization. The market
cap of each DeFi platform is calculated as the total number of its tokens multiplied by
the current market price of the token. CoinGecko and DeFi Market Cap both list the
Top 100 DeFi coins. As for the DeFi market cap, it is the result of the top 100 platforms’
market capitalization being summarized. The DeFi market cap continues to pass new
milestones as it crossed the $14 billion mark as of September 2020.

Part 1.5
The Trends
1 Increasing complexity
Releases of newer versions of DeFi platforms are expected to grow in complexity.
The core reason for this is that investors are looking for higher yields, and this sparks
competition. The platforms have to become increasingly creative to design instruments
that deliver growing returns.
Although the instruments are becoming more complex, the top 3 drivers of platform
adoption according to the DeFi projects surveyed in this report are listed below. User
experience, cost efficiency, and education are must haves for every platform aspiring to
increase the number of users.
What will play a bigger role in leading to mainstream DeFi adoption?
82% 72% 48%

Improved user Cost- and yield-efficiency of the Better understanding
experience DeFi instruments comparing to of DeFi value for wide
traditional finance audiences
User Experience Cost Efficiency Education
Exhibit / Top drivers for DeFi mass adoption Source: Cointelegraph Consulting DeFi Survey 2020
2 More “whale-centric” barrier to entry

As the gas fees are continuing to soar due to the growing load on the network, the
platforms built on Ethereum are becoming more costly to use. Until Ethereum 2.0 is
introduced (and this may take years), the fees will keep on rising. This could become a
major roadblock for DeFi user growth since there are a limited number of people willing
to pay high fees and all the transactions of a small amount (less than $40-50) struggle
to maintain profitability.

3 Maturity far away
DeFi was a recent development, however, it has been rapidly developing through its
short life. Nevertheless, it can be considered a mature technology only when it wins
a reputable number of users and sustainable economic model. The majority of the
platforms evaluate the time frame for reaching the maturity stage as 3-5 years, while
32% believe that it will take 6-10 years or more for the industry to ripen.
What is the time frame for the DeFi industry to

reach the plateau of productivity?
24%
8%
1 – 2 years
4% 3 – 5 years
6 – 10 years
10+ years
Cannot predict
16%
48%
Exhibit / DeFi players’ perception of the industry maturity horizon Source: Cointelegraph Consulting DeFi Survey 2020
4 Retail-focused DeFi
While the digital asset market is seeing a significant increase in inflows from
institutional investors, DeFi is not arming for the big investors money race. Most of the
DeFi platforms are planning to embrace the retail-focused strategy.
Which category of clients is your main product targeting?
84%
16%
Retail investors Institutional investors
Exhibit / The current market focus of the DeFi industry players Source: Cointelegraph Consulting DeFi Survey 2020

Do you think institutional investors will be a critical
market segment for you to target?
28%
16%
Yes
No
Maybe
20% Unable to judge
36%
Exhibit / Institutional market potential for the DeFi players Source: Cointelegraph Consulting DeFi Survey 2020
Does your platform plan to offer DeFi services tailored for businesses?
Yes, we plan to offer services

48% for institutions

36% for SMEs
No, we plan to stay in the

36% retail segment

28% for large enterprises
Exhibit / DeFi industry players possible market strategies Source: Cointelegraph Consulting DeFi Survey 2020
5 Agile development teams

DeFi companies are similar to usual venture-backed companies, with the note that the
whole industry consists of such early-stage startups.
In this faster-moving industry, DeFi platforms need an iterative, agile approach to build
disruptive products. Small teams help to keep up the momentum and make changes
fast: both when it comes to business strategy or fixing the code.
56%
of the platforms have
10 to 30 employees and
40% have even smaller
teams3
3
Cointelegraph Consulting DeFi Survey 2020

The second reason why keeping the DeFi teams small makes sense is that the majority
of the platforms are bootstrapping and possibly have limited resources to expand the
number of employees.
What was the revenue scale in 2019 for your company?
28%
12%
Pre-revenue
4% <$0.1 million
$0.1 million – $1 million
$1 million – $10 million
>$10 million
32% 24%
Exhibit / DeFi industry players revenue distribution Source: Cointelegraph Consulting DeFi Survey 2020
Thirdly, DeFi is an example of a decentralized industry where the teams had no

problem working remotely from the very beginning. However, managing a small
decentralized team is much easier, so while the platform is taking off, it is better to have
more control of what is going on.

Part 2.1
The Use Cases
In terms of use cases, DeFi offers a robust ecosystem of instruments designed to earn
money. While DeFi was and still is mostly used for speculating (with governance tokens
being the prime example), there are some ways to capitalize on DeFi without any
speculation. We will be covering the following DeFi use cases:
1. Stablecoins
2. Trading and Liquidity Providers
3. Lending and Borrowing
4. Asset Management, Staking, and Yield Farming
5. Derivatives and Synthetic Assets
6. Insurance
7. Oracles
8. Prediction Markets
Stablecoins Lending and Borrowing Trading on DEXes and Liquidity
Synthetic Assets Staking Asset Management and Wallets Insurance and Risk Hedging
(Derivatives)
Oracles
Prediction Markets
Read more on CT: Stablecoins, Explained

1 Stablecoins
Learn DeFi: Rebase
Stablecoins are digital assets that have a price pegged to a currency, In statistics or finance, a rebase
changes the base by modifying a
basket of currencies, or other asset to reduce volatility and risk. The
calculation or parameter. For DeFi,
most common stablecoin is USDT, which is pegged to 1 US Dollar several projects have experimented
and is stored on nearly 1.4 million addresses with close to $7 billion with this by creating an elastic
(changing) token supply. They can
in circulation, making it a top five cryptocurrency by market cap.
then rebase the amount of tokens
Stablecoins have a clear and sustainable future as a method of each person holds by adding or
payment, store of value, and tool for investing in other DeFi products. subtracting from the total supply on
a regular basis.
Stablecoins can keep the price from fluctuating in a number of ways. As the price drops, holders are
The most common way is by backing the tokens with fiat, much like rebased with fewer tokens, creating
scarcity leading to a higher price.
a national currency is backed by gold or other asset. These coins can
As the price increases, more tokens
be bought on exchanges, and the supply is regulated by a centralized are rebased to holders, encouraging
authority. Stablecoins backed by cryptocurrency can be bought on them to sell and drive the price back
exchanges or are minted by the users themselves. Locking an asset in down towards the targeted “stable”
price. This has the benefit of being
a smart contract vault will allow them to mint or withdraw a stablecoin,
truly decentralized, but also adds the
much like a lending platform. Since these stablecoins can be used to risk that user behavior is irrational
unlock a certain amount of locked assets, they maintain their value. and wont respond predictably to
user behavior. It also has been
However, if the value of the locked asset suddenly plummets due to
criticized for it's effectiveness, since
market volatility, the platform will potentially liquidate the locked assets it only serves to stabilize a user's
in order to protect the value of the stablecoin. total wealth, but not the value of the
token itself.
Decentralized stablecoins Centralized

stablecoins
Know your platform: Ampleforth
Type: Backed by Backed by Backed by Central (AMPL)
fiat cryptocurrency algorithms Bank Digital AMPL was intended to be a
Currencies stablecoin using the rebasing
technique mentioned above. With
(CBDC)
a price target of around $1 dollar,
the community was shocked to find
Example: USDT, USDC, DAI, EOSDT AMPL, Sand Dollar
intense speculation drove the price
PAX, BUSD NuBits (Bahamas) to nearly $3 dollars in late July 2020
before subsequent volatility saw the
price plummet to around $0.50 in
early August before stabilizing. The
daily rebases reduced some of the
Risks
effects of this volatility, but proved
Not all stablecoins are in fact completely stable. Fiat-backed that the rebase method wasn’t
completely reliable, especially during
stablecoins often lack transparency with their reserves, and the
a market frenzy.
holders must place faith in the centralized authority in charge
of issuing the coin to maintain the stability. Cryptocurrency and
algorithm-backed stablecoins use smart contracts to regulate stability,
which are vulnerable to exploits, bugs, and hacks.

2 Trading and Liquidity Providers
Know your platform: Uniswap
Most DeFi trading happens on either a traditional exchange like Uniswap has become a household
name in recent months due to the
Coinbase or Binance, or on a Decentralized exchange (DEX). The main
success of Ethereum-only DeFi
difference is that with a DEX, users do not need to deposit or withdraw tokens on the platform. There are
funds, they simply connect a third-party wallet to a website interface. now more than $250 million dollars
worth of assets staked in their
liquidity pools.
Get to know your DEX:
With a DEX, the wallet interacts with the webpage via smart contracts,
hybrid order books, or liquidity pools. This has the added benefit of: Learn DeFi: Liquidity
Liquidity Providers: The role of the
ā No trusting a centralized exchange liquidity provider (LP) is to share
their supply of tokens so that an
ā No lengthy deposit times
exchange or platform can offer them
ā No KYC verifications to users. With a DEX, rather than
buying millions of dollars in tokens
On the other hand, this also means users have limited access to things themselves, LPs supply funds into
that users take for granted on centralized exchanges such as: liquidity pools, which other users
can then trade freely with. Most
ā Customer support platforms add a small fee for each
transaction, which is then split
ā Diverse trading pairs among LPs as a reward for the use of
ā Promotions, bonuses, and referral rewards their tokens. This is a low to medium
risk way for users to earn a passive
income with their funds, particularly
Here are some common DEX examples: on high-volume platforms.
Hybrid order book: These exchanges mimic a centralized

IDEX, Loopring exchange by having an order book that users
can browse and place orders in. The order
book is powered by smart contracts, so users
must connect a web or hardware wallet to Learn DeFi: Staking
trade. In the DeFi space staking is the
process of placing tokens into a
Advantages: Familiar to use, clear order smart contract or platform to secure
book structure. the network, provide liquidity for
other purposes, or simply stabilize
Disadvantages: On-chain fees can be high, the token supply. With so many use
cases needing instant and deep
trade pairs and order book depth limited by
liquidity to be effective, nearly every
users. platform offers staking benefits,
both as a reward for participation
Liquidity Pools: These exchanges offer staking opportunities as well as recognition of the risk of
Uniswap, THORChain, in addition to trading. Users can provide temporarily surrendering control of
your funds.
Bancor liquidity by depositing idle tokens into pools.
When a user seeks to make a trade, they
trade one type of token into the pool and
Learn DeFi: Slippage
another one comes out at the appropriate
When available trade volume is
ratio. low, a large order will execute at a
higher price than the expected price,
Advantages: Any token can be exchanged known as slippage. DEX users should
for anything, no need to wait for matching be cautious with large orders. Any
delays with executing the trade can
orders.
cause slippage, as volatile prices
might change quickly.
Disadvantages: Prone to slippage, require
liquidity depth, fee structure unclear.
Read more on CT: Crypto Exchange Liquidity, Explained

Uniswap and Automated Money Markets, Explained

Liquidity Aggregators: Aggregators scan the prices on multiple exchanges to
Know your platform: Sushiswap
Paraswap offer the best price on trades. While Uniswap was created without
a governance token, Sushiswap and
Advantages: This saves users time and simplifies the its anonymous developers created
DEX-trading experience. the SUSHI token that users could
earn by staking Uniswap liquidity
Disadvantages: Still limited by the liquidity depth of the provider tokens. This effectively was
platforms it aggregates from. an attempt to cannibalize Uniswap
by offering higher yields to liquidity
providers. Not long after launch, the
Stablecoin DEX: With stablecoins so vital to many DeFi platforms, it platform's founders allocation was
transferred and sold and the main
Curve makes sense that they’d need their own DEX. The
Twitter account announced they
function is not just to allow free trading between were handing the platform over to
stablecoins, but also to ‘stabilize’ their prices by creating the founder of FTX (exchange) and
large liquidity pools. Curve’s larger pools have hundreds Serum (blockchain). Many were
upset and consider the actions of
of millions of dollars worth of stablecoins staked inside.
Sushiswap to be scam-like, while
others praised the ingenuity of the
Advantages: LPs can earn trading fees on their
decentralized community.
stablecoins. Note: On September 17th, Uniswap
created the UNI token, which sent
Disadvantages: Limited to stablecoins, while also the Ethereum gas prices skyrocketing
exposing the assets to hacks or exploits. as LPs rushed to claim them. This
was in response to other platforms
incentivizing LPs to leave Uniswap
Leverage Trading: With traditional leverage trading, users must open with tokens of their own.
dYdX accounts with a broker and be subject to stringent

KYC processes and regulations. Broker fees can be
Learn DeFi: Leverage trading
significant, making decentralized platforms an attractive
With leverage trading, the platform
proposition for serious traders. effectively loans you assets to trade
with, allowing users to rack up
Advantages: Simplified onboarding experience with extreme gains or losses much faster
powerful trading tools. than with just their balance. The risk
is that once a user’s total account
Disadvantages: High-risk trading platforms with slower balance is below what is needed to
trade execution than on a centralized platform. cover losses on a trade, they can be
liquidated, losing all their funds.
Centralization debate: Learn DeFi: Staking

In the DeFi space staking is the
Many believe that centralized exchanges are a vulnerability in the decentralized process of placing tokens into a
blockchain ecosystem. They are the targets of hacks, fraud, and manipulation. smart contract or platform to secure
the network, provide liquidity for
Many exchanges charge exorbitant listing fees for new projects, creating minor
other purposes, or simply stabilize
barriers to entry for small, legitimate projects while rewarding projects that raise the token supply. With so many use
higher amounts of capital. cases needing instant and deep
liquidity to be effective, nearly every
With a DEX, any project can be listed for free, regardless of size, making them a platform offers staking benefits,
both as a reward for participation
haven for newer and more experimental projects. However, this same openness
as well as recognition of the risk of
also makes a DEX the target for scams, hacks, and exploitation of their smart temporarily surrendering control of
contracts and users. At the present, the industry is growing with a reliance on your funds.
major exchanges who simplify the user experience, assist in exploring blockchain-
friendly regulation, and global marketing for the digital assets listed within; in the
future there must be a careful balance between centralized and decentralized
exchanges.
Read more on CT: DEX, Explained

3 Lending and Borrowing
Learn DeFi: Collateralization
DeFi enables users to lend and borrow directly, removing a banking Collateral is a way for the lending
platform to recoup their assets
intermediary from the entire process. Balance verifications are
should the borrower be unable to
based on a blockchain, assets are transferred to a smart contract repay their debt. In the traditional
as collateral, and interest rates are deducted without human world, collateral often has a static
price, such as a house or property.
intervention once the conditions are set. ypically, these loans require
In the DeFi space, the value of the
a high collateralization rate to avoid liquidation when market prices collateral (cryptocurrency tokens) can
fluctuate. swing wildly in value, bringing on the
risk of liquidation.
Money markets and lending platforms such as MakerDao and

Compound headlined the early DeFi stage by being the two most
Learn DeFi: Collateralization rate
dominant platforms. Soon they were joined by a number of platforms
The required rate of collateral to
that tried to replicate their success by either adding more complex borrowed assets. On MakerDao,
financial features or by simplifying the user experience. All are similar the rate is 150% for most assets,
in that users can deposit tokens as collateral for a loan, or provide meaning you can borrow up to
66% of the value of your collateral.
liquidity by depositing tokens and earning interest on them.
Having a higher than required
collateralization rate is a good
practice to prevent liquidation.
Real-life scenario
Payday loan: Suppose you needed a short-term payday loan, but didn’t Learn DeFi: Liquidation
want to sell your cryptocurrency tokens for fear price volatility will When the value of the collateralized
push the price up before you can buy them back. You deposit them token drops below a certain
threshold, it will be sold off in order
in a smart contract vault, receive a loan in a stablecoin such as DAI or
to repay the borrower’s debt. This
USDC, which you could then sell for cash. At the end of the month, you is a risk of using volatile assets as
could buy back the required amount of stablecoin and unlock your collateral on decentralized platforms.
original assets. On most platforms, users can always

add collateral by depositing more
tokens into the vault if they sense the
Short-term trading: With all the government stimulus checks being price is falling too rapidly.
written, you predict the price of cryptocurrencies will rise significantly.

You lock your current assets in a smart contract vault, and use the
loaned stablecoins to buy even more cryptocurrency. After the price Learn DeFi: Money markets
increases, you sell only enough to repay your loans, unlocking your Money markets are a major part of
traditional financial markets that
original assets and keeping the trading profits.
provide short term loans and liquidity
for participants such as banks or
other institutions. DeFi recreates
these, with the added bonus of
being instant, intermediary-free, and
not requiring lengthy identification
processes.
Read more on CT: Crypto Lending, Explained

Know your Platform: MakerDao and Compound
MakerDao and Compound were two of the earliest movers in the DeFi space. They both
operate with the same concept: Simply deposit tokens to provide loans for others while
earning interest, or borrow tokens while collateralizing another asset.
Platforms like Youhodler take a more centralized approach, by creating a custodial

wallet for users. The centralization trade-off is rewarded by a simplified user experience
that includes multiple savings and investment options.
Platform MakerDao Compound Aave dYdX

Accepted ETH, BAT, BAT, DAI, ETH, DAI, TUSD, USDC, DAI, ETH
Collateral: USDT, USDC, USDT, USDC, BUSD, BAT,
WBTC, KNC, wBTC, 0x ENJ, REN, LINK,
ZRX, MANA BAT, DAI, ETH, MANA, REP
USDT, USDC, ...and more
wBTC, 0x
Additional Basic trading Money Markets Flash Loans Leveraged
features: Trading
Learn DeFi: Arbitrage and Flash Loans

Arbitrage: The buying or selling of a token on multiple platforms to take advantage of different prices for
the same asset. For example: Due to low liquidity, a token on Uniswap fell way below the price listed on
a centralized exchange like Binance. Users could buy on Uniswap and sell at the higher price on Binance,
instantly earning a return. With the combination of many exchanges and money markets coupled with
inconsistent liquidity, the DeFi space offers a number of opportunities for arbitrage and trading.
Flash Loans: Flash loans are the idea that users can be loaned large sums of money without any collateral
provided the user is able to pay the loan back within one transaction. For average users, this might seem
like a difficult concept, but when using DeFi products, a token usually undergoes a series of swaps that
could take advantage of different prices or promotions on different platforms. Taking the example of
arbitrage, if a user notices a pricing inconsistency on multiple exchanges, it’s possible to:
1. Borrow a large sum in stablecoins
2. Use it to buy a token from on DEX A
3. Sell it at a higher price on DEX B
4. Return the loaned sum to the flash loan platform
5. Keep the remaining profits
A second example could be regarding loaned tokens. Assuming platform B is offering a lower interest rate
on loans than platform A, with the traditional method, a user would have to:
1. Pay off the loan and unlock the collateral
2. Send the collateral to platform B
3. Restake the collateral and receive new loan
With a flash loan, a user could skip step one, receive a second collateral-free loan to pay off the first loan,
move the collateral to platform B, and use the loan from platform B to pay off the flash loan all within
one transaction. While this might seem like a complicated process, much of it can be handled in the
background, giving users additional liquidity to always take advantage of the best prices on the market.

4 Asset Management, Staking, and Yield Farming Know your platform: Balancer
Balancer acts as both an exchange
With so many DeFi products springing onto the market, finding and an investment manager by
the right way to invest can be a major source of confusion. Many setting up liquidity pools of paired
platforms in the previous sections offer rewards for staking, investing, assets. Much like a digital index fund,
you could deposit funds to one of
or providing liquidity to the platform, often in the form of a traditional
the pools (for example: the 60%
annualized percentage (APR), in governance tokens, or both. MKR and 40% wETH is one of the
more popular pools on the protocol).
Apps like InstaDApp, Zapper.fi, and Zerion try to simplify this process In order to maintain the balance
by offering a user dashboard where you can connect a wallet and then between the pairs, traders can then
select which platform you wish to stake tokens on, including popular access the pools (they can take
advantage of arbitrage opportunities)
platforms like Compound (money markets), MakerDao (lending) and
with the trading fees going back into
Curve (stablecoin liquidity pools). Uniting the different platforms under the liquidity pools. Liquidity providers
one dashboard certainly simplifies the user experience, while making it are entitled to their percent of the
pool, including trader fees.
easier to manage and observe a variety of different investments.
Learn DeFi: Yield Farming

At the heart of the investment craze was yield farming, a new phenomenon that had users staking funds in
platforms chasing high returns on DeFi platforms. Yield farming started when Compound rewarded users on the
platform with their COMP governance token, which caused a massive increase in total value locked (TVL) on the
platform.
Exaggerated yield farming soon came about as users began depositing tokens in Compound as collateral
(earning even more tokens) to borrow more tokens, which they could reinvest (earning COMP again) in the same
or other platforms, creating a repeating cycle of borrowing and lending. While the process sounds confusing, it
follows the basic premise: One stablecoin locked could be used as collateral for a loaned stablecoin, which could
then be locked into another protocol’s pool, and as traders maintain the balance between pools as demand
shifts, the trading fees serve as rewards for these yield farmers.
This shows how tokens are shifted around by yield farmers without any actual value being created. Unchecked,
this kind of irresponsible lending behavior inflates platform metrics but lacks sustainability.

Risks and concerns:
Know your platform: Yearn
Finance (YFI)
Fund management and yield farming are certainly hot topics in the
Yearn Finance founder Andre Cronje
community and rightly so: most long-term blockchain enthusiasts created a tool for yield farmers
have access to tokens sitting on exchanges and wallets and DeFi that automatically rebalanced the
provides a unique way to earn interest and other returns on them. portfolio for maximum yields. This
process also minted users with a
Yield farming and liquidity pool aggregators make it easy to identify
special version of the DAI stablecoin
high value opportunities, despite the questionable economics (yDAI) that could then be deposited
supporting some of these platforms. Many questions surround the into Curve (The DEX for stablecoins)
for even more earnings. The
sustainability of high-yield DeFi investments, particularly if the primary
process was a major success, and
use case of the platform is just lending tokens to yield farmers even though Cronje admitted the
hoping to reinvest them elsewhere. The challenge will be on DeFi’s governance token (YFI) that users
developers and ecosystem leaders to create products with real- also earn in exchange for staking had
zero financial value. Retail investors
world value, encouraging participation even after the frenzy around
thought otherwise, and bought the
governance tokens fades. token up from $0 when it launched
on July 17th to over $43,000 dollars a
few months later in September.
Know your platform: Yearn

Finance (YAM)
After the yield farming craze really
took off, a team of developers took
the farming nickname literally and
created Yam Finance. The platform
combined two trending buzzwords:
rebase economics and yield farming.
They were also upfront about the
due diligence that had gone into
development by announcing that no
security audits had taken place and
investors should participate at their
own risk. Investors took the bait and
locked more than $400m in the first
24 hours, making it the 7th largest
Defi project according to total value
locked (TVL) as of August 19th 2020.
Not surprisingly, the next day the
developers announced a critical bug
in the rebase function, that crippled
the platform and caused the once
highly-coveted YAM tokens worthless.
Now, the developers are hastily
pushing out some updates to try
and save the project. As of now, Yam
serves as a warning for the dangers
of using unaudited DeFi platforms.

5 Derivatives and Synthetic Assets
Learn DeFi: Derivatives
With derivatives and synthetic assets, DeFi has the potential to Derivatives are financial contracts
that derive their value from the
unlock the trillion dollar global financial markets, making them more
future price of an asset. Bitcoin
accessible and efficient. This offers the DeFi industry a long-term path futures are the most common
to true sustainability beyond just the cryptocurrency trading, lending, example, which are often used as a
hedge or speculative investment by
and staking space.
traders.
Know your platform: Synthetix

Synthetix is one of the largest and earliest DeFi platforms with over Learn DeFi: Synthetic assets
Synthetic assets in DeFi are a token
$800 million dollars locked in the platform. Some of the more popular
that can represent the value of any
assets on the platform include: number of things, including gold, a
barrel of oil, a currency, or traditional
Type Tokens Explanation stocks.
Forex sAUD, sUSD, Trade foreign currencies and

SGBP, sCHF hedge against volatile conditions.
Commodities sXAU (Gold) This asset is pegged to the price
of an ounce of gold.
Indexes sFTSE, These are pegged to the price of
sNIKKEI major stock indexes.
Cryptocurrencies sBTC, sETH, Trade major cryptocurrencies
sBNB without worrying about network
and wallet options.
Inverse iBTC, iETH, The equivalent of shorting
Cryptocurrencies iBNB (without needing a Futures
account), the value goes up as
the price of the cryptocurrency
goes down.
6 Oracles
While most have faith in decentralized smart contracts, transparent Know your platform: Chainlink
Chainlink dominates the conversation
source code, and verifiable on-chain data, how data gets to the
when talking about oracles due
blockchain is a major concern. That’s why decentralized oracles are to their explosive token value
tools that are designed to report important data to smart contracts appreciation in 2019/2020. Their
and DeFi protocols so that platforms can function accurately and fairly. oracles are responsible for providing
data to a number of leading DeFi
Think of them as trusted data feeders which connect the real world
products such as Synthetix, Aave,
with the blockchain. Many of these oracles are tasked with reporting Bancor, Paraswap, and Swipe, who
regularly updated price feeds, so that exchanges and smart contracts both use and sponsor these oracles
can make automated decisions. For lending and leveraged trading on the network.
platforms this is especially important as user funds could be liquidated

if the price of an asset was to be reported inaccurately.
Chainlink Band Protocol Dos Network

Supports: Ethereum Ethereum, Ethereum, EOS,
Cosmos, Polkadot Quarkchain, Tron,
and more
Token: LINK BAND DOS
Read more on CT: Crypto Synthetic Assets, Explained | DeFi Oracles, Explained

Oracles exploded in popularity after the phenomenal price increase
throughout 2020. They have the ability to be plugged in to any dApp or
smart contract, making them a valuable and ubiquitous technology.
7 Prediction Markets
Decentralized prediction markets have the ability to disrupt the betting industry, as
markets can be created on anything from sporting events to political elections. Augur,
a leading platform in this space, allows users to stake tokens on the outcome of certain
events. Currently, events that are open for betting regard a wide range of topics
including sporting events, the 2020 US Election, the amount of COVID-19 cases.
8 Insurance
With billions of dollars locked in smart contracts, coupled with the risk of hackings,
malfunctions, and exploits, the DeFi space sorely needs a fallback plan in case disaster
strikes. Opyn and Nexus Mutual (NXM) are two platforms that allow users to buy
insurance on their holdings or platforms. If tokens are lost due to accident or theft, the
insurance will pay out to the user. Unlike traditional insurance policies, users can buy
insurance on tokens they don’t have. In a sense, it can be viewed more like a bet on the
soundness of the platform. As long as users buy coverage, if the platform fails, they are
entitled to returns.
$31,000
the amount paid out
by Nexus Mutual in
February after smart
contract platform bZx
suffered a bug exploit
Few have benefited more from the rush of money into the DeFi space than Nexus
Mutual. The TVL on the platform exploded from averaging around $4 million earlier in
the summer to around $75 million in mid-September.

Part 3
DeFi in Use
Cross-chain trading and

liquidity Token: RUNE
https://thorchain.org/
Company overview
THORChain makes exchanges between tokens on different blockchains possible by
connecting a decentralized network of liquidity pools. Unlike other cross-chain solutions
that require complex wrapped or pegged tokens mechanisms, THORChain connects
liquidity pools from different blockchains that are optimized to maximize incentives for
liquidity providers such that a deeply-liquid trading environment can be facilitated.
Token overview
ā Total supply: 500,000,000 RUNE
ā Circulating supply: 158,432,088 RUNE
ā Token type: BEP2 (Binance Chain)
Key features
The THORChain ecosystem has four main roles that work together to benefit the
network. When landing on the main dashboard, users will have the option to take part in:
1. Swapping — Swappers who wish to exchange one token for another will pay small
transaction fees while getting fast swaps with minimal slippage
2. Trading — After swappers exchange assets, prices may slip away from global
averages. Profit-seeking traders will correct this by buying and selling on different
exchanges, correcting any mispriced assets.
3. Providing liquidity — Liquidity providers supply their assets in the liquidity pools
while collecting fees from swappers and traders.
4. Node operation — Anonymous node holders also collect fees from the system in
exchange for using computing resources to secure the network.

Cross-chain method:
THORChain’s goal is to be compatible with Ethereum, Bitcoin, Binance Chain, and

Monero. It uses what’s called a one-way state peg to manage the different blockchains.
Essentially, vault addresses on each different blockchain are observed by a signer
module made up of the nodes users can run (they named it Bifrost). The Bifrost then
communicates all transaction-related data with the THORChain mainnet, where any
staking or swapping logic is computed.
4 Swap logic occurs on

the THORChain mainnet
THORChain Mainnet
3 The Bifrost sends a A transaction order is made 5

witness transaction to and relayed back to the
the THORChain mainnet Bifrost layer
Observer Module
(Bifrost)
2 The Bifrost layer The order is output to the 6

observes and verifies USDT Vault address on the
the transaction USDT blockchain
Bitcoin Ethereum Binance Chain USDT (ERC-20)

Vault Address Vault Address Vault Address Vault Address
1 User initiates a swap from Bitcoin The swap is complete as 7

to USDT. The transaction arrives funds are released from the
at the vault address vault address to the user
Exhibit / An example swap from BTC to USDT (ERC-20)
Platform differentiation:
Many other DEX platforms are limited to a single blockchain, making them ineffective
for active traders with more diverse portfolios. THORChain also places a high priority
on anonymity and decentralization, which gives more options to people hoping to avoid
centralized platforms and transact on a neutral and decentralized platform.
Decentralization, nodes and bonds:
Decentralization and anonymity are key for the THORNodes, which are 99 independent
nodes. This anonymity prevents collusion and protects the privacy of node operators.
Node holders are incentivized by two factors:
Positive incentive:
ā A portion of the fees on the platform are given to node holders in RUNE tokens
Potential risk:
ā A bond (in RUNE tokens) is required to be bonded prior to being selected by the
protocol. The bond can be deducted from if key network events are mishandled.
In other words, node holders can lose money if they fail to sign a block or perform
some other negligent or malicious activity. If a node attempts to steal assets, their
bond will be deducted to 1.5x the amount they attempted to steal, making the
liquidity pools complete again. This ensures that the anonymous individual behaviors
are aligned with the best interests of the platform.

Emission schedule:
Just as Bitcoin offers block rewards to miners, THORChain has a similar plan that
encourages early participation and system growth. Each block a portion of the reserve
is emitted to stakers and node operators as a financial reward. The rewards should
also encourage more token holders to stake RUNE either in the liquidity holders or as a
bond for a node, reducing the supply on the secondhand markets.
The Incentive Pendulum:
For the platform to be both efficient and safe, there must be a proper ratio of node-
holder bonds and liquidity pool assets (staked). For example, if there is a higher ratio
of pooled-assets to bonds, bond holders could be tempted to steal assets and forego
their bond. If there is a higher ratio of bonds to pooled assets, trading on the platform
will be inefficient. To solve this, THORChain has an incentive pendulum that detects
when the ratio is off, and adjusts reward distribution to encourage the system to
balance. If not enough capital is bonded, more rewards will be given to node holders,
which will drive up the amount of bonds on the platform as more people compete for
the higher rewards.
Upcoming features
THORChain is still a relatively new project, but their first production blockchain has
launched (nickname Chaosnet), which allows swapping and pooling of Binance Chain
BEP2 tokens, and is undergoing public validation. Current numbers of around $10m
in capital secured, with about $6m in volume over 3 weeks. Multi-chain mainnet that
supports Bitcoin and Ethereum is expect after this phase.
Safety and security

While there are certain risks with nearly every platform in this industry, THORChain
has conducted a number of independent audits to show their transparency.
The THORChain Github lists a number of recent audits, including by well-known
cybersecurity auditor CertiK, and GAUNTLET, who have conducted an analysis of the
economic viability of THORChain's Incentive Pendulum.
THORChain governance attempts to be as minimal as possible and designed with the

goal to eliminate the need for node holders to interact with each other, thus reducing
the likelihood of collusion. There are only four instances where governance is needed
from the users:
ā Deciding on asset listing or delisting

ā Deciding on blockchain listing or delisting
ā Deciding on upgrades through a THORChain Improvement Proposal (TIP)
Remarkably, THORChain’s founders believe in a pseudo-anonymous leadership role,

meaning that the founders aren’t listed on websites and in the whitepaper. The
founders do take part in occasional interviews and their identity is known, but they
don’t wish to be a distraction to the decentralized nature of the protocol.

Blockchain ecosystem and
Ethereum scaling solution
https://enjin.io/
Company overview
Enjin offers an ecosystem of integrated products that make it easy for everyone to
develop, trade, monetize, and market with blockchain. While they are better known for
their usage in the blockchain gaming world, their Ethereum scaling solution and asset
management solution is ideal for DeFi applications to put into use. their upcoming
Ethereum scaling solution and asset management solution, known as Efinity, is ideal
for Ethereum-based DeFi applications to put into use. It can be collateralized by token
hodlers to earn passive income in the upcoming lending platform (Efinity).
Token overview
ā Total supply: 1,000,000,000 ENJ
ā Circulating supply: 821,201,679 ENJ
ā Token Type: ERC-20
ā Minting: Developers create assets that have instant liquidity due to their ENJ backing.
ā Melting: Users can melt their assets to retrieve the ENJ backing from within.
ā Diminishing supply: As the number of minted assets increase, the availability of ENJ
on the market decreases.
Key features
1. Asset backing — Creating blockchain assets via the Enjin Platform requires a
nominal amount of ENJ backing.
2. Transaction fee — Peer-to-peer transaction fees and Enjin Marketplace purchases

are paid with Enjin Coin or ENJ-backed assets.
3. Transaction prioritization — Blockchain assets backed with more ENJ will have
priority within Enjin's upcoming scaling solution, Efinity.
4. Lending — Efinity will feature a DeFi framework enabling users to earn, lend or
borrow the ENJ token.
The Enjin ecosystem has a number of established products, including:
ā Platform
Blockchain asset creation, management, and integration platform that has been used
to mint over 1 billion blockchain assets for more than 750 projects.
ā Wallet
Blockchain asset wallet that seamlessly links with games and apps. With over
1 million downloads, it's one of the most feature-packed digital wallets in the world.
ā Marketplace
Online marketplace where users can discover, buy, and sell rare and unique
blockchain assets. It currently features over 10 million digital items.

ā Beam
A QR-based blockchain asset distribution system used by companies like Microsoft
and Binance. So far, it has been used in more than 1,000 campaigns to deliver over
181,000 blockchain assets via QR codes to users across the globe once it is publicly
launched, with the support of Efinity, anyone will be able to distribute blockchain
assets via QR codes without paying transaction fees.
Upcoming features
Mint
Enjin is creating a new product that will enable easy, seamless creation of fungible and
non-fungible tokens representing digital or real asset classes. Projects will be able to
mint fungible and non-fungible tokens directly onto the Efinity network without needing
to purchase ETH.
Efinity
Efinity is an upcoming Ethereum scaling solution that will enable fast, free transactions
of both ERC-20 and ERC-1155 tokens, while providing passive income to Enjin Coin
lenders. Besides alleviating existing network congestion issues, Efinity will enable
everything from large-scale blockchain MMOs to new decentralized reward-based and
equity crowdfunding models.
Key DeFi features of Efinity
ā Borrowing: Developers will be able to borrow Enjin Coins to mint their assets,
increase the value of their economy, and gain priority for their assets on
Efinity.
ā Lending: Users will gain passive income by lending Enjin Coin to developers
of blockchain games and apps — simply by clicking a button inside the Enjin
Wallet app.
ā Developer-friendly: Game and dApp developers can open an Efinity hub,
allowing users to make transactions and transfers within their application
without cost. The ledger will be settled back on the Ethereum mainnet after
the dApp usage is complete.
ā Scalability: Efinity is horizontally scalable across an infinite number of Efinity
Hubs, each Hub featuring a high TPS.
ā Gas-free transactions: Users will be able to receive and send ERC-20 and
ERC-1155 tokens in split seconds on Efinity without owning or spending any
ETH, enabling developers to onboard users that have no prior experience with
blockchain or cryptocurrency.
ā Wallet integration: Users will be able to send and trade digital assets,
including stablecoins like DAI, USDT, and USDC, through the Enjin Wallet and
other partnered wallets. No work will be required by the developers of these
ERC-20 and ERC-1155 assets to enable compatibility.
ā Dynamic speed of transactions: A blockchain asset's ENJ backing will be in
direct correlation with the speed of its transaction on Efinity; assets with more
ENJ imbued in them will be sent faster.

Value to users
ā Early mover and market leader: A Blockchain gaming market leader, perfectly
poised to introduce DeFi to an industry in dire need of decentralized reward-based
and equity crowdfunding.
ā Nearly infinite scalability: Enjin has created Efinity for good reason, current
infrastructure isn't fast enough. In order to scale properly, gaming and DeFi
applications would both require extremely high throughputs. A single game with
millions of active users would be impossible on Ethereum in its current state. Efinity
is a solution that is ideal for any Ethereum dApp processing high-frequency token
trades.
ā Mint-melt tokenomics: Backing digital assets with Enjin Coin imbues them with
real-world value. Assets can be melted back into ENJ at any time, which increases
consumer trust.
ā Network effects: Enjin's products have already created impressive results, despite
being beholden to the cost of Ethereum transaction fees. To this date, over 1 billion
ERC-1155 assets have been minted and distributed to hundreds of thousands of
users using the Enjin Platform. These numbers are projected to increase parabolically
with the launch of Efinity.
ā Product ecosystem: A holistic ecosystem of integrated products that provide
everything users need for creating, managing, trading, distributing, monetizing, and
integrating blockchain assets.
Safety and security

The Enjin Wallet has been tested by information security team Oru and has a number
of features that make storing assets safe. This includes dual-layer encryption and a
custom keyboard that protects it from key loggers.
Successes to date
ā As of July 2020, Enjin has onboarded over 30 developers as part of the official Enjin
Adopter program, helping them build, fund, monetize, and market their blockchain
games.
ā Many of the assets created on Enjin have gained an intrinsic value of their own; for
example, a rare Binance collectible token was sold for over 50,000 ENJ on the Enjin
Marketplace.
ā Microsoft is using the Enjin Platform for Azure Heroes, a blockchain-based rewards
program that recognizes members of the Azure development community for
inclusive behavior, meaningful contributions, and verifiable acts of impact. To
date, over 32,000 Enjin-created badges have been distributed to Microsoft Azure
developers.

Lending platform and yield FOR token overview
farming protocol Supply: 1,000,000,000
Launch year: 2018 Type: ERC-20, BEP-20
https://for.tube/
Company overview
ForTube is an open financial platform launched by the Force Protocol and one of the
largest DeFi platforms initiated in China. It is one of the top global lending platforms by
TVL, offering compatibility to a wide range of cryptocurrencies. With access to a wide
range of global markets as well as users in China, ForTube has a high growth potential
both in transactional volume and TVL.
Key features
1. Bank — ForTube’s Bank allows users to deposit or borrow a number of stablecoins
and cryptocurrencies. The FOR token is used to reward depositors, offering an
improved yield. This is the core feature of ForTube, and users can earn instant
yields by depositing tokens via MetaMask, ImToken, or a number of other supported
wallets.
2. Binance Smart Chain — ForTube’s platform is compatible with BSC, offering users
greatly reduced gas fees and faster confirmations. Users can withdraw BEP-20
tokens from Binance to Metamask for depositing in ForTube.
3. Bonds — Users can issue bonds which other investors can choose to purchase,
effectively lending them cryptocurrencies and stablecoins. This presents an
interesting fundraising method for users of the platform.
4. QIAN Stablecoin — QIAN is an algorithmic stablecoin that can be minted or melted

by depositing cryptocurrency into the platform. This is an area that ForTube could
look to grow as they integrate their stablecoin into more products and exchanges.
Value to users
ā In August of 2020, ForTube launched version 2.0 of their platform, which featured
large yield farming incentive rewards. Version 2.0 of their platform supported a
wide range of cryptocurrencies, including FOR, YFII, YFI, LINK, LRC, NEST, LEND, SNX,
BNT, KNC, COMP, MKR, ENJ, MANA, and SAND. Version 2.0 included optimized smart
contracts to lower gas fees and streamline the lending process.
Safety and security

Smart contracts were successfully audited by a number of security companies,
including CertiK. CertiK and ForTube announced a collaboration to integrate Certik's
Security Oracle which will provide real-time on-chain security scores for ForTube and
their external smart contracts.

Lending platform WING token overview
Launch year: 2020 Supply: 10,000,000
https://wing.finance/ Type: OEP-4 (Ontology)
Company overview
Wing is building a cross-chain lending platform that allows users to deposit and borrow assets. However, it
comes with a unique twist: it’s exploring the merging of on-chain and off-chain credit systems. It takes advantage
of Ontology’s decentralized identity framework (ONT ID) to create a secure and private credit score for users.
Key features
1. Flash pool lending — Users can either supply liquidity or borrow using their assets as collateral. Initially
supported assets will include renBTC, ETH, ONT, DAI and USDT.
2. Dynamic interest rate model — Interest rates fluctuate with shifts in supply and demand, helping the
platform remain at an optimal ratio of borrowing to deposits.
3. Decentralized governance — The WING token, which is released into the pools as rewards for users, can be
used for voting on new product pools, rules, governance mechanisms, or community fund allocation.
4. No token pre-allocation — No team members, initiators, or investors will receive an allocation, leading to a
fair governance structure.
5. Cross-chain and multi-asset support — Ontology’s framework can support other blockchains, notably
Ethereum and ERC-20 tokens. Wing intends to include support for these as well as other assets, such as NFTs.
6. Scalable — Ontology’s framework can currently support over 3,000 TPS, allowing it to handle a much higher
volume of users than current Ethereum-based platforms.
Value to users
OScore: Decentralized Credit Ratings Why does DeFi need decentralized

credit?
Wing and Ontology are working together on a framework called ā Collateralization-based lending requires
an OScore, an innovative credit evaluation system that can be excessive amounts of collateral to be
used by dApps including Wing. The idea behind this is that user stored — resulting in a non-optimal
transaction history, on-chain asset balance, and other on-chain lending environment. Credit based lending
historical events can create a reputation system that rewards can use resources more efficiently by
responsible dApp usage. Offline data like KYC verification can be reducing or eliminating the need for
used as a credential that identifies the user to the dApp, while collateral.
the user maintains full control over the data. In the initial phase, ā Future regulatory requirements might
the OScore will be used to give Wing users incentives such as offer additional challenges for lending
token bonuses and lower collateralization requirements. As without KYC, yet few users will feel
the system expands, Ontology will develop more application comfortable uploading personal data to a
scenarios to make the Oscore rating system a complete dApp. OScore solves this by giving users
representation of a user’s financial profile. full sovereignty over their data.
Safety and security

Wing’s smart contracts are under audit by 3 main organizations to ensure the safety of the platform.

Lending and Investment Management
Launch year: 2018
https://www.youhodler.com/company
Company overview
YouHodler is a web and mobile app that acts as a custodial wallet and radically
simplifies the DeFi process. They are a Europe-based company with offices in
Switzerland and Cyprus. As an active member of the Blockchain Association of the
Financial Commission and the Crypto Valley Association, customers are protected by
the independent Financial Commission’s dispute resolution process.
Key features
1. Borrow — Crypto-backed loans — Users can deposit major digital assets (the TOP
20 coins by market cap) as collateral for crypto loans with a high loan-to-value ratio
(90%). The loans are available in EUR, USD, CHF, GBP, Bitcoin (BTC) and stablecoins.
Users can withdraw instantly to a credit card or personal bank.
2. Save and earn — Savings accounts — Earn up to 12% on stablecoins, 8.2% on gold
(via PAXG), 4.8% on Bitcoin (BTC), and many other cryptocurrencies. Weekly payouts
are available.
3. Multi HODL — Multi HODL is a user-friendly way to access the risks and rewards
Advanced financial
of margined trading with profits as high as 290%. Users start by determining their
risk level and the asset they wish to receive a loan in, then changes in volatility can
products
multiply quickly.
4. Exchange — Using a third-party widget, users are able to buy cryptocurrencies

directly with their bank card. In addition, users can swap between cryptocurrencies,
fiat and stablecoin currencies.
Value to users
ā Easier user workflow: Rather than having to use complex wallets, deal with private
key management, and risk losing all their funds to a careless mistake, YouHodler
takes care of all the details on the backend. This is an ideal solution for new Defi or
blockchain users, as well as more advanced users seeking expedited solutions they
can access from their mobile phones.
ā Customer Support: Unlike more decentralized solutions, YouHodler can provide
24/7 customer support. Their experienced team understands user needs when
dealing with financial products.
Safety and security

To protect user funds, YouHodler uses Ledger Vault's infrastructure to securely control
its crypto assets with a multi-authorization self-custody management solution and
$150 million pooled crime insurance. Users are required to submit KYC information to
ensure the company meets the strict regulatory standards in Europe. YouHodler’s fiat
funds are stored in reputable banks in Europe and Switzerland, while partnering with
trusted payment providers.

Money markets and lending
Launch year: 2018
https://equilibrium.io/
Company overview
Equilibrium is a cross-chain money market built on Polkadot’s Substrate framework.
The project originated on EOS but expanded to Polkadot to take advantage of the
increasingly popular DeFi ecosystem being built there. Users can stake assets and
borrow EOSDT, a stablecoin pegged to the US dollar.
Key features
1. Pooled-lending — With Equilibrium, users can lend or borrow major digital assets
like ETH, BTC, XTZ, TRX, synthetic assets, and other stablecoins.
2. Collateral baskets — When borrowing, Users can deposit multiple assets as

collateral to reduce the risk of volatility leading to liquidation.
3. Cross-chain — Polkadot’s bridges give trustless interoperability and allow users to

access main DeFi use cases all in one interface
4. DEX trading — Using the lending pools, users can execute cross-chain trades and
even add leverage trading
5. Staking and liquidity farming — Earn rewards on assets staked in liquidity pools
and earn EQ governance tokens
Value to users
ā Equilibrium is positioned in a crowded DeFi space but is banking on their multi-
feature approach to attract users. As one of the earliest non-Ethereum DeFi
players, their wide range of supported assets could entice token holders from other
blockchain ecosystems to become active users.
Safety and security

Founder Alex Mehlikov is a well-known face in the DeFi community. He co-founded
the exchange Changelly, which was an early alternative to traditional order book
exchanges.

Contacts
consulting@cointelegraph.com
Arsenii Dain
Managing Director
arsenii.dain@cointelegraph.com
Demelza Hays
Head of Research
demelza@cointelegraph.com
Ben Yorke
Research Analyst
ben.yorke@cointelegraph.com
Helen Rosenberg
Research Analyst
h.rosenberg@cointelegraph.com

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DeFi Adoption 2020:

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 1

We suggest the following citation: Cointelegraph Consulting. DeFi Adoption 2020: A

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 2

Decentralized Finance (“DeFi”), is the idea that traditional

DeFi is an ecosystem of blockchain-based financial instruments

ā outside of companies’ and governments’ regulation

There is no reliance on centralized authorities and stakeholders

DeFi recreates traditional financial services — i.e. lending & borrowing,

Learn DeFi: Non-custodial

Read more on CT: Crypto Custody, Explained

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 3

Community driven. In the DeFi space, communities are

product. Fork is a term for creating a new

seemed more about competing base-layer blockchain protocols vying

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 4

DEXes & Liquidity Lending & Borrowing

Wallets & Asset management

Risks and security

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 5

Centralized Finance Decentralized Finance

Attitude towards Focused on digital assets (including cryptocurrencies)

Private keys Custodial Non-custodial

Governance By platform management decision By community voting

Interest rate Discretionary rate Market rate

Price oracle Relies on a sole provider Queries multiple oracle sources

Platform YouHolder, Nexo, Cred, Binance MakerDAO, Compound, Aave

Exhibit / CeFi vs DeFi

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 6

Governance. In the CeFi, corporate management is responsible for decision-

Oracles. Centralized oracles function as a single entity providing data from an

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 7

The bigger the There are better

The more dApps

The more developers

Exhibit / The network effect phenomenon in the DeFi industry

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 8

the gas limit, will result in the gas

Gas fee = gas limit × gas price

As for the gas limit, this refers to the

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 9

user growth stagnates. that existing DeFi platforms can be

Read more on CT: Ethereum 2.0 Staking, Explained

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 10

From a technology From a utility

Exhibit / DeFi tokens types and examples

mainstage. Wrapped tokens are a specific

ERC-20 tokens the tokens not compatible with the

Read more on CT: ERC-20 Tokens, Explained

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 11

Project Name Project Type Token Symbol Token Icon Governance/

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 12

DeFi Key Metrics

Total Value Locked

Exhibit / Total Value Locked (USD) in DeFi Source: DeFi Pulse

Daily Active Users

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 13

bzx ddex dydx maker mcd curve uniswap

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 14

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 1

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 2

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 3

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 4

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 5

Exhibit / CeFi vs DeFi

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 6

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 7

Exhibit / The network effect phenomenon in the DeFi industry

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 8

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 9

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 10

Exhibit / DeFi tokens types and examples

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 11

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 12

Exhibit / Total Value Locked (USD) in DeFi Source: DeFi Pulse

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 13

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 14

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 15

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 16

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 17

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 18

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 19

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 20

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 21

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 22

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 23

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 24

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 25

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 26

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 27

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 28

DeFI Adoption 2020: A Definitive Guide to Entering the Industry 29