The Evolution of DeFI: Past, Present, and Future
Evolution is a natural instinct in our daily lives, we all love to grow and expand our capabilities as we grow older. The quote from famous musician Tupac Shakur should resonate with all of us “You Either Evolve or You Disappear” and this has been the case throughout the young age of the DeFI Space. From having just Bitcoin in 2008 to more than thousand iteration of it in 2024, the DeFI Space continues to steadily grow itself as the interest from the community continues to pile up. So let’s take a short look at the Evolution of DeFI and what might its next breakthrough be within the next few years.
The Journey To The Top
Every journey has its beginning and emergence for the DeFI Space began far before the creation of Bitcoin in 2008. The term “Decentralized Finance” was represented in the original idea created by David Chaum in 1983 to create an electronic payment referred to as Ecash. This system will then implemented by Digicash in 1995 and became the backbone of online banking and payment portals such as Paypal, Visa, etc.
This main idea paired with the concept of smart contracts laid out by Nick Szabo in 1998 will become the early inspiration for Blockchain Technology and therefore Bitcoin. Szabo conceptualized the creation of payment system without the need of third parties and proposed the execution of contracts for assets, bonds or currencies within the digital realm therefore creating a synthetic representation that derives its value from the real assets
A lot of people may refer to Nick Szabo as the real “Satoshi Nakamoto” but his idea would become a reality with Bitcoin exactly 10 years later amidst the Financial Crash the world is experiencing. The Bitcoin Whitepaper represents the idea of a Decentralized Network of Finance and offers a glimpse of its capability for the future. Bitcoin might be the first successful proof of concept for the adoption of Blockchain technology but more are yet to come as its hype slowly catches up.
Shortly after the transformative first Bitcoin Halving wits its value flying to the $1k mark, many iterations of Bitcoin start to spring up within the DeFI Space. The most intriguing of the bunch has to be Tether USD and Ethereum introduced in 2015 as it brought to life the expanded capabilities of Smart Contracts and Tokenization with the Blockchain technology. 10 years into its journey in 2024 and both have retained its dominant market share of the DeFI Space.
Ethereum with its Virtual Machine allowed for a seamless adoption of these smart contract features to be plugged into many different sectors that needed for its data or information to be digitized. Many ideas then started to emerge but the first application for it came through USD Tether, a concept of tokenizing real world currency in this world USD and creating a digital copy that derived its value from the fiat currency.
With all our daily activities revolving around fiat currency, the concept of Stablecoin became a hit in establishing the Decentralized Finance world. It offers stability with ease of use for transfer across different blockchain networks and many more fiat currencies start to emerge as stablecoins within the next couple of years. This grew the space to be the largest amongst DeFI encompassing 800 different projects that are offering stablecoins for fiat currency or commodities.
Fast forward a couple of years to 2017 and you will find the introduction of MakerDAO, a trailblazer in the development of the DeFI Lending and Borrowing sector. Part of the concept in DeFI is finding key aspects in our daily lives that are established and adopting it into the blockchain, this concept was seen by MakerDAO to provide accessible Lending protocol with ETH as collateral and became a hit as people seek to utilize it in maximizing its yields.
The concept of “Project Funding” was also a key focus during the year as the emergence of DeFI ICOs or Initial Coin Offering became more prevalent. With plenty of new projects that are innovating within the blockchain and in need of financial funding, ICO brought more exposure to any budding project to pitch its new idea and fundamentals to the growing community while receiving backing in return. Despite the bad reputation of Decentralized ICO Mania in 2017, it has also managed to support top projects such as AAVE and Synthetix.
It’s also around these times where the concept of “Decentralized Exchanges” started to rise due to the popularity of its centralized counterparts such as Coinbase, Kraken & Crypto.com. Uniswap developed on the Ethereum blockchain became the first successful of its kind by introducing the concept of “Automated Market Maker” that changed the way people think about peer-to-peer trading by combining the idea of decentralized liquidity pools and pricing curves. This model became so popular as it not only gave rise to other platforms after it but grew the Total Value locked from a couple millions in 2018 to more than $5 Billion in 2024.
Bringing your mind back into the 2020s and you will find the concept of “NFT” as the most popular DeFI Sector. The NFT space was thriving in the midst of the pandemic with everybody seeking to harness its potential by creating Digital Art in the hopes of maximizing the hype from the community while it lasted. Concepts from Fan Tokens to Digital Land was the talked about hype on social media but although its rise didn’t quite sustain, it opens a new avenue for the DeFI Space moving ahead.
Looking forward to the future and you might see a trend that is building around the DeFI Space as gone are the dreamy/over the top adoptions while projects that utilized DeFI to empower ease within our daily lives are on the rise. Concept of Tokenization is brought to the right adoption in Real World Assets or RWAs while Web3.0 aims to create a fusion of Machine Learning with Blockchain Technology. Artificial intelligence also may present itself as a new trend in the distant future as the technology becomes a necessity in ensuring greatness within the 20th century.
Is Greatness Still Upon Us?
DeFI is still in its early years of development and throughout its journey many breakthroughs have been made to expand its capabilities. There are obviously still plenty of great things that are yet to come upon us with the possibilities behind Blockchain technology that are virtually endless as we move ahead into a digital future. Many sectors within the traditional finance system such as Insurance and Asset Management still leave a lot of room for DeFI to scale its adoption.
This rapid growth within DeFI is driven by the promise of democratized access to financial services, increased transparency, and improved financial inclusivity. It provided many communities with the financial support especially for unbanked populations worldwide to grow and improve their standard of living. Platforms like Opensea have opened a new avenue for artists to make a living from their artwork through NFT while receiving financial borrowing in time of need through AAVE without a traditional exchange.
Despite its enormous potential, the DeFI Space has also faced many challenges such as Scalability and Security issues which triggered uncertainties from the community to be involved in it. The year 2023 might bring a lot of high profile hacks to the DeFI Space with millions of dollars in losses and with a growing TVL, this is a piling issue. Scalability has also been a point of concern with plenty of DeFI protocols unable to handle the increase in enthusiasm from the community.
All in all, the DeFI Space continues to grow at a rapid pace from its early days while adoption continues to encompass new parts of our daily lives. While its rise is something that we can be anticipated for, it is also important to pay attention towards the measurements to address the challenges and the regulatory framework that are going to be developed for the space. Meanwhile we can continue to support the projects that are actively driving the right adoption within the DeFI Space as it can be the only way to ensure growth in the years to come.
We at Nagaya Technologies realize that there is a huge potential behind Blockchain Technology and the DeFI Space. We realized that this potential needs to be paired with correct adoption and therefore created the World First Hybrid Digital Asset — Nagaya. Nagaya are proud to be amongst the pioneers in the RWAs space and hope to expand our capabilities within the DeFI Space in the years to come. For more information regarding the latest updates on Nagaya and our whitepaper, you can visit us at https://www.nagaya.co
Or you can obtain your Nagaya now through the Latoken Platform at https://latoken.com/exchange/NGY_USDT
