The foundation of DeFi originated in 2009 with the launch of bitcoin however DeFi on the whole was initiated in 2014 with the MarkerDAO project. This pioneered the way of DeFi borrowing, lending and most notably stablecoins. This is often referred to as the ‘building blocks’ of DeFi and is a crucial factor behind why crypto is now viewed as a serious asset (OSL, 2025).
The next era of DeFi was the creation of infrastructure and the introduction of the second most valuable cryptocurrency, Ethereum. In 2015, Ethereum launched allowing smart contracts and the creation of decentralised apps. This is vital for DeFi because it enables the system to have no chance one entity has a centralised control over an ecosystem, financial assets or protocols. This allows DeFi to be safe while being disconnected from typical finance. However, for retail investing in crypto to take off an exchange was sought after. This is where EtherDelta emerging into the DeFi space was key. This was one of the first decentralised exchanges which enabled peer-to-peer token trading without having to go through the intermediary process. This was essential because a key appeal of crypto is the fast and free processing of tokens, meaning we saw crypto begin to gain popularity here (Capponi, 2024).
It was not until the summer of 2020 though, where mainstream crypto blew up. Although, for this outcome 2018-2019 was vital with the introduction with multiple protocol launches. Firstly, in 2018 we saw the launch of Compound, this system built on the Ethereum market allows users to earn interest on their crypto assets or to borrow against them. Then, in late 2018 Uniswap, the first accessible Automated Market Maker Model, was introduced. This meant liquidity pools were beginning to be a lot more accessible. This led to decentralised token swaps to be a lot more fluent. Eventually, in 2019, governance tokens, like Cardano, and on-chain credit markets were introduced. These protocols are still crucial to running the ecosystem today.
As previously stated, the summer of 2020 was essential for DeFi as this was where the mainstream started taking notice of the wide benefits crypto has compared to other markets. This mainstream takeover is seen with the total value locked of DeFi going from less than $1 billion at the beginning of 2020 to over $10 billion in September 2020 (Jakub, 2021). This 10 times increase was because many DeFi protocols saw a surge in use by retail traders and institutional investment.
Since summer 2020, continued growth and evolution of DeFi applications has been evident with growth increasing higher than ever before (figure 2). As this growth occurred, more research and development into security, regulatory compliance and efficiency occurred. This introduced tokenization of real-world assets which has been a big pull factor for the backing of financial institutions. We were able to see the total locked value peak in 2022 at well over $200 billion. This high was due to decentralised derivatives, NFTs and stablecoins gaining immense popularity amongst retail investors along with cryptocurrencies. Another aspect of DeFi that encouraged key growth was the introduction of liquid restaking tokens. This enhanced Layer-2 scaling solutions and cross-chain compatibility. Enhancing these features further improved the process of crypto trading and swapping, allowing for an exponential increase in TVL (Meijer, 2024). Currently, the TVL of crypto alone is approximately $140.6 billion with Ethereum being the largest market share at roughly $86 billion (Coingecko, 2025).
As explained, the popularity in DeFi started to gradually increase until summer 2020 where we saw the value over 10x. The rationale behind this vast surge in popularity with DeFi is due to the ecosystem offering many unique benefits compared to other assets. Below I will list and explain some of these:
There are endless benefits of DeFi that have not been stated. However, these key points highlight the increased freedom and control over your assets DeFi presents you. This is a key characteristic many investors look for (Consensus, 2025).
When we compare DeFi to other assets to clearly see its USP there are many advantages yet some disadvantages that must be considered. As previously explained, DeFi allows full self-control with no intermediaries whereas assets like equities often gain control via a brokerage or bank. However, there are some issues, a key one is DeFi can lack liquidity with some assets. Whereas equities often have very levels of liquidity for listed stocks due to the popularity of the asset. This means exchanging stocks for cash or vice versa is easier than many assets within DeFi. Many people will view this as a limiting factor of crypto as many assets can be hard to liquidate like NFTs and low-cap Tokens. Yet, the control benefits many tokens offer often counter this argument.
Another factor that causes debate between DeFi and equities is the regulation of both systems. DeFi has minimal regulations meaning events like scams can occur like the meme coin saga in 2024. Comparing this to equities, there is a clear disparity of regulation. Equities offer commence regulation with bodies that offer protection if funds are lost. It is about the perspective and risk tolerance of the individual that often sways people to each asset.
The sudden growth in DeFi investment was catalysed by an array of benefits suddenly being realised in the summer of 2020 by the mainstream. This sudden realisation was crucial for the exponential growth seen in 2021 (Figure 2). However, prior to this investment into DeFi was limited, with financial institutions not even taking notice of them. This allowed those invested into DeFi assets to take a lot of time to conduct research and development into applications to smooth the process of the ecosystem ensuring safety, efficiency and accessibility for all. This is why we now see many benefits unique to assets in the DeFi ecosystem.
DeFi is primarily the crypto market and at one time only was. However, when NFTs blew up in 2021, they heavily integrated into the DeFi ecosystem and had some impact. However, today the DeFi ecosystem is primarily considered to be cryptocurrencies, stablecoins, governance tokens and tokenized real-world assets. These all work fluently together and have meant investors have been able to take more control with how this ecosystem will grow. This is something researchers think is a key pull factor to crypto specifically and is a pull factor which is expected to continue to gain traction. This leaves us to question, could crypto and the DeFi ecosystem become the future of finance with this idea of freedom becoming ever more in demand?