DeFi
/DEE-fy/ · noun · Startup & VC · Origin: 2018
Definitions
Decentralized finance — an ecosystem of financial applications built on blockchains that replicate traditional banking services (lending, borrowing, trading, insurance) without centralized intermediaries. Smart contracts replace banks, but smart contract bugs have led to billions in losses.
In plain English: Banking services rebuilt on blockchain so there's no bank in the middle. You can lend, borrow, and trade directly, but there's also no one to call if something goes wrong.
Example: The DeFi protocol offered 200% APY on stablecoin deposits, which should have been everyone's first red flag.
Origin Story
The movement to rebuild Wall Street on public blockchains
The term **DeFi** (Decentralized Finance) was coined in an August 2018 Telegram chat by Inje Yeo (of Set Protocol), Blake Henderson, and other Ethereum builders. They needed a catchy name for the growing ecosystem of financial protocols running on Ethereum.
DeFi reimagines financial services -- lending, borrowing, trading, insurance -- as open-source smart contracts anyone can use without intermediaries. Compound let you earn interest, Uniswap let you trade tokens, and MakerDAO created a decentralized stablecoin.
The 'DeFi Summer' of 2020 saw total value locked explode from $1 billion to $15 billion. Yield farming -- moving assets between protocols to maximize returns -- became a speculative frenzy. The space also produced spectacular hacks, with over $3 billion stolen in 2022 alone.
Coined by: Inje Yeo, Blake Henderson, and Ethereum community members
Context: Telegram group chat, August 2018
Fun fact: The name 'DeFi' was chosen over alternatives like 'Open Finance' and 'Decentralized Banking.' The group specifically wanted something that sounded like 'defy,' suggesting rebellion against traditional finance.