DeFi will dominate the blockchain space this year
Ethereum Finance
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DeFi is moving quickly through the blockchain space and is sure to define it in 2019. ICOs are outright boring compared to the innovation and excitement around Decentralized Finance, already dubbed DeFi. We already know the blockchain does money very well—without a doubt the most successful “application” of the technology. But money is a not a static good; it can be sliced and diced in many different ways. The traditional financial world has created many financial instruments allowing money to be borrowed, lent, collateralized, basketed, hedged, leveraged, optioned, insured, and so on. Now all these instruments are coming to the blockchain. And made better. 

The largest DeFi app currently is Maker’s DAI  which is a stable coin on Ethereum—that means it maintains its value at $1 and does so without relying on any central party to keep USD reserves backing it or pegging it in some way. No audits or trust is needed. The DAI system already holds $250 million worth of ether in its smart contracts and growing every day.  Amazingly, it has kept the value of DAI at $1 even as ether dropped over 90% over the course of last year.

There are so many DeFi apps now that there are even apps to manage them. Settle is a platform that hosts apps for price aggregation of decentralized exchanges, apps to monitor collateral used in DAI, portfolio and risk management apps, and others.
 
Here is a sample of some other DeFi projects on Ethereum.  Each warrants a lengthy discussion of its own.

  • Dharma: a crypto lending platform. This medium post describes Dharma in detail. In summary, any debtor can approach an underwriter looking for a loan. The underwriter evaluates the debtors creditworthiness and creates a loan offer with specific terms based on their credit rating. Debtors who accept the terms sign a debt order which is forwarded to any number of relayers, which are entities that showcase orders for investors to fund. If a creditor wants to fund the loan, they sign the debt order and receive a non-fungible debt token which can be freely exchanged. All repayments by the borrower automatically go to the owner of that non-fungible token.
     
  • Set Protocol: a platform to create, manage, and obtain baskets of tokenized assets. Users of the protocol can create {Set}s, which are abstract tokens fully collateralized by some collection of underlying tokens. For example if a user wants exposure to prediction markets, they can create a {Set} comprising of Augur and Gnosis tokens. This new {Set} is itself an ERC20 token that can leverage all of the existing benefits of ERC20 infrastructure like seamless exchange and broad ecosystem support from wallets.

  • dy/dx: protocols for margin trading and creating derivatives of ERC20 tokens. Anyone in the world can access these derivative instruments in order to achieve better risk management. It also allows crypto markets to be more efficient by offering financial tools like shorting. With shorting the true price of an asset is revealed by allowing people to sell it without owning it. 

    Users of dy/dx contracts always retain custody of their funds and don’t have to rely on a central clearing house to verify their transactions. In addition, dy/dx employs off-chain order books with on-chain settlement so users don’t have to pay numerous on-chain tx fees and deal with latency issues.

  • bZx: another decentralized margin lending protocol.
  • MARKET Protocol: derivatives again—allows users to trade the price of stocks, cryptocurrencies, and traditional assets on the blockchain.
  • Veil: a peer-to-peer prediction market and derivatives platform built on top of Augur and 0x.
  • Compound: a decentralized borrowing and lending platform. 
  • CDx: a platform for tokenized, tradable insurance.
  • Kyber: a payment and token swap protocol designed for integration into any application.
  • 8x: decentralized repeating payments.
  • Abacus an administration platform for private securities including company, fund, and real estate securities.
  • Centrifuge tokenizing financial and legal documents to prove ownership and validate operations.