Abstract

DeFi is going through a similar growth trajectory which traditional finance has gone through in the past 50 years. Starting from simple lending platforms, traditional finance has made enormous growth until now, with introduction of new innovative products and more complex structures, such as derivatives, venture capital, funds, index products, asset management etc.

We expect a similar trajectory for DeFi space in the upcoming years. DeFi also started with a simple staking and lending protocols. Notable projects in the DeFi 1.0 era were like mostly categorized in these segments such as Compound and Aave. However, as the market evolved, other areas of finance were explored such as synthetic asset trading platforms, with projects which pioneered new area of digital finance like Synthetix. As we are on the way of transforming to DeFi 2.0, many new players are emerging in undiscovered segments of digital finance, such as derivatives and structured products, to become the new leader in the next wave. Projects like dydx, UMA are rapidly gaining market traction in this fast-growing space.

Once DeFi 2.0 matures, we view the transformation to DeFi 3.0 will take place. DeFi 3.0 will provide a suite of digital asset management service, which allows users to easily access, invest and trade diverse financial products, in various asset classes worldwide. As we have experienced in the numerous past revolutions with adoption of new technologies, the winner in this new area will become the next Goldman Sachs and JP Morgan or next Visa and Mastercard, that could be the leader in the new era of finance.