The ultimate guide to DeFi
The report covers the mechanisms and economic engineering behind many instruments in decentralised finance, highlighting the key ideas, shortfalls, and implications that various designs carry. The gap in research that Redefine 2020 covers is looking at projects in depth to showcase their innovation and long-term value.
Executive Summary
Total assets locked in DeFi instruments have grown almost 12x year-to-date, from $700 million in December 2019, to $8.7 bn, with a number of leading projects rolling out market-ready products throughout the year. Key value propositions of the novel financial instruments and services are stepping away from reliance on individual agents and instead leveraging seamless capital pooling from arbitrary sets of participants.
As a cutting-edge industry based on novel technology—decentralized ledgers with economically-incentivized security models—decentralized finance is heavily under-researched, especially in the area of detailed industry-wide overviews that establish a context for this field.
The present report is aimed at providing the bigger picture. We introduce the necessity and the circumstance, classify the instruments, convey the mechanics of their innovation, and demonstrate the emergent effects that have not been previously encountered—and are hard to replicate—in traditional finance.
The game-changer that DeFi is offering is arbitrary composability of decentralized instruments without additional bootstrapping costs—and without increased opacity of systemic risks. Only in DeFi does a retail investor have precisely the same capacity to perform guaranteed arbitrage, as virtually unlimited capital is available at-will, to everyone. This is only possible because the network rules guarantee repayment (within one atomic transaction), and the instruments are composable.
As a cutting-edge industry based on novel technology—decentralized ledgers with economically-incentivized security models—decentralized finance is heavily under-researched, especially in the area of detailed industry-wide overviews that establish a context for this field.
The present report is aimed at providing the bigger picture. We introduce the necessity and the circumstance, classify the instruments, convey the mechanics of their innovation, and demonstrate the emergent effects that have not been previously encountered—and are hard to replicate—in traditional finance.
The game-changer that DeFi is offering is arbitrary composability of decentralized instruments without additional bootstrapping costs—and without increased opacity of systemic risks. Only in DeFi does a retail investor have precisely the same capacity to perform guaranteed arbitrage, as virtually unlimited capital is available at-will, to everyone. This is only possible because the network rules guarantee repayment (within one atomic transaction), and the instruments are composable.
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Featured projects
Disclaimer: Byzantine Solutions is not affiliated with any of the aforementioned companies. Their inclusion in our primer was based solely on their performance in the respective fields and the innovations they're bringing to the industry. This list is not exclusive or exhaustive in any way as the projects covered served as examples for the technologies discussed.
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