We all have heard the phrase ‘power corrupts’, and seen the consequences of power concentrating in a few hands. A recent example of this is the 2008 financial crisis — an event that shook the systems of finance upon which the world rests. A lot of this has to do with human nature itself. We often criticize those in power to exploit the ‘have-nots’, yet when given the power, we often see its corrupting influence on ourselves.

In such a world, where billions of increasingly global humans have to interact, it becomes difficult to delegate power and responsibility to a certain individual and/or groups of people, and expect them to act in our interests. And when the delegation is concerned with our hard-earned money, the trust becomes even less volatile. Wall street has been given multiple instances to correct its mistakes, but now, people are becoming increasingly skeptical.

Amidst this backdrop, an anonymous individual under the nickname of ‘Satoshi Nakamoto’ released a whitepaper on ‘Bitcoin — a peer-to-peer electronic cash system’. It proposed a revolutionary mechanism for transacting online, without a ‘third-party’ bank or institution, based on a combination of already existing technologies such as cryptography, using a peer-to-peer network.

The solution was ingenious, but not perfect. Satoshi did not account for the problems in scaling Bitcoin, and it takes a painstaking average of 10 minutes to mine each block on the Bitcoin chain. A whole separate post can be written about the problems of Bitcoin. With time, improvements over the Bitcoin, called ‘forks’, such as Litecoin, with an average of 2.5 minutes block time, started appearing.

On the other hand, new Blockchains altogether, such as Ethereum, started appearing. Ethereum was much faster, with an average block time of 15 seconds, and incorporated ‘smart contracts’, which enabled a whole new era of Blockchain. Smart contracts enabled people to transact on blockchains based on fulfilment of certain criteria.

Ethereum kickstarted the infrastructure development on blockchain. Web3 enabled browsers and extensions like Metamask started appearing, enabling people to interact with blockchains like Ethereum in a user-friendly manner.

The Decentralized Finance Era

Shortly thereafter, people starting coding Decentralized Applications ‘DApps’ on Ethereum. These applications, in most cases, replicated the functions of financial systems on Ethereum. The Decentralized Autonomous Organizations (DAOs) was formed (not to be confused with the project with the same name). These organizations lacked a formal hierarchy and were managed by their holders, with governance enforced on the blockchain.

In late 2018, Uniswap was launched. It used a revolutionary Automated Market Maker (AMM) model to enable users to trade their fungible ERC-20 tokens without an order book. This is regarded as one of the most revolutionary steps in the history of Decentralized Finance (DeFi). Many decentralized exchanges (DEXs) were formed on the same model later on, with their own unique deviations.

In 2020, the DeFi Industry grew mainstream rapidly. Over speculation and massive hype around blockchain and decentralized finance was one of the driving factors behind this rapid growth. In the same year, Compound Finance started distributing the COMP token against the liquidity locked on their protocol. This started the Yield Farming movement, in which users started rotating their investments to maximize their returns.

In May 2021, Uniswap V3 was launched, which allowed users to manage their liquidity more efficiently by allowing them to concentrate it on a narrower range of price. The downside to this development was that the users now had to actively manage their liquidity to keep it in the active market price range. This started the race for the ultimate liquidity optimization protocol, with Unipilot launching in November 2021.

While this is a gross underestimation of the blockchain and decentralized finance revolution, I hope that I have done justice with the topic with regards to newbies. The blockchain revolution is just getting started, and being a nascent industry, the rapid process of change is hard to keep up with.