DeFi: Observing the Power of Decentralization from the Financial Dilemma of 170 Million People

A New Solution Born from a Global Challenge

Did you know? 170 million adults worldwide are unable to open bank accounts, get loans, or even save money. They are shut out of the traditional financial system. Meanwhile, every time there is an economic crisis, bank collapse, or hyperinflation, billions of people are affected. This is the core problem of traditional finance: centralization means lack of trust, and lack of trust leads to risk concentration.

And DeFi (Decentralized Finance) is rewriting this story.

What exactly is DeFi?

Simply put: DeFi is an ecosystem of financial applications running on blockchain that replaces banks with code, replaces contracts with smart contracts, allowing anyone to participate in financial activities—without bank accounts, credit scores, or geographic restrictions.

At its peak in December 2021, the total value locked (TVL) in DeFi protocols on major blockchains worldwide surpassed $256 billion, nearly quadrupling in a year. Behind this number are millions of people finding new entry points into the financial system.

The three core primitives of DeFi (primitivos financieros)

If blockchain is infrastructure, then DeFi’s primitives financieros are the LEGO bricks of finance. The three most critical building blocks include:

1. Decentralized Exchanges (DEXs)

Traditional exchanges require you to trust them to custody your assets. DEXs break this trust chain—your coins always stay in your wallet, and trades are executed automatically via smart contracts. Currently, DEXs lock over $26 billion in funds, with no KYC required.

2. Stablecoins

This is the blood of DeFi. Stablecoins are pegged to real assets like the US dollar, solving the problem of cryptocurrency volatility. In just five years, the market cap of stablecoins has exceeded $146 billion, becoming an essential component of the DeFi ecosystem.

3. Lending Markets

In DeFi, borrowing only requires two things: sufficient collateral and a wallet address. No forms to fill out, no credit scores, done in 3 minutes. Lending protocols are the largest branch of DeFi, locking over $38 billion, nearly 50% of the entire DeFi market.

Why choose DeFi over traditional finance?

Insanely fast

Traditional cross-border remittances involve communication with international banks and regulatory reviews, taking days or even over a week. DeFi cross-border transactions? Done in minutes, and costs are negligible.

24/7 operation

Stock markets open at 9 am and close at 4 pm, banks rest on weekends. DeFi is completely different—blockchain runs 24/7, allowing you to trade, lend, and invest anytime, anywhere.

Extreme transparency

Every transaction, fee, and decision is recorded on the chain, accessible to anyone. No backdoor operations, no mysterious fixes during “system failures.”

You are the owner

In DeFi, your assets’ private keys are in your hands. Security is your responsibility—but this also means no central authority can freeze your account, and no bank can suddenly zero out your balance due to “risk control.”

How to make money on DeFi?

Staking: Lock your coins and earn rewards based on annualized yields, like putting money into a fixed deposit.

Yield Farming (Liquidity Mining): Put your coins into DEX liquidity pools; the trading fees generated here are your income. During certain periods, annualized yields can reach triple digits.

Arbitrage Lending: Borrow coins in lending protocols, trade on DEXs, and profit from price differences. Risk and reward go hand in hand.

Crowdfunding: Participate in funding new projects, receive tokens or future revenue rights. The threshold is very low, but risks must be carefully assessed.

DeFi is not without risks

This topic must be addressed honestly:

Smart contract vulnerabilities: In 2022, DeFi attacks caused losses exceeding $4.75 billion, all due to security flaws in code exploited by hackers.

Project rug pulls: High returns + anonymity = breeding ground for scams. Rug pulls (project teams running away with funds) remain common.

Impermanent loss: In DEX liquidity pools, if the prices of two tokens diverge significantly, you may face unrealized losses—even if prices later revert.

Over-leverage: Some DeFi applications allow 100x leverage trading. Profits come quickly, but losses can lead to instant liquidation.

Regulatory uncertainty: Governments worldwide are still exploring how to regulate DeFi. Policy changes could cause unexpected shocks.

Why does Ethereum dominate DeFi?

Ethereum pioneered smart contracts, enabling developers to create financial applications using EVM (Ethereum Virtual Machine) and languages like Solidity. Although other blockchains like Solana, Cardano, and Polkadot also support smart contracts, Ethereum still controls over 78% of the DeFi market—178 out of 202 major DeFi projects are on Ethereum. The network effect is so strong.

After the ETH 2.0 upgrade introduced proof-of-stake consensus, Ethereum’s position may be further solidified, but competition from parallel chains will intensify.

Where is the future of DeFi heading?

DeFi is evolving from a niche geek toy into a viable financial alternative. Complex applications like derivatives, asset management, and insurance are emerging. As technology improves, user education deepens, and regulatory frameworks become clearer, adoption of DeFi will accelerate.

But don’t forget: this is an ecosystem still rapidly evolving. Doing your homework, understanding risks, and small-scale trial-and-error are the three essential rules before entering the DeFi world.

The promise of decentralized finance is to enable everyone to participate in finance—regardless of location, identity, or asset size. That promise is gradually becoming a reality.