MakerDAO’s Dai system became operational in late 2017, creating a crypto-collateralized stablecoin that could be borrowed against locked ETH. By 2018–2019, Dai was widely used as a “base currency” inside Ethereum apps, helping later DeFi protocols measure profits and risks in dollar-like terms.
Compound went live on Ethereum as a lending market where users could supply assets to earn interest and borrow against collateral. This helped make “money markets” (lending/borrowing pools) a core DeFi category and set patterns other protocols would follow.
Uniswap deployed to Ethereum mainnet, popularizing the automated market maker (AMM) model where trades route through liquidity pools instead of order books. This made it much easier for new ERC-20 tokens to be traded and for users to become liquidity providers (earning fees).
Ethereum’s Istanbul network upgrade included EIP-1108, which reduced gas costs for certain elliptic-curve operations used in zk-SNARK verification (a privacy/scaling cryptographic technique). While not a “DeFi feature,” gas-cost changes and network capacity directly affected how usable DeFi applications were under load.
Aave relaunched in January 2020 using liquidity pools rather than peer-to-peer matching, improving reliability for borrowers and lenders. It also introduced “flash loans,” which are uncollateralized loans that must be borrowed and repaid within one transaction, enabling new arbitrage and liquidation tools in DeFi.
Curve launched with an AMM design specialized for trading “pegged” assets like stablecoins with low slippage (small price impact). This made stablecoin trading more efficient, which later became crucial for yield strategies that moved funds between lending, swapping, and pooling.
During the March 2020 crypto market crash (“Black Thursday”), Ethereum congestion and auction design issues contributed to severe MakerDAO losses and unbacked Dai. Soon after, MakerDAO moved to add USDC as collateral, showing how risk management and collateral choices could reshape DeFi’s stability-versus-decentralization tradeoffs.
Compound started distributing its governance token COMP to users of the protocol, rewarding borrowing and lending activity. This popularized “liquidity mining” (paying users with tokens for providing capital), a key trigger of the 2020 “DeFi Summer” growth cycle.
By early July 2020, total value locked (TVL)—the value of assets deposited into DeFi protocols—surpassed $2 billion, reflecting rapid adoption of lending and trading protocols. TVL became a widely watched “scoreboard” for DeFi growth, even though different trackers can calculate it differently.
SushiSwap launched as a fork of Uniswap and used aggressive token incentives to attract liquidity providers. This highlighted a new dynamic: DeFi protocols could rapidly “compete for liquidity” by changing reward programs, pushing governance tokens and yield strategies into the mainstream.
Uniswap airdropped UNI tokens to addresses that had previously used the protocol, turning many users into governance participants and drawing huge attention to DeFi governance tokens. The retroactive airdrop also influenced later projects’ decisions about community ownership and token distribution.
In early April 2021, DeFi’s total value locked passed $100 billion according to tracker data, reflecting how much capital had moved into Ethereum-based lending, trading, and yield strategies. By this point, DeFi was no longer a small experiment: it had become a major financial activity layer on Ethereum, with both rapid innovation and growing risk exposure.
Ethereum’s Berlin upgrade went live in April 2021 with changes including new transaction types and opcode gas-cost adjustments (notably EIP-2929 and EIP-2930). For DeFi users, network upgrades like Berlin mattered because they could change transaction costs, security assumptions, and how protocols optimized their smart contracts.
Decentralized Finance (DeFi) growth on Ethereum (2018–2021)