What is decentralized finance?

Oksana Kusik
3 min readOct 27, 2020


Decentralized finance, or simply DeFi, is a decentralized, publicly available and trust-free ecosystem of financial applications/services based on public blocks, mainly Ethereum.

The DeFi ecosystem covers all aspects of financial services and transactions including lending, borrowing, and trading within decentralized structures. Any Internet user can interact with the ecosystem and manage assets through dApps (decentralized applications).

Size of the market

The entire DeFi segment is currently valued at approximately USD 4 billion. This represents approximately 1.5% of the crypto market.

Since January of 2019, the Graph data indexing protocol has expanded and now supports many of the leading DeFi protocols. These DeFi protocols request data from open APIs, called sub-diagrams, which help determine how to index data such as trade orders, DEX liquidity, and much more. In other words, the graph acts as a critical component of middleware to make block data more digestible for dApps, allowing them to easily extract data from Ethereum.

The company raised $2.5 million from DTC Capital Spencer Noon in January 2019, led by Multicoin. As the indexing protocol now handles most DeFi requests, including a recent surge from 25 million requests per day to 45 million in just two weeks, the protocol needs to be updated to meet the new needs. There has recently been a scheduling failure that affected some popular DeFi applications using the protocol, mainly due to the big rise in demand.

The idea behind the DeFi

DeFi is probably the fastest growing crypto segment. Yes, the crypt has long distinguished different segments, such as the blockchains themselves, digital collection items, prediction markets, DAOs, and many others.

The idea is simple. More traditional financial institutions controlled by software and some legal entities, why not make all these institutions on autonomous contracts by Ethereum?

This is how protocols emerged that allow you to trade the crypt on decentralized exchanges (Uniswap for example) without an intermediary, to lend, to manage monetary policy and issue Stakeholders, to rebalance assets, to create derivatives, to ensure risks, and generally to do everything that traditional financial institutions do.

How The Graph supports DeFi

The Graph will give out tokens to users who use the protocol to request data. Instead of using Graph tokens to pay for queries, we can expect users to pay for queries using assets such as DAI or ETH while getting a “payback” in Graph tokens. With this in mind, these fees can be distributed to operators who process requests in a decentralized network or used to buy back and burn tokens — two popular models used today in many DeFi protocols.

Total funding received by The Graph to date amounts to $7.5 million, and the company will use the new funds raised to build and launch a decentralized network.

The Graph’s decentralized network will be managed by independent indexers that launch nodes and process open market requests. Curators will be able to join the network to organize the data and indicate which subgraphs are useful and accurate.

This article is written by Discord user — Oksana#2939



Oksana Kusik

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