Over the past six months, the domino effect of financial risk has been continuously staged inside and outside the crypto asset industry. The crisis was triggered by the Luna crash within the crypto industry, which was followed by Three Arrow Capital filing for bankruptcy and crypto merchant Voyager Digital and lending platform Celsius.

Crypto assets industry is also not easy, on July 7, 2022, the country's largest trust agency Xinhua Trust, due to poor management formally entered the bankruptcy process, at the same time on the domestic Henan village bank thundering incident, hot search has been constantly. With the continuation of the epidemic and the economic downturn, the places that were once favored by capital have gradually become the places with high incidence of financial risks. The performance of DeFi, which has been credited with subverting traditional finance during the current crisis, was also poor.

The rise of DeFi and the bursting of the bubble

DeFi is an acronym of Decentralized Finance, also known as Open Finance. It generally refers to crypto assets, financial smart contracts, and protocols built on smart contract platforms such as Ethereum. Simply put, it is financial software built on a blockchain that is interoperable, programmable, and composable.

DeFi technology is based on block chain and Web3.0 development needs the innovation of the mode, is also an innovation to the traditional centralized finance, in most of the products are DeFi ecological mature of traditional financial products, such as mortgage lending, trading exchange, insurance, tickets, etc., but DeFi with code and intelligence make the whole contract application scenario is more open, Low-cost trust, no need for access permission, proves to the world the great potential of blockchain technology for on-chain economic activities, and embodies the significance of Bitcoin and Ethereum value storage.

The concept of DeFi started with the first DEX back in 2016, and the first stablecoin in DeFi, DAI, emerged in 2017 as an early pioneer of DeFi.

In 2018, Distributed financial borrowing platform Dharma Labs co-founder and CEO Brendan Forste published an article "Announcing DeFi, A Community for Decentralized Finance Platforms". In this paper, the concept of DeFi was put forward for the first time. At this time, DeFi was still in its embryonic stage and not enough to support rich financial services.

In 2019, also known as the first year of DeFi, total DeFi lock-up volume grew from $274.6 million to $651.6 million, an annual growth rate of 137.23 percent. DeFi began to grow rapidly.

In 2020, DeFi's strong rise exploded the entire market, especially from June to August, when the market value of DeFi agreements increased by 12 times to $19.6 billion at the peak of the summer, and DeFi's total lock-up increased from $1 billion in May to $15.7 billion at the end of the year. Therefore, 2020 is called DeFi Summer 2020.

In 2021, the rapid development trend of DeFi has continued in the beginning of the 21st century, and new DeFi applications have been constantly launched, a new era of DeFi has begun. In 2021 alone, more than 2,300 DeFi projects were available, including 20 major categories such as decentralized exchanges, lending, and liquidity mining. Decentralized exchanges and lending dominate.

Since May 2021, the rout in crypto assets has caused many contracts to hit clearing standards, and the long-feared DeFi bubble has burst. According to the latest data from DeFi Llama, total lock-up positions in DeFi have gone from a peak of around $250 billion at the end of 2021. Below the current $70 billion or so, the total lock-up volume has shrunk by more than 70%.

News about DeFi is about to collapse, the encryption asset industry isn't new, but ultra high yields, often make people ignore the potential risks, and everyone believes he wouldn't be the last flange, rolling in the capital to DeFi bubble burst speed exceeded all expectations, when the bubble burst water retreat, People will find out who's running naked.

DeFi issues and reflections

The bursting of the DeFi bubble has exposed long-standing but neglected problems. As Dan Boneh, a professor at Stanford, points out, "decentralisation" is not the answer to everything. DeFi has many advantages that differentiate it from traditional financial systems, but it is not perfect.

DeFi, from its initial popularity to now being questioned by the public, is an inevitable process for the development of new physical objects. Every successful product has to go through many setbacks and tribulations before it can become truly mature. The current crisis in DeFi is also an opportunity to overcome the rottenness and move towards the right direction.