Recently, I’ve been following discussions in the crypto community and have noticed more and more people starting to seriously research the DeFi sector. Honestly, this isn’t without reason—DeFi is truly changing the way finance works.

Simply put, DeFi is decentralized finance, which allows users to directly conduct financial activities like trading, lending, and insurance through smart contracts, completely eliminating intermediaries like banks or exchanges. This concept actually originates from Bitcoin’s philosophy, but it really gained popularity after Ethereum introduced smart contract functionality.

I’ve observed that the development trajectory of DeFi is quite interesting. Starting at the end of 2017, people began building decentralized applications on Ethereum. By 2020, the ecosystem started expanding, and in 2021, it exploded—this year is called the “DeFi Year One” by the market, with various projects emerging rapidly. Although there was a correction later, the ecosystem has continued to develop steadily.

Why did DeFi emerge? Essentially, traditional finance (CeFi) has many issues—lack of transparency from intermediaries, opaque operations, fraud, privacy leaks. The appearance of DeFi aims to solve these pain points. Compared to CeFi, DeFi is fully transparent, doesn’t require KYC, and users control their own assets, which is a huge attraction for many people.

Within the DeFi ecosystem, there are actually several directions. Decentralized exchanges (DEXs) are the core, with leading projects like Uniswap (UNI), PancakeSwap (CAKE), and Curve (CRV). There are also lending protocols such as Maker (MKR), Compound (COMP), and Aave (AAVE), which match borrowers and lenders via smart contracts. In derivatives, projects like Synthetix (SNX), dYdX (DYDX), and GMX (GMX) offer synthetic assets and perpetual contracts. Oracles like ChainLink (LINK), though often overlooked, are actually critical for DeFi’s normal operation—they provide off-chain data and price feeds.

Regarding investing in DeFi, there are two main approaches. One is participating in ecosystem development—earning token rewards through trading, providing liquidity, lending, etc.—but this requires some technical knowledge. The other is simply trading DeFi tokens; if you’re optimistic about a project’s prospects, you can choose to go long on related tokens.

Why is DeFi worth paying attention to? Because it has real-world applications. DeFi projects generate revenue by providing financial services, and this revenue is directly or indirectly distributed to token holders, which means DeFi tokens have real value backing them. During bull markets, demand for financial services increases, project income rises, and token prices naturally go up.

Market data shows this clearly. As of recent statistics, there are over 2,500 DeFi cryptocurrencies with a combined market cap close to $29 billion, accounting for about 9% of the entire crypto market. More importantly, the Total Value Locked (TVL) indicator measures the overall scale of the DeFi ecosystem. TVL hit a peak of $180 billion in 2022 and is now around $119 billion, indicating that after a period of shakeout, the ecosystem has entered a relatively stable growth phase.

However, investing in DeFi also involves risks. Smart contracts may have vulnerabilities or be hacked, scams are quite common in DeFi, and if you forget your wallet’s private key, you can’t recover your assets. Cryptocurrency itself is highly volatile, and improper operations can lead to losses. So, if you want to participate in DeFi, it’s best to understand the rules first and choose leading projects for safer investment.

Recently, the performance of mainstream DeFi projects like UNI, LINK, MKR, COMP, SNX, and AVAX continues to develop. If you’re interested in DeFi, you can follow these projects’ market trends on Gate and choose an investment approach that suits you.