> For the complete documentation index, see [llms.txt](https://aogame.gitbook.io/aog-assembly-of-gods/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://aogame.gitbook.io/aog-assembly-of-gods/06-aog-web-3.0-dapp-wallet/6.5-decentralized-finance-defi.md).

# 6.5 DECENTRALIZED FINANCE (DeFi）

Decentralized Finance, or DeFi, refers to a collection of financial software and services that operate on a decentralized blockchain network. DeFi intends to provide conventional financial services like lending, borrowing, and trading without the need of middlemen like banks, brokers, or other financial organizations through the use of decentralized and permissionless technology. 

Customers of DeFi can access financial services through decentralized applications (DApps), which operate on open-source software, smart contracts, and blockchain technology. These DApps provide open and reliable financial services by allowing users to store and transfer digital assets, lend and borrow money, earn interest on deposits, and trade assets with other users directly. 

The history of DeFi (Decentralized Finance) dates back to the emergence of blockchain technology and the creation of Bitcoin in 2009. Bitcoin laid the foundation for decentralized finance by introducing a trustless and peer-to-peer system for transferring and storing value without the need for intermediaries like banks. 

However, it was not until Ethereum's launch in 2015 that DeFi started to gain significant traction. Ethereum introduced the concept of smart contracts, allowing developers to create programmable and self-executing agreements on the blockchain. This opened the door for a wide range of financial applications to be built on top of the Ethereum platform. 

In 2017, the initial coin offering (ICO) boom brought further attention to DeFi. Many projects raised funds through ICOs to build decentralized applications, including those related to finance. While this period saw a surge in innovation, it also led to concerns about scams and regulatory issues. 

The first notable DeFi project to gain widespread attention was MakerDAO, launched in December 2017. MakerDAO introduced the concept of decentralized stablecoins, with DAI being the first decentralized stablecoin pegged to the US dollar. The DAI stablecoin is generated through a system of collateralized debt positions (CDPs) using Ethereum as collateral. 

In the following years, the DeFi ecosystem continued to expand rapidly. Projects like Compound, Aave, Uniswap, and Synthetix introduced various decentralized financial services, including lending, borrowing, decentralized exchanges, and synthetic assets. 

In 2020, the DeFi space experienced an explosive growth phase, commonly known as "DeFi Summer." During this period, the total value locked (TVL) in DeFi protocols surged, reaching billions of dollars. However, it also led to concerns about scalability, security vulnerabilities, and high gas fees on the Ethereum network. 

To address these challenges, various Layer 2 solutions and other blockchain platforms started to gain attention as potential alternatives to Ethereum for DeFi applications. Some of these platforms, such as Binance Smart Chain, Polygon (formerly Matic), and Solana, offered faster and cheaper transactions, attracting new projects and users to the DeFi space.