On 12 March 2020 the price of ether crashed, Ethereum blocks filled up, and the automated bidders that were supposed to buy the collateral of indebted MakerDAO vaults stopped working properly. Some auctions were won with bids of zero DAI. That day the whole of wallet.">decentralised finance held about 0.67 billion dollars, according to DefiLlama’s historical series. By October it held more than 10 billion.
That jump, and the crashes that came after it, sum up the history of DeFi: a chain of stress tests. Each wave broke something, and each failure left a design rule that today’s protocols still follow, from over-collateralised loans to oracle checks and deposit caps. As of 27 October 2026, DefiLlama counts 87.78 billion dollars of total staking or liquidity, measured at current market prices. It is the main size metric in DeFi.">value locked, against an all-time high of 177.49 billion on 9 November 2021.
A quick reminder before going back to 2017. DeFi means lending, trading and saving through smart contracts on a public blockchain, with no company holding the money in between; our guide what DeFi is and how it works covers the definition. If the words wallet, gas or token approval still feel new, run through the DeFi prerequisites checklist first. For the wider story of Bitcoin, exchanges and earlier bubbles, see our crypto history timeline. This lesson stays on DeFi.
One note on numbers. Every total value locked (TVL) figure below comes from DefiLlama’s default series, retrieved on 27 October 2026. That series leaves out double counting and proof of stake coin with a protocol that stakes it for you and issues a transferable token (such as Lido stETH or rETH) representing the deposit plus rewards, which you can use or sell while the coins stay staked.">liquid staking, so other sites show higher totals for the same days. TVL also moves with token prices: when ether halves, TVL roughly halves too, even if nobody withdraws a coin.
Before the name: a stablecoin and a swap contract (2017-2019)
Dai: borrowing dollars against ether
DeFi started with a loan. On 18 December 2017 Dai went live on the Ethereum mainnet, the date MakerDAO gives for the start of its Dai Credit System and the one Fortune reported in 2018. The idea, pushed by the Danish founder Rune Christensen and the MakerDAO community, was simple to state and hard to build: lock ether in a smart contract, borrow a token worth one dollar against it, and let the contract sell the ether if its value fell too close to the debt.
That sale is a liquidation, and it is the core of every lending protocol since. The borrower must post more collateral than the loan is worth, often 150 percent or more. Nobody checks a credit score. The contract checks a price.
The first version accepted only ether. It was renamed Sai when Multi-Collateral Dai replaced it on 18 November 2019, three days after an MKR holder vote: the new system took ether and the BAT token as collateral at launch and added a Dai Savings Rate paid to holders, The Block reported. On 27 August 2024 MakerDAO announced its rebrand to Sky, and on 18 September it launched the USDS stablecoin and the SKY token (24,000 SKY for each MKR, DAI to USDS one for one), with DAI and MKR kept running as legacy tokens. Our Sky (ex-MakerDAO) project page follows that organisation today.
Uniswap v1: a trade without an order book
The second building block arrived on 2 November 2018, when Hayden Adams launched Uniswap v1 on Ethereum. A stock exchange matches buyers and sellers in an order book. Uniswap did something else: a pool held two tokens, and a formula set the price from the ratio between them. Buy one token and its share in the pool falls, so its price rises. Anyone could add tokens to a pool and earn a cut of the fees.
The design was inspired by posts by Vitalik Buterin on automated market makers. It needed no listing decision and no account. Version 2 came in May 2020, version 3 in May 2021 with “concentrated liquidity”, which lets providers place their money in a chosen price range. DefiLlama’s data for Uniswap V2 and V3 start on 6 May 2020 and 6 May 2021. The Uniswap project page tracks the protocol and its governance.
Where the word DeFi comes from
The label came after the products. According to an article by The Defiant republished by CoinMarketCap Academy, the term “DeFi” was picked in August 2018 in a Telegram chat of Ethereum developers, among them people from Set Protocol, 0x and Dharma. By the end of 2019 the sector was still small: DefiLlama counts 0.61 billion dollars of TVL on 31 December 2019, and Compound, a lending market with rates set by supply and demand, is tracked from May 2019.
Black Thursday, 12 March 2020: the first real stress test
Back to the opening scene. When ether crashed on 12 March 2020, Maker’s liquidation system depended on outside bots, called keepers, bidding DAI for the collateral of vaults that had fallen below their minimum ratio. Ethereum was so congested that many keepers failed to send bids or ran out of gas. A few bidders won ether for zero DAI.
The protocol was left with debt that no collateral covered. The amount depends on who measures it and how: The Block put the shortfall at about 4 million dollars, other outlets and analysts gave figures between 2.5 and 8.3 million. To close the hole, Maker minted and auctioned new MKR tokens for the first time. Its governance later voted against compensating the vault owners who lost their collateral.
The fixes became standard practice: auctions with longer windows and minimum bids, more types of collateral (USDC was added after March 2020), and a lesson that liquidation engines must keep working when the network is jammed. TVL fell to 0.53 billion dollars on 13 March. Then it took off.
DeFi Summer 2020: COMP, yield farming and a ninefold rise in TVL
What was DeFi Summer?
DeFi Summer is the name given to the months of June to September 2020, when the value deposited in DeFi went from 1.12 billion dollars on 1 June to 10.19 billion on 1 October, by DefiLlama’s count. The trigger was a token handed out to users.
15 June 2020: paying people to use a protocol
On 15 June 2020 Compound began distributing its governance token, COMP, to everyone who supplied or borrowed on the protocol, The Block reported that day: about 2,880 COMP a day spread over eight markets. COMP started trading within hours. Since the reward was paid in proportion to activity, it could be worth more than the interest paid on a loan, so people borrowed simply to earn COMP. Within days Compound passed Maker as the largest DeFi protocol by deposits, according to The Block. At the end of June, governance Proposal 11 changed the distribution rules to curb the most artificial loops, as CoinDesk reported. The Compound project page covers the protocol today.
Yield farming in plain words
What Compound started got a name: yield farming, or liquidity mining. A protocol pays its own new token to the people who deposit capital, on top of fees or interest. Farmers move their money to wherever the reward is highest, often using the receipt of one protocol as collateral in the next. Rewards were quoted as annual percentages in the hundreds or thousands, and they were paid in tokens whose price could fall faster than the reward accrued.
The risk sat with the farmers and with whoever bought the reward tokens from them. In August 2020 SushiSwap, a copy of Uniswap’s code launched by an anonymous developer, offered its own SUSHI token to liquidity providers who staked their Uniswap pool receipts with it, then planned to move that liquidity into its own contracts. Shortly before the move, The Defiant counted about 1.3 billion dollars of tokens at stake. The trick became known as a “vampire attack” and showed that liquidity paid with rewards can leave as fast as it came.
September 2020: the UNI airdrop
Uniswap answered in mid-September 2020 with its own token, UNI, and gave 400 UNI to every address that had used the protocol before 1 September 2020. More than 140,000 addresses claimed within days, according to The Block. The airdrop set a model that hundreds of projects copied: reward past users, hand them governance votes, and hope they stay.
By 31 December 2020 DeFi held 15.14 billion dollars, against 0.61 billion a year earlier.
| Date | TVL (billion dollars) | What happened |
|---|---|---|
| 31 Dec 2019 | 0.61 | Before DeFi Summer |
| 12 Mar 2020 | 0.67 | Black Thursday |
| 1 Jun 2020 | 1.12 | Two weeks before COMP |
| 1 Sep 2020 | 8.62 | UNI snapshot day |
| 31 Dec 2020 | 15.14 | End of DeFi Summer’s year |
| 10 May 2021 | 121.97 | Spring rally |
| 9 Nov 2021 | 177.49 | All-time high of the series |
| 7 May 2022 | 135.72 | UST starts to wobble |
| 13 May 2022 | 78.54 | After LUNA’s fall |
| 11 Nov 2022 | 44.46 | FTX files for bankruptcy |
| 13 Oct 2023 | 36.03 | Low after the 2022 crash |
| 31 Dec 2024 | 115.89 | Recovery |
| 7 Oct 2025 | 171.00 | Second peak |
| 1 Jul 2026 | 68.16 | 2026 low |
| 27 Oct 2026 | 87.78 | Today |
Source: DefiLlama, default total value locked series, retrieved 27 October 2026. Our glossary entry on total value locked explains what the figure includes; a later lesson of this path is devoted to measuring DeFi.
2021: from 15 billion to 177 billion dollars
In 2021 the rise was faster and broader. TVL reached 121.97 billion dollars on 10 May 2021, dipped to 77.60 billion on 20 July and peaked at 177.49 billion on 9 November 2021, of which 107.46 billion sat on Ethereum. Other chains with lower fees drew their own share, and many protocols copied the farming model of 2020.
On that peak day the largest protocol in DefiLlama’s data was Curve, an exchange built for swaps between stablecoins, with 21.02 billion dollars. Maker followed with 19.75 billion, then Aave V2 with 16.20 billion, Convex (a yield service built on top of Curve) with 15.44 billion and Compound V2 with 12.31 billion. Lido, a liquid staking service for ether, held 10.95 billion, and Uniswap about 9.9 billion across its V2 and V3 contracts. Much of that value was the price of the tokens deposited, which is why the same deposits were worth far less a year later.
Code and governance risk grew with the money. On 29 September 2021 an upgrade of Compound, known as Proposal 62, contained a bug that sent COMP rewards to users who should not have received them. About 168,000 COMP, worth around 50 million dollars, could be claimed by mistake, The Block reported that night, and Compound’s founder Robert Leshner put the worst case at 280,000 COMP, about 80 million dollars. Compound Labs said supplied and borrowed funds were not at risk. Fixing it took a new governance vote and a waiting period, because nobody could simply switch the contract off.
Hackers and bridges: what broke in 2021 and 2022
The biggest losses of the period did not come from lending or trading logic but from bridges, the contracts that move tokens between blockchains. A bridge locks coins on one chain and issues a claim on another, so it holds a pile of collateral guarded by a small set of keys or a verification routine. Break either, and the pile is gone.
| Date | Name | Amount (million dollars) | Technique |
|---|---|---|---|
| 10 Aug 2021 | Poly Network | 611 | Access-control flaw; funds mostly returned |
| 27 Oct 2021 | Cream Finance | 130 | Price manipulation |
| 2 Feb 2022 | Wormhole | 326 | Signature-verification flaw |
| 23 Mar 2022 | Ronin Bridge | 624 | Validator keys compromised |
| 17 Apr 2022 | Beanstalk | 181 | Flash-loan governance attack |
| 1 Aug 2022 | Nomad | 190 | Forged proof after an update |
| 11 Oct 2022 | Mango Markets | 115 | Price manipulation |
| 13 Mar 2023 | Euler V1 | 197 | Donation attack |
Source: DefiLlama hacks database, retrieved 27 October 2026. Press figures for the same events can differ by rounding or by a day.
Poly Network, on 10 August 2021, was the largest theft then on record, about 611 million dollars spread over Ethereum, BNB Chain and Polygon. The attacker sent nearly everything back within days, except about 33 million dollars of USDT that Tether had frozen; Tether later reissued that sum to Poly Network, which declared all user assets recovered by late August. On 2 February 2022 an attacker exploited a flaw in Wormhole’s signature checks to mint 120,000 wrapped ether on Solana without depositing anything; Jump Crypto, a backer of the bridge, replaced the missing ether within about a day, according to The Block.
Ronin, the sidechain of the game Axie Infinity, lost about 624 million dollars on 23 March 2022 (173,600 ether and 25.5 million USDC). The attacker controlled enough validator keys to sign the withdrawals, and the theft was noticed only on 29 March. On 14 April 2022 the FBI said its investigation had allowed it to “confirm Lazarus Group and APT38, cyber actors associated with the DPRK” were behind the theft, as reported by BleepingComputer the same day. DPRK is the official name of North Korea. The US Treasury’s sanctions office (OFAC) added the address that received the stolen funds to its sanctions list.
Nomad, on 1 August 2022, was stranger. An update had left the bridge accepting any message as valid, and once the first attacker showed how, hundreds of other wallets copied the transaction and drained about 190 million dollars between them.
What the hacks changed
Two kinds of failure stand out. Bridges failed on keys and verification, a problem of infrastructure that DeFi relies on. Protocols such as Cream, Beanstalk and Mango failed on their own logic: prices that could be pushed for a few minutes, or a governance vote that could be bought with a flash loan, an uncollateralised loan repaid in the same transaction. Mango Markets, drained of about 115 million dollars on 11 October 2022 through price manipulation, is DeFi’s own counter-example to the idea that code is safer than people. Audits, time-locks on governance votes, price feeds that average over time, bug bounties and caps on new markets all became common after these losses.
May 2022: Terra, a stablecoin backed by its own token
The hacks were costly. Terra was worse. UST was an “algorithmic” stablecoin of about 18 billion dollars, held at one dollar not by reserves but by a swap mechanism with its sister token LUNA: one UST could always be exchanged for one dollar’s worth of newly minted LUNA. Demand came largely from Anchor Protocol, a Terra savings app whose target rate on UST deposits sat close to 20 percent a year, far above what dollar savings paid anywhere else.
The timeline, as reconstructed by CoinDesk: on 7 May 2022 large UST sales on Anchor and Curve pushed it to 0.985 dollars; on 9 May it fell as low as 0.35 dollars by CoinDesk’s figures, while Anchor deposits fell from 14 billion to under 9 billion; on 12 May LUNA lost 96 percent in a day and the Terra chain was halted. The Luna Foundation Guard said its reserve fell from about 80,000 bitcoin to 313 while it tried to defend the peg. Each UST redeemed minted more LUNA, which pushed LUNA down, which made each redemption mint even more. A new chain, Terra 2.0, launched on 28 May.
DeFi as a whole lost more than 40 percent of its TVL in a week: 135.72 billion dollars on 7 May, 78.54 billion on 13 May. Terraform Labs co-founder Do Kwon was handed over by Montenegro to the United States on 31 December 2024. In August 2025 he pleaded guilty to two counts, conspiracy to defraud and wire fraud, Reuters reported. On 11 December 2025 US District Judge Paul A. Engelmayer in Manhattan sentenced him to 15 years in prison, more than the 12 years prosecutors had asked for, according to Reuters and Decrypt; Decrypt added that he agreed to forfeit 19 million dollars. The losses of the collapse are usually put at about 40 billion dollars.
The design lesson was blunt: a stablecoin needs collateral worth more than its supply that does not depend on the stablecoin itself.
Centralised lenders froze, on-chain loans were repaid: Celsius and FTX
Terra’s fall hit centralised firms that had borrowed and lent heavily. Celsius Network, a lender with retail depositors, paused withdrawals in mid-June 2022 and filed for Chapter 11 bankruptcy on 13 July 2022. Before and around the freeze, Celsius had borrowed stablecoins from Maker, Aave and Compound against bitcoin and ether. Those loans were public on chain, with liquidation prices that anyone could see.
Celsius did not get liquidated there. It paid the loans back. The Block estimated that from 10 June to mid-July Celsius repaid more than 800 million dollars of debt on Aave, MakerDAO and Compound, then withdrew its collateral, including more than 400 million dollars of wrapped bitcoin from Maker after its last repayment there in early July. The protocols lost nothing on those loans. Celsius customers, whose deposits sat in the company and not in a smart contract, waited for the bankruptcy process.
FTX filed for Chapter 11 on 11 November 2022. Galaxy Research studied the contagion on DeFi: Alameda Research, FTX’s sister firm, had borrowed from Clearpool, TrueFi, Maple and Abracadabra rather than from Aave, Compound or Maker; on-chain transfers suggested Alameda paid back its on-chain loans first; Galaxy reported no losses at Aave, Compound or Maker, and wrote that DAI and other decentralised stablecoins did not meaningfully lose their peg in the two weeks that followed. Daily decentralised exchange volume quadrupled between 7 and 11 November as traders moved off centralised platforms. Total DeFi TVL still fell, to 44.46 billion dollars on 11 November in DefiLlama’s series, mostly because token prices fell.
What the record shows is narrow. Protocols whose rules are enforced by code kept running and paid out their depositors while centralised lenders froze withdrawals. That transparency did not make DeFi safe: 2022 also brought Terra, Mango and the bridge hacks. By 31 December 2022 TVL was 38.29 billion dollars, and it bottomed at 36.03 billion on 13 October 2023.
2023-2026: the rebuild around real assets, staking and perps
The next phase in the history of DeFi was quieter and more institutional. TVL climbed back to 52.79 billion dollars on 31 December 2023, 115.89 billion on 31 December 2024 and a second peak of 171.00 billion on 7 October 2025, close to the 2021 record, before falling to 68.16 billion on 1 July 2026. The data show the fall; we have not found a sourced explanation for it, and TVL follows token prices in any case.
Real-world assets: Treasury bills on chain
The most visible change was money market funds and Treasury bills in token form. BlackRock launched its first tokenised fund, BUIDL, on Ethereum on 20 March 2024, with Securitize as the tokenisation partner. As of 27 October 2026 rwa.xyz counts 14.63 billion dollars in tokenised US Treasury products, held by 85,942 holders. BUIDL is no longer the largest: Ondo’s USDY (2.38 billion dollars) and Circle’s USYC (2.37 billion) are slightly ahead of it (2.16 billion), followed by Franklin Templeton’s iBENJI (1.71 billion dollars). These products bring a yield that does not come from token rewards, and they bring an issuer, a custodian and a legal claim off chain. The rwa.xyz Treasuries dashboard updates the figures daily.
Liquid staking and restaking
Since Ethereum moved to proof of stake, staked ether earns a yield, and liquid staking services such as Lido give stakers a token that can be used elsewhere in DeFi. Lido is the largest DeFi protocol by TVL as of 27 October 2026, with 22.35 billion dollars on DefiLlama.
Restaking went one step further. EigenLayer lets stakers commit the same staked ether to secure other services in exchange for extra rewards, with the risk of losing part of it if those services are not served correctly. Deposits were capped at first; operators and the first service, the data layer EigenDA, went live on mainnet on 9 April 2024, still without slashing, The Block reported. On DefiLlama, where it now appears as EigenCloud, it peaked at 22.06 billion dollars on 14 August 2025 and held 5.95 billion on 27 October 2026. See our EigenLayer project page for its current design.
Perpetual futures on their own chain: Hyperliquid
Perpetual futures, contracts with no expiry date that track an asset with leverage, were the business of centralised exchanges. Hyperliquid built an exchange for them on its own layer 1 blockchain, with an order book run on chain. It launched its HYPE token on 29 November 2024 and set aside 31 percent of the supply for its genesis airdrop, with no allocation to venture investors, according to The Defiant and Blockworks. DefiLlama shows about 78 million dollars of fees for Hyperliquid’s perps over the 30 days to 27 October 2026, and 6.57 billion dollars held in its bridge. Our Hyperliquid project page covers its structure and risks.
Uniswap v4, new lenders and synthetic dollars
Uniswap v4 went live on 31 January 2025 on Ethereum and several layer 2 networks, with “hooks”, small contracts that let developers change how a pool behaves, and a single contract holding all pools. Over the 30 days to 27 October 2026 DefiLlama counts 32.3 billion dollars of volume on v4 and 31.5 billion on v3. Lending also changed: Aave, whose third version launched in March 2022, held 17.45 billion dollars across its versions on 27 October 2026, and Morpho Blue 11.26 billion. Ethena’s USDe, a synthetic dollar backed by crypto collateral paired with short futures positions, held 4.57 billion dollars.
Rules catch up: GENIUS Act, MiCA and the IRS broker rule
In the United States the GENIUS Act, the first federal law on payment stablecoins, was signed on 18 July 2025. The Office of the Comptroller of the Currency published its final implementing rule on 21 October 2026 (Bulletin 2026-50); the rule takes effect on 18 January 2027, the OCC says. The law covers issuers of payment stablecoins, which matters to DeFi because USDC and other regulated coins are the main collateral and trading pair in most protocols.
Two other US changes concerned DeFi directly. A Treasury and IRS rule of December 2024 would have required some DeFi front ends to report users’ trades to the IRS as brokers; Congress repealed it with a Congressional Review Act resolution, signed on 10 April 2025, according to the House Ways and Means Committee. In February 2025 the SEC closed its investigation into Uniswap Labs without bringing a case, Uniswap Labs said. Neither change touched taxes: in the US, rewards and trades in DeFi remain taxable, as the IRS explains on its digital assets page.
In the European Union, the Markets in Crypto-Assets regulation (MiCA) has applied to issuers of asset-referenced tokens and e-money tokens since 30 June 2024 and in full since 30 December 2024, under Article 149 of the regulation as published by ESMA. Its obligations fall on token issuers and on authorised crypto-asset service providers, and the transition period that let existing providers keep operating without a MiCA licence ended on 1 July 2026 at the latest. Our guide to the MiCA regulation explains who needs a licence.
Where DeFi stands on 27 October 2026
As of 27 October 2026, DefiLlama counts 87.78 billion dollars locked in DeFi, about half of the November 2021 peak. Ethereum holds 48.18 billion of that, followed by Base (6.00 billion), Solana (5.71 billion), BNB Chain (5.49 billion) and Tron (5.40 billion). Stablecoins in circulation total about 303.4 billion dollars, led by Tether’s USDT (181.8 billion) and Circle’s USDC (71.2 billion).
| Protocol | Type | TVL on 27 Oct 2026 (billion dollars) |
|---|---|---|
| Lido | Liquid staking | 22.35 |
| Aave (all versions) | Lending | 17.45 |
| Morpho Blue | Lending | 11.26 |
| EigenCloud (EigenLayer) | Restaking | 5.95 |
| Sky Lending (ex-Maker) | Lending, stablecoin | 5.28 |
| SparkLend | Lending | 4.91 |
| Ethena USDe | Synthetic dollar | 4.57 |
| Compound V3 | Lending | 1.35 |
| Curve DEX | Exchange | 1.16 |
| Pendle V2 | Yield trading | 1.07 |
Source: DefiLlama, retrieved 27 October 2026. The table is a selection of protocols named in this lesson, not a full ranking: centralised exchanges and bridges are left out, and two staking services, SSV Network (12.06 billion dollars) and Binance staked ETH (8.60 billion), also rank among the largest.
Compare that table with the 2021 list. Maker, second only to Curve at the 2021 peak with 19.75 billion dollars, holds 5.28 billion under its Sky name, and Curve 1.16 billion. Compound V2 fell from 12.31 billion to 0.10 billion, while Compound V3 holds 1.35 billion. Lido doubled. Aave V3, which did not exist at the 2021 peak, is now the largest lender.
Seven rules the history of DeFi left in the protocols of 2026
Read the history of DeFi as a list of failures and the shape of DeFi in 2026 makes sense. First, collateral must exceed debt, and liquidations must keep working when the network is jammed (Black Thursday). Second, rewards paid in a protocol’s own token attract capital that leaves when they end (DeFi Summer, the vampire attack).
Third, every upgrade is a risk, and governance needs delays (Compound’s Proposal 62, Beanstalk). Fourth, a price that can be pushed for a few minutes is not a price (Cream, Mango): oracles now use averaged or external feeds.
Fifth, whoever holds the keys of a bridge holds its money (Ronin, Wormhole, Nomad). Sixth, a stablecoin backed by its own token is not backed (Terra). Seventh, public on-chain positions let everyone see risk build up, and that transparency kept the lending protocols whole in 2022, while it did nothing to stop losses elsewhere.
None of these lessons removes risk. Hacks continued after 2023: DefiLlama lists, among others, Cetus on Sui (about 223 million dollars, May 2025) and Drift (about 295 million dollars, April 2026). The next lesson of this path breaks DeFi down into its layers, from the settlement chain to stablecoins, lending markets and the apps on top.
