If nothing else, 2020 was the year of DeFi. One of the biggest trends of the year, undoubtedly, was liquidity mining. To keep it simple, liquidity mining is essentially where users supply their own assets as liquidity to a protocol in exchange for a protocol’s governance token. Over time, due to lots of interest, this governance token increases in value, often generating immense returns for liquidity-supplying users and incentivizing them to keep supporting the DeFi protocol. This year governance tokens for Compound, Balancer, Yearn.Finance and many more launched and exploded in value. Further, the value generated for these platforms’ liquidity suppliers was around 100%-200% APR.
In January, a grand total of $1 billion was locked into DeFi platforms collectively. In August, it peaked at US$15 billion. Interestingly, MakerDAO continues to be the platform with the most value locked in, though that first-place position was usurped several times over the year by Compound and other platforms. Users are beginning to reap the benefits of a decentralized, community-owned financial system. We’ll likely see this excitement and rapid growth continue through 2021.
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