A multi-billion-dollar industry is quietly taking shape, operating largely outside of traditional finance. The industry is poised to reshape the very mechanics of global transactions. The sector is commonly referrred to as DeFi (decentralized finance). The DeFi sector gained significant public attention late last year after current President Donald Trump launched his own affiliated project called World Liberty Financial. Decentralized finance represents a system of financial applications constructed on top of blockchain technology. The underlying architecture is a made up of distributed ledger where data, once recorded, cannot be altered. The technology allows users to engage in a full suite of financial activities that include lending, borrowing, trading, and investing. All using peer-to-peer networks. The design itself seeks to remove the need for institutional intermediaries such as banks from the process of carrying out financial transactions. That said, the total value of assets locked within DeFi protocols recently surged past the $100 billion mark. The growth first began to accelerate because of the global shift toward digital payments during the Covid-19 pandemic. The DeFi ecosystem which now has millions of active users saw its growth first accelerate after the Covid-19 pandemic as reliance on digital payments surged. Decentralized lending platforms and automated market makers, for example, experienced significant upticks in user activity. In addition to bypassing the middleman in transactions, DeFi technologies can speed up transaction settlement times while offering fees that are typically lower than those offered by traditional banks. The technological innovation also promises enhanced transparency, with all transactions being recorded on public ledgers. The attribute of immutability provides a high degree of transaction transparency. A Wild West of Risk? A Wild West of Risk? For every win in crypto, there is a big warning. Critics call decentralized finance (DeFi) the "Wild West of finance." It's a space where hackers have stolen over $3 billion from DeFi platforms since 2022. The huge price swings of DeFi tokens have also drawn scrutiny from regulators. The U.S. Securities and Exchange Commission (SEC), for instance, has cracked down hard on crypto, saying many digital assets are unregistered securities that must follow investor protection laws. The SEC, a top U.S. watchdog, uses a standard called the Howey Test to decide if a crypto token falls under its control. Other agencies, like the Commodity Futures Trading Commission (CFTC), the Department of Justice (DOJ), and the Internal Revenue Service (IRS), are also setting rules for DeFi. The IRS, in particular, is tracking unpaid taxes on crypto gains. While blockchain tech is new, regulators say many DeFi products work like old-school financial tools. That's why they want to enforce existing rules. For example, DeFi apps that offer crypto-backed loans act much like regular secured loans. Others that let users earn rewards by locking up tokens are similar to bank deposits. The big difference? DeFi cuts out middlemen like banks. Now, regulation is going worldwide. Groups like the Financial Stability Board (FSB) are drafting global crypto rules. This aspect could affect users who value privacy. Still, many in tech believe the next DeFi boom is coming soon. Right now, top blockchains for DeFi projects include Ethereum, Solana, Bitcoin Arbitrum, and Avalanche. Ethereum leads with around $61 billion in total value locked, per DeFiLlama data.

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Solana

DeFi Surges Past $100B as Regulators Eye the ‘Wild West’ of Finance

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