My DeFi journey started 7 years ago when I became passionate about the idea of democratizing finance. Ethereum enabled a platform where financial enthusiasts like me could build open, accessible, and transparent financial infrastructure by reducing the need for centralized middlemen.

My first thought was that building on a public blockchain network would enable new programmable financial apps that would otherwise be difficult to build in traditional finance, especially when it comes to app-to-app composability. The barrier to innovation was ridiculously low. Build, compose, and deploy.

Stakes are higher. When we built the Aave Protocol V1 in January 2020, the whole DeFi TVL was sitting at $600M. A year later, Aave Protocol V1 TVL peaked at $2.6B, and our team already launched V2, which later in 2021 had a peak TVL sitting at nearly $20B.

Unlike many other DeFi Protocols, the Aave Protocol collects revenue directly into the DAO Treasury, which, in a decentralized fashion by governance voting, reimburses community members to finance development, smart contract security work, governance work, treasury management, risk management, and even infamous rAAVEs and other community events. Anyone can come to the DAO and create a proposal. What are the chances for an ordinary person to successfully suggest a proposal to a central bank or credit card network to change the way they operate? I reckon close to none.

As boring or as painful DAOs can be, they can actually be the right tool to govern an infrastructure that should be neutral and global.

Back to the fees. The Aave DAO is a net-positive DAO, meaning that after costs, it has enough revenue to leave a surplus. It's not a business; it's more akin to using democracy to govern a vital public infrastructure (this is how the internet would be governed if crypto-economics existed back then).

Based on the fees some of the DeFi Protocols are earning and the usage, we can strongly argue that DeFi has Protocol-Market Fit. It's the only category that has PMF in web3.

Over the past couple of years, it became more clear that L2 Rollups (and subnets, etc.) might be the way to scale blockspace. Since blockchain enables financialization and monetization, these rollups would all need to figure out a financial layer to serve whatever use-case they are seeking after (i.e., web3 social, regen, or gaming). I like to draw an analogy for rollups as Towns, and each Town needs its own non-custodial bank.

The Aave community recognized early the demand for liquidity across networks. For that reason, the Aave Protocol is deployed over multiple networks, and most likely we will see additional networks during 2024. I also believe that smart and resourceful DeFi communities will seek new market share from non-EVM networks.

I've never been as excited about DeFi as I am today. Mainly because today we have DeFi protocols that have reached PMF, are enabling financial layers across various networks (Ethereum, L2s such as Optimism, Arbitrum, Scroll, Metis, and ZkSync, Avalanche, and Polygon), and are truly decentralized or progressing towards decentralization. DeFi used to crawl; now it's walking and from now on is preparing for a run.

Especially lower transaction fees would give DeFi a fair shot at building payment infrastructure and bring web3 closer to consumer usage. This vision is part of what GHO could be, bringing web3 payments into mainstream.

While there are DeFi Protocols that are moving towards the growth stage, there are plenty of challenges ahead that the whole community has an opportunity to work on.

Here are a few:

- Ungovernance, less governance where it's not needed

- Bringing meritocracy into DeFi governance to diversify one token one vote mechanism

- Stay sufficiently decentralized (DAOs need to be factually decentralized. A great test is whether the protocol would function if the founding team would move on)

- Risk management tooling improvements

- Smart Contract security tools are still non-existent

- Moving seamlessly and securely liquidity around multiple networks

- L2s can have more liquidity when they stop acting like databases and have better fault tolerance against a single point of failures (taking off the training wheels)

For the Aave ecosystem, during 2024, I will be expecting more new innovation. There is so much innovation that can be done on liquidity markets and decentralized stablecoins and other areas the Aave community should look into. I am also even more excited to see new participants in the Aave governance.

For the whole DeFi community, I wish you a successful 2024 and want to remind you that you are contributing to building a better, accessible financial system; you are all heroes in this journey.

Wishing all you degens an amazing 2024! 👻