The year 2020 marked a turning point for decentralized finance (DeFi), as blockchain-based financial applications surged in popularity and transformed how users interact with digital assets. Built primarily on the Ethereum network, DeFi platforms enabled trustless lending, borrowing, trading, and yield generation—without intermediaries. At the heart of this revolution were DeFi tokens, which powered governance, incentivized participation, and became some of the most sought-after assets in the crypto space.
This article explores the most influential DeFi tokens of 2020, analyzing their roles, innovations, and market impact. Whether you're new to DeFi or looking to deepen your understanding, this guide provides valuable insights into the foundational projects that shaped the ecosystem.
The Rise of DeFi in 2020
2020 was dubbed the "Year of DeFi" due to the explosive growth in total value locked (TVL) across decentralized protocols. From under $1 billion at the start of the year, TVL soared past $15 billion by December—a staggering increase that reflected growing confidence in open, transparent financial systems.
DeFi’s appeal lies in its accessibility and innovation. Anyone with an internet connection can lend, borrow, or trade assets without relying on banks or centralized exchanges. Behind these services are native tokens that serve multiple functions: governance voting, staking incentives, collateralization, and fee distribution.
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Key DeFi Tokens That Defined 2020
Uniswap (UNI)
Uniswap emerged as a leader among decentralized exchanges (DEXs) by introducing an automated market maker (AMM) model. Instead of order books, it uses liquidity pools where users supply token pairs and earn a share of trading fees.
The launch of the UNI token in September 2020 was a landmark event. Airdropped to early users, UNI granted governance rights and quickly gained traction. Its success demonstrated the power of community ownership and user incentives in driving adoption.
UNI became more than just a utility token—it symbolized the shift toward user-controlled platforms, setting a precedent for future DeFi launches.
Aave (AAVE)
Originally launched as LEND before upgrading to AAVE, Aave is a decentralized lending protocol that allows users to earn interest on deposits or borrow assets using collateral.
One of Aave’s standout features is flash loans—unsecured loans that must be borrowed and repaid within a single transaction block. This innovation opened new possibilities for arbitrage and risk-free trading strategies, attracting sophisticated traders and developers.
AAVE token holders participate in protocol governance and benefit from security incentives, reinforcing trust in the system.
Compound (COMP)
Compound pioneered the concept of algorithmic interest rates and liquidity mining. By staking assets like ETH or DAI, users earn COMP tokens as rewards—effectively getting paid to use the platform.
The release of COMP catalyzed the "DeFi summer" of 2020, sparking a wave of yield farming across other protocols. It also introduced formalized on-chain governance, allowing COMP holders to propose and vote on changes to interest rate models, asset listings, and risk parameters.
This governance-first approach influenced countless subsequent projects and established Compound as a cornerstone of the DeFi ecosystem.
MakerDAO (MKR)
MakerDAO is one of the oldest and most resilient DeFi projects, best known for creating DAI—the first widely adopted decentralized stablecoin pegged to the US dollar.
To generate DAI, users lock up crypto assets (like ETH) as collateral in smart contracts called Collateralized Debt Positions (CDPs). The MKR token plays a critical role in maintaining system stability: holders vote on risk parameters and absorb losses during black swan events.
MKR’s governance model has proven robust through market volatility, making MakerDAO a foundational pillar of DeFi infrastructure.
Synthetix (SNX)
Synthetix enables the creation of synthetic assets—tokens that track the value of real-world assets such as stocks, commodities, and fiat currencies—without requiring direct ownership.
Users stake SNX tokens as collateral to mint these synthetics (e.g., sBTC, sETH, or even sApple). In return, they earn trading fees and staking rewards. This model allows global access to traditionally restricted markets through blockchain technology.
In 2020, Synthetix expanded its offerings and improved scalability via integration with Layer 2 solutions, positioning itself as a leader in cross-asset exposure within DeFi.
Chainlink (LINK)
While not a lending or exchange protocol, Chainlink plays an essential role in DeFi by providing secure and reliable off-chain data through decentralized oracle networks.
Smart contracts on DeFi platforms rely on accurate price feeds to function correctly—especially for margin calls, liquidations, and trading executions. Chainlink ensures this data is tamper-resistant and distributed across multiple nodes.
LINK tokens incentivize node operators to provide high-quality data, forming a trustless bridge between blockchain applications and real-world information sources. Its widespread adoption makes Chainlink indispensable to the DeFi stack.
Yearn.Finance (YFI)
Yearn.Finance stood out in 2020 as a yield optimization platform designed to maximize returns across various DeFi protocols. YFI automatically shifts user funds between lending platforms like Aave and Compound to capture the best available interest rates.
What made YFI unique was its fair launch—no pre-sale or VC allocation—and its fully community-governed structure. With only 30,000 YFI tokens ever minted, scarcity drove intense demand, briefly making it one of the most valuable tokens per unit.
YFI exemplified the ethos of decentralization and equitable distribution, inspiring a new wave of community-driven projects.
Market Impact and Growth Metrics
The collective success of these DeFi tokens led to unprecedented growth in the sector:
- Total value locked in DeFi protocols grew from less than $1 billion to over $15 billion in 2020.
- Daily trading volumes on DEXs surpassed those of many centralized exchanges.
- Liquidity mining programs attracted retail and institutional interest alike.
However, rapid growth also brought challenges: smart contract vulnerabilities, impermanent loss for liquidity providers, and network congestion on Ethereum due to high gas fees.
Despite these issues, the momentum continued as developers worked on Layer 2 scaling solutions and cross-chain interoperability.
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Frequently Asked Questions (FAQ)
Q: What is a DeFi token?
A: A DeFi token is a cryptocurrency that powers decentralized finance applications. These tokens often enable governance voting, reward participation (like staking or liquidity provision), or act as collateral within the protocol.
Q: Why did DeFi grow so fast in 2020?
A: Several factors contributed: yield farming incentives, growing distrust in traditional finance during economic uncertainty, increasing institutional interest in crypto, and technological maturity of Ethereum-based smart contracts.
Q: Are DeFi tokens risky investments?
A: Yes. While potentially rewarding, DeFi investments carry risks including smart contract bugs, market volatility, regulatory uncertainty, and impermanent loss for liquidity providers. Always conduct thorough research before participating.
Q: How do I start using DeFi platforms?
A: Begin by setting up a non-custodial wallet like MetaMask. Then connect it to reputable DeFi platforms such as Aave or Uniswap. Start small, understand gas fees, and never invest more than you can afford to lose.
Q: Can I earn passive income with DeFi tokens?
A: Absolutely. Many users earn yields through staking, liquidity provision, or yield aggregators like Yearn.Finance. Returns vary based on market conditions and platform mechanics.
Q: Is DeFi secure?
A: Security varies by project. Audited protocols with active communities are generally safer. However, no system is immune to exploits—so always assess risks carefully.
The Future of DeFi
As we move forward, DeFi is expected to evolve with enhanced scalability (via Layer 2s), better user experience, stronger security standards, and increased regulatory clarity. Interoperability between blockchains will further expand access and functionality.
DeFi tokens will remain central to this evolution—driving innovation, enabling decentralized decision-making, and offering new financial opportunities worldwide.
Whether you're interested in governance participation, yield generation, or supporting open financial systems, understanding these core DeFi tokens from 2020 provides essential context for navigating today’s dynamic landscape.
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Core Keywords: DeFi tokens, decentralized finance, Uniswap UNI, Aave AAVE, Compound COMP, MakerDAO MKR, Synthetix SNX, Chainlink LINK