DeFi summer and NFTs
In 2020 and 2021 the infrastructure got genuinely good and the speculation got genuinely absurd, at the same time, in the same place.
The period from mid-2020 through 2021 produced most of the infrastructure that DeFi still runs on, and simultaneously one of the more striking speculative episodes in recent financial history. Both statements are true and are usually told separately.
Liquidity mining
Protocols began distributing governance tokens to people who used them — depositing to a lending market or supplying to a pool earned newly issued tokens on top of the underlying yield.
A new protocol needs liquidity to be useful and users to have liquidity, which is circular. Paying early users in equity-like tokens breaks the circle, and it is a legitimate mechanism. It also meant advertised yields were dominated by token emissions rather than by fees — so capital moved to whichever protocol was emitting most, and left the moment emissions fell. The yields were real and largely self-funded by dilution.
What genuinely came out of it
- Automated market makers matured from experiment to core infrastructure.
- Lending markets with algorithmic rates and automatic liquidation proved they work under stress, including sharp drawdowns.
- Composability was demonstrated at scale — protocols building on one another without permission or integration agreements.
- Stablecoins became the field's dominant settlement asset, a role they have kept.
NFTs
A non-fungible token is a record on a chain saying a particular address holds a particular unique identifier. That is the whole technical content. What the identifier means — an image, a membership, a deed — is a convention outside the chain.
Most point to a file hosted elsewhere; if that hosting lapses, the token remains and the image does not. And ownership of a token is not ownership of intellectual property unless a separate licence says so. Both facts were widely misunderstood during the boom, including by buyers spending large sums.
Prices for the prominent collections rose enormously through 2021 and fell very sharply afterwards, with liquidity disappearing faster than price — which is the characteristic behaviour of a market with no cash flow and no natural buyer.
What survives
The underlying idea — a verifiable, transferable record of a unique thing — has genuine applications in ticketing, credentials and provenance, and some are in use. That is a much smaller and less exciting claim than the one made in 2021, and it is the one supported by evidence.
The infrastructure improved because the speculation funded and stress-tested it. That is not unique to this field — railways, telecoms and the early internet all built durable capacity during manias that ruined most of the investors financing them. It is worth holding both facts at once: the technology advanced, and most of the capital that paid for it did not come back.