Uniswap
Aave
Before the Summer: DeFi's Quiet Foundation
For most of its existence, decentralized finance was a niche experiment that crypto-native engineers built and almost nobody used. MakerDAO had launched its DAI stablecoin in 2017. Uniswap's automated market maker had gone live in late 2018. Compound had deployed its algorithmic money market. These were functional, ingenious protocols — but their combined user base could fit in a large conference room.
The catalysts were already assembling by early 2020. Ethereum's DeFi ecosystem was growing slowly but surely. Total value locked in DeFi protocols crossed $1 billion for the first time in February 2020. Developer tooling was improving. The composability of open smart contracts was enabling increasingly complex financial strategies. Crypto-native users were beginning to notice that substantial yields could be earned by providing liquidity to these protocols.
Then Compound launched COMP, and everything changed.
The COMP Launch: Igniting Yield Farming
On June 15, 2020, Compound Finance began distributing its governance token, COMP, to users of the protocol — both lenders and borrowers. The mechanism was straightforward: interact with Compound, earn COMP proportional to your activity.
What followed was a rapid feedback loop that nobody fully anticipated. COMP immediately traded on secondary markets at a price that made the effective yield on Compound — when you added COMP rewards on top of regular interest — extraordinarily high. Capital flooded in to capture these yields. More capital in the protocol meant more COMP distributed. More COMP distribution meant the protocol appeared more valuable. The valuations climbed.
This was yield farming in its purest form: deploying capital into a DeFi protocol specifically to earn its native token rewards, rather than for the underlying financial service. Yield farmers moved capital rapidly between protocols, chasing the highest effective annual percentage yield (APY). A novel profession was born almost overnight: full-time DeFi strategists who spent hours optimizing positions across multiple protocols to maximize yield.
mining-and-the-protocol-wars">Liquidity Mining and the Protocol Wars
Compound's success spawned imitation. Within weeks, every significant DeFi protocol had launched or announced a liquidity mining program — distributing governance tokens to users as an acquisition strategy.
Balancer launched BAL distributions to liquidity providers. Curve distributed CRV to liquidity providers in its stablecoin pools. Synthetix had been running a native token distribution program for months and watched it become vastly more popular.
The most dramatic example was Sushiswap, which launched in late August 2020 with a vampire attack on Uniswap. Sushiswap offered its native SUSHI token to anyone who staked Uniswap LP tokens — essentially offering to pay Uniswap's liquidity providers to migrate their capital. Over $800 million in liquidity migrated from Uniswap to Sushiswap within days. The episode demonstrated that in DeFi, liquidity is rented rather than owned, and token incentives can move it rapidly.
Uniswap responded in September 2020 by launching its own governance token, UNI, with an airdrop to every address that had ever used the protocol. Users who had made even a single swap received 400 UNI — worth approximately $1,200 at launch prices and substantially more at subsequent peaks. It was the largest retroactive airdrop in crypto history at the time and set a template for how protocols reward early users.
TVL: The Scoreboard That Defined a Summer
Total Value Locked — the aggregate dollar value of assets deposited in DeFi smart contracts — became the defining metric of DeFi Summer. At the start of June 2020, DeFi's total TVL was approximately $1 billion. By September 2020, it had reached $10 billion. By the end of 2020, it was approaching $20 billion.
The TVL scoreboard was published in real time on DeFi Pulse and later on DeFiLlama, creating a competitive dynamic between protocols. A protocol at the top of the TVL ranking attracted more attention, more capital, and more developer interest — a reflexive dynamic that further accelerated growth.
The speed of the growth was genuinely astonishing. Capital that would have taken years to accumulate in traditional finance moved in days. Protocols launched by teams of three or four engineers, with no marketing budgets, were processing more transaction volume than mid-sized traditional financial institutions.
Composability: The Amplifier
DeFi Summer's intensity was amplified by composability. Because DeFi protocols are open smart contracts on the same blockchain, they can be combined in novel ways that create new strategies and new risks simultaneously.
A sophisticated DeFi user in summer 2020 might: deposit ETH in Compound to earn interest and COMP rewards, borrow DAI against that ETH, deposit the DAI in Curve's stablecoin pool to earn CRV rewards, stake the resulting LP tokens in Yearn Finance's optimizer to automatically compound both Curve rewards and COMP rewards, and use the entire position as collateral for further borrowing.
This created positions of extraordinary complexity — and extraordinary fragility. A price movement in any of the underlying assets, or a governance decision in any of the protocols in the chain, could cascade through the entire position. The phrase "money legos" captured both the creativity and the risk: lego blocks snap together beautifully, but a tall tower can fall.
The Risks Realized
The risks of composability were not theoretical. DeFi Summer was accompanied by a wave of protocol exploits, flash loan attacks, and smart contract vulnerabilities.
bZx, a lending protocol, was drained in two separate flash loan attacks in February 2020 (technically just before DeFi Summer, but catalytic in raising awareness of the risks). Harvest Finance lost $34 million in October 2020 to a flash loan price manipulation attack. Pickle Finance lost $20 million in November. Akropolis lost $2 million. Many smaller protocols were drained in attacks that never made headlines.
These were not theoretical vulnerabilities discovered in audits — they were millions of dollars lost in live production systems. The attack surface of composable DeFi is larger than any single protocol: a vulnerability in Protocol A can be exploited by combining it with Protocol B through a flash loan. Traditional financial institution security relies heavily on access controls and human oversight; smart contract security relies entirely on code correctness.
The Lasting Structural Changes
DeFi Summer permanently changed the crypto landscape in several ways.
Governance tokens became the standard launch mechanism. Every major protocol launched since 2020 has included a governance token with a liquidity mining component. The token provides decentralization, user alignment, and — importantly — a launch mechanism that can grow user bases faster than traditional marketing.
Ethereum's fee market was stress-tested. Gas prices spiked to levels that made small transactions economically unviable during DeFi Summer. A simple swap that cost a few cents in gas when Ethereum was quiet could cost $50-100 during peak congestion. This made DeFi effectively inaccessible to smaller participants, accelerating demand for Layer 2 solutions and alternative chains.
Institutional interest intensified. DeFi Summer put decentralized finance on the radar of institutional investors and traditional financial analysts in a way that no prior development had. Protocols with no corporate structure and no registered entity were generating revenues that rivaled regulated financial businesses. The questions this raised — about regulation, about competition, about the future of financial intermediation — entered mainstream financial discourse.
The playbook was written. Every major DeFi protocol launched since 2020 has drawn on the liquidity mining playbook developed that summer: token launch with mining rewards, composability with existing protocols, governance rights for token holders, retroactive airdrops for early users. DeFi Summer was an improvised experiment; it became a repeatable template.
The summer of 2020 compressed years of financial innovation into months and established decentralized finance as a permanent feature of the global financial landscape. The protocols built then are still operating, the governance frameworks they pioneered still function, and the assets they created still trade. DeFi Summer was not a bubble that burst — it was a phase transition that changed what was possible.