The quieter Thanksgiving weekend news cycle gave us time to dive deep on a much-hyped fintech sector. Here’s how DeFi actually works, what issues it aims to solve, and where it’s going next.

Its net revenue fell to $1.24B in Q3—but it plans to reduce its reliance on trading by offering users access to Dapps, DeFi, and NFTs.

eToro launched a DeFi portfolio to give retail investors exposure to the new asset class as the industry matures and more players look to get in on the action.

Square announced a platform to help developers create DeFi applications in a bid to recreate its crypto revenue success with DeFi.

The news: The Bank for International Settlements issued a report on the risks that decentralized finance (DeFi) carries for consumers and the broader financial system. What’s in a name?

But we also see DeFi facing increased regulatory scrutiny: The SEC has made clear that it intends to rein in lending and DeFi platforms. This could send overambitious crypto startups back to the drawing board.

DeFi may face its first major hurdle imposed by the SEC. Several crypto exchanges have attempted to launch DeFi products, like BlockFi’s and Coinbase’s savings accounts, which let users lend their crypto assets on a blockchain in return for interest. But state regulators struck these down, calling them unlicensed securities.

DeFi protocols saw the most growth by far in use for money laundering, at 1,964%. Chainalysis cautioned that DeFi won’t realize its full potential “if the same decentralization that makes it so dynamic also allows for widespread scamming and theft.”. Why this matters: Crypto can’t become a mainstream tool until it sheds its negative associations.

We learned quite a few new terms this year (here’s looking at you, non-fungible token), but few have quite the disruptive potential as decentralized finance (DeFi). It popped up frequently enough that by November, we were ready to tell you everything you need to know about it. Incumbents try their luck with robo-advisors (2/18). The pandemic changed the investing game.

Coinbase also plans to build out its crypto wallet beyond trading so users can interact with metaverse-linked products like DeFi solutions and NFTs. The exchange is starting in pole position: 61.8% of mobile phone users in the US and UK used Coinbase to buy cryptos as of March, compared with just 8% for Gemini.

Let’s debrief: Of the many fintech trends we’ve tracked this year—from the mainstreaming of blockchain-based decentralized finance (DeFi) to using AI to underwrite insurance—there’s been one clear through line: An unprecedented wave of funding has saturated virtually every corner of the space. Over the first three quarters of 2021, fintechs globally raised $94.7 billion in funding.

More on this: The DeFi and Blockchain Equity ETF would track the Solactive Decentralized Finance and Blockchain Index, per the filing, investing at least 80% of its assets in companies that advance blockchain technology and digitize finance.

Now that cryptos are table stakes, users will flock to whichever app offers the widest range of assets at the best price, which is why eToro added a DeFi portfolio, for example.

Dorsey’s digital payment platform Square is working on a platform that lets developers create DeFi solutions on the Bitcoin blockchain. Though no details are known yet, we could expect these solutions to be accessible via Twitter. The bigger picture: Twitter isn’t the only social media company looking at adding cryptos to encourage user engagement and facilitate payments on their platforms.

DeFi has been touted as a solution that could bring greater efficiency to modern finance, but existing financial regulations typically don’t cover DeFi, which results in hurdles for the technology’s wider adoption. The likes of Chainalysis moving into DeFi can help providers conduct business intelligence, such as identifying anomalous transactions and scams.

And some VCs aren’t waiting any longer to back DeFi projects: VC funding in DeFi crossed the $500 million mark for the first time in September across 34 startups.