Messari Methodology: What Constitutes a DeFi Token

As the DeFi sector continues to grow and we seek to track the burgeoning sector, questions often arise as to what exactly constitutes DeFi. There is no simple answer since both parts of the portmanteau are vague; decentralized gets thrown around liberally as no standards exist to define what it means while finance could be used to describe anything involving money (which is everything in crypto). In order to stay consistent in our analysis of the space, we provide a more rigorous definition. In order for a token to constitute "DeFi" it must satisfy the following requirements:

1. Financial use case: the protocol must be explicitly geared towards financial applications such as credit markets, token exchanges, derivative/synthetic asset issuance or exchange, asset management, or prediction markets.
2. Permissionless: the code is open-source allowing any party to use it or build on top of it without going through a third-party
3. Pseudonymous: Users do not need to reveal their identity
4. Non-custodial: Assets are not custodied by a single third-party
5. Decentralized governance: Upgrade decisions and administrative privileges are not held by a single entity or at least a credible path exists towards removing them

We believe this provides a good starting point to filter what we consider to be DeFi assets. To further clarify, it may be helpful to provide examples of tokens often discussed as being DeFi but don't meet our criteria.

Chainlink is the most popular oracle used across DeFi and the protocol stands to benefit from its continued growth. However, since its primary use is providing data feeds to smart contracts which in and of itself is not financial in nature we don't classify it as DeFi. For this reason, smart contract platforms like Ethereum, which are also a necessary component to DeFi, are not considered since they enable financial uses but are not explicitly engaged in the actual activities. Assets such as Nexo and BNB provide exposure to the exchange, borrowing, and lending of decentralized assets. However, since there is a single company behind the lending and no open-source protocol with which to build on they also do not make the cut.

You can view our screener covering DeFi assets here. If you think we're missing a project feel free to reach out - [email protected]

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