Blockchains have emerged as a revolutionary technology that enables multiple parties to coordinate and reach consensus without relying on a single trusted authority. This novel capability is particularly valuable in environments like the financial system, where no universally trusted entity exists. The blockchain architecture can be conceptualized as a multi-layered stack, each layer serving a distinct purpose.

At the foundation lies the consensus layer, responsible for establishing an append-only data structure with robust properties like persistence, consensus, liveness, and openness. This layer ensures that once data is written to the blockchain, it can never be removed, and all honest participants agree on the same data. Building upon this immutable foundation is the compute layer, often referred to as the “blockchain computer.” This layer enables the execution of decentralized applications (dapps) or smart contracts in a publicly verifiable manner, with the code and execution visible to all participants.

The application layer comprises the actual dapps running on the blockchain computer, encompassing a wide range of use cases, from decentralized finance (DeFi) protocols to various other applications. These dapps interact with the user-facing layer, which includes wallets, interfaces, and other tools that facilitate user interactions with the blockchain ecosystem.

One of the core strengths of blockchains lies in their transparency. The code and execution of dapps are public, allowing anyone to verify the correctness of these programs and ensuring they function as intended. This level of transparency is a stark contrast to traditional systems where code and execution are often opaque and proprietary.

The DeFi space, in particular, has witnessed a remarkable surge of innovation and experimentation. Projects like Compound (lending), Uniswap (decentralized exchange), custodial services, and MakerDAO (stablecoin) are examples of dapps managing billions of dollars in assets on blockchains. These projects are at the forefront of a rapidly evolving ecosystem, continuously pushing the boundaries of what is possible in the realm of decentralized finance.