By Wachsman on The CapitalIn early February 2020, decentralized finance hit a major milestone. On the 7th, the amount of money stored in decentralized finance smart contracts hit a billion dollars for the first time. Decentralized finance’s detractors had long argued that on-blockchain trading would be too slow, too clumsy, and too difficult to attract substantial use or significant capital. For many in the cryptocurrency, finance, and exchange communities, the ten-figure mark was proof that DeFi wasn’t just a clever idea. Potentiality had yielded to practicality.Although the billion-dollar lock-in shows that decentralized finance’s radical promise can be fulfilled, there are challenges ahead for those looking to build reliable trustless finance and create a distributed alternative to incumbent systems. Scale is always a challenge, as unicorn exchange app Robinhood recently learned when its services failed for an entire day. And Robinhood, which runs on more traditional technology, avoids some of the perils that its DeFi competitors may face.Unfortunately, the challenges that face blockchain, in general, have occasionally frustrated DeFi’s growth efforts. Most DeFi systems run on the Ethereum blockchain, which is lighter and faster than Bitcoin, but does not yet scale as easily as its creators hope. New technology allows new efficiencies, but no exploits and abuses may crop up in early stages. During ETHDenver, for example, a hacker demonstrated an exploit that removed $350,000 from the bZx platform. The exact hack will not repeat now that everyone is aware of it, but early users will worry that other hacks might be feasible. And while everyone knows the creators want what’s best for the network, sometimes they take actions that worry DeFi builders.As of this writing, many in the decentralized finance world are concerned about the proposal, put forward by Ethereum’s core developers, to institute Programmatic Proof-of-Work, usually referred to as ProgPoW, via hard fork this coming July. No one doubts that the developers have good intentions for ProgPoW, which is intended to make it easier for machines other than custom-built ASIC mining rigs to mine ethereum. A split in the community could do substantial damage to the young DeFi infrastructure, though most are confident a solution will be reached by the fork’s July deadline.Once the ProgPoW debate is resolved, it’s likely that DeFi will devote its energies to further innovation. To take one example, traditional financial infrastructure allows for both overcollateralized loans, for which the value lent to the borrower exceeds the value presented as collateral, and undercollateralized loans, for which the opposite is true. At present, DeFi only allows overcollateralized loans, so that $100 of ETH might be collateral for $60 of DAI. Introducing undercollateralization options would be extremely helpful in attracting a broader userbase, and it’s already a dream for many in the DeFi community.When the Bitcoin protocol launched in 2009, it had a simple but revolutionary goal: Make cash digital. In 2020, it’s not just cash that blockchains and distributed ledgers can digitize; with DeFi, high finance trading can be decentralized and brought into the new millennium. It won’t be easy, and there may be some setbacks, but the ascent of DeFi is perhaps the most exciting recent development in blockchain, or even in emerging technologies altogether. Once an industry reaches its first billion, its second, third, and fourth billions soon follow. Long may DeFi grow.Read Next: Employee Spotlight: Caitlin EckvahlThe Capitalhttps://medium.com/media/3b6b127891c5c8711ad105e61d6cc81f/hrefWill 2020 Be the Year for DeFi? was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.