What is DeFi?

Finance without the front desk

In traditional finance, a bank or broker stands between you and the service. In DeFiDeFi Financial services such as trading, lending and borrowing that run on smart contracts instead of banks., smart contractsSmart contract A program stored on a blockchain that runs automatically when its conditions are met. do that job. You connect a walletWallet Software or a device that stores the keys you need to access and move your crypto., and the contract executes your trade or loan according to its public code.

The building blocks

• Decentralized exchangesDecentralized exchange A smart-contract-based marketplace where people trade tokens directly from their own wallets. let you swap tokens directly from your wallet, usually against liquidity poolsLiquidity pool A pot of two or more tokens locked in a smart contract that traders swap against..
• Lending markets let you deposit tokens to earn interest, or borrow against collateral.
• StablecoinsStablecoin A token designed to hold a steady value, usually one US dollar. provide a dollar-denominated unit to trade and save in.
• StakingStaking Locking up coins to help secure a proof-of-stake network in exchange for rewards. and liquid staking let you earn network rewards while keeping a tradable token.

Why people use it

It’s open 24/7, doesn’t require an account application, and lets different apps plug into each other (“money legos”).

The risks are different, not absent

• Smart contract bugs: code can be exploited, and there’s usually no one to reverse it.
• OracleOracle A service that feeds outside information, like asset prices, into smart contracts. failures: bad price data can trigger unfair liquidationsLiquidation The forced sale of a borrower's collateral when its value falls too far relative to the loan..
• Governance and admin keys: some “decentralized” apps can still be changed by a small group.
• Your own mistakes: signing a malicious token approvalToken approval Permission you give a smart contract to move a specific token from your wallet. can drain a wallet.

Total value lockedTotal value locked The total value of crypto deposited in a DeFi protocol or network. is a common measure of DeFi’s size, but it swings with token prices and can double-count.