What is DeFi
DeFi (Decentralized Finance) is an ecosystem of financial services built on blockchain networks that operate without traditional intermediaries such as banks or financial institutions.
The DeFi ecosystem includes many types of applications, from decentralized exchanges (DEX) to lending and borrowing protocols where users can take a loan in one crypto asset by providing another asset as collateral.
Instead of banks and centralized platforms, DeFi systems rely on smart contracts that automatically execute financial operations on the blockchain.
Stablecoins frequently serve as settlement assets and collateral in these protocols, although they do not remove liquidity or smart-contract risk.
How DeFi works
DeFi applications run on blockchain networks and use smart contracts to perform financial transactions.
Users interact with DeFi services directly through crypto wallets, without needing a centralized intermediary.
Governance tokens let participants vote on selected protocol parameters. This governance structure is often organized through a DAO.
Examples of DeFi services
Common types of DeFi applications include:
- decentralized exchanges (DEX)
- lending and borrowing protocols
- liquidity pools
- Perpetual DEX for perpetual derivatives
- prediction markets for trading event probabilities
- yield farming strategies for deploying liquidity
- staking integrations such as liquid-staking products
Related terms
FAQ
What does DeFi mean?
DeFi stands for Decentralized Finance, a system of financial services built on blockchain technology.
How is DeFi different from traditional finance?
In DeFi, financial transactions are executed through smart contracts rather than banks or centralized financial institutions.
What are the risks of DeFi?
The main risks include smart contract vulnerabilities, price volatility of crypto assets, and liquidity risks.