Decentralized Finance, or DeFi, refers to financial applications built on public blockchains that let people lend, borrow, trade, and earn yield without going through a traditional bank or broker.
Instead of a bank matching depositors with borrowers behind closed doors, DeFi protocols use smart contracts — self-executing code deployed on a blockchain — to automate these functions transparently. Anyone with an internet connection and a compatible wallet can, in principle, interact with them directly.
Popular categories include decentralized exchanges (DEXs) for swapping tokens without a centralized order book operator, lending protocols where users supply collateral to borrow other assets, and yield-generating vaults that automatically move funds between strategies.
Because the code is public and the rules are enforced by the protocol rather than a company, DeFi is often described as more transparent than traditional finance. That same openness means smart contract bugs, economic design flaws, and market volatility are real risks — audits and cautious position sizing matter far more than in most conventional financial products.
DeFi is still a young and rapidly evolving space. Understanding the basic mechanics — collateral, liquidation, smart contract risk — is essential before putting real funds into any protocol.
