DeFi (Decentralized Finance)
Financial services run by code on public blockchains, letting people trade or borrow without a bank.
DeFi replaces the middleman with a smart contract. Instead of a bank approving a loan or an exchange holding your funds, open-source code on a chain like Ethereum handles the matching and settlement. Anyone with a wallet can use it, with no application and no account.
The appeal is access and transparency. The catch is that the code is the law. A bug can drain a protocol in seconds, and there is rarely a help desk to call. By 2024 billions of dollars sat in DeFi, though hacks and exploits had cost users billions more over the years.
Related terms
Crypto services run by companies that hold your funds and keys, much like a bank or traditional broker.
Smart ContractSelf-executing code on a blockchain that runs exactly as written when its conditions are met, with no party able to intervene.
DApp (Decentralized Application)An application whose backend logic runs on a blockchain through smart contracts rather than a company's private servers.
Liquidity PoolA pot of tokens locked in a smart contract that traders swap against, with prices set by a formula.