DeFi (decentralised finance) is the collective name for financial services that run on blockchains through smart contracts, without banks, brokers or exchanges as intermediaries. Anyone with a wallet can trade, lend, borrow or earn yield directly from their own account, 24/7, under rules that are written in code and visible to everyone. Most DeFi activity takes place on Ethereum, its layer 2 networks and Solana.
Main building blocks of DeFi
- Decentralised exchanges (DEXs): swap tokens directly from your wallet, often through automated market makers (AMMs), where prices are set by liquidity pools instead of an order book.
- Lending and borrowing: deposit assets to earn interest, or borrow against collateral; positions that fall below the required collateral are liquidated automatically.
- Stablecoins: tokens pegged to a currency such as the dollar or euro, the most used asset in DeFi.
- Derivatives and perpetuals: leveraged trading of price movements without a central exchange.
- Yield and vaults: strategies that automatically move funds between protocols to earn returns, often built on the ERC-4626 vault standard.
Why DeFi is different
DeFi protocols are composable: because they are open smart contracts, they can be combined like building blocks, for example borrowing in one protocol, swapping in another and depositing into a third, all in one transaction. Everything is transparent on-chain, settlement is near-instant, and users keep custody of their assets until they deposit them into a contract. The size of the market is usually measured as total value locked (TVL).
Risks of DeFi
- Smart contract risk: bugs and exploits have caused losses of billions; audits reduce but don't eliminate the risk.
- Oracle and price manipulation: protocols that rely on a manipulable price source can be drained. See what is an oracle.
- Liquidation and market risk: leveraged positions can be liquidated quickly in volatile markets.
- Impermanent loss: liquidity providers can end up with less value than if they had simply held their tokens.
- Fraud and regulation: anonymous teams, rug pulls, and regulatory uncertainty for DeFi front-ends and services.
We build tools around DeFi for funds, traders and projects. See our DeFi development, yield dashboards, position management and DEX integrations.
Frequently Asked Questions about DeFi
What is the difference between DeFi and CeFi?
CeFi (centralised finance) means a company such as an exchange holds your funds and runs the service. In DeFi, smart contracts run the service and you keep control of your funds through your own wallet.
Is DeFi safe?
DeFi carries real risks: contract bugs, hacks, manipulation and volatility. Use audited, established protocols, spread risk, and never deposit more than you can afford to lose.
What is TVL?
Total value locked: the total value of assets deposited in a DeFi protocol or ecosystem, the most common measure of its size.
Do you need permission to use DeFi?
The protocols themselves are open to anyone with a wallet. Some front-ends block certain countries, and businesses offering DeFi-related services to customers may fall under financial regulation.