DeFi, short for decentralized finance, refers to financial applications built on public blockchains. These apps aim to offer services like trading, lending, borrowing, and yield generation without relying on traditional banks or brokers.
How It Works
Most DeFi applications run through smart contracts. These are pieces of code that automatically execute transactions when certain conditions are met. A lending protocol, for example, can let users deposit crypto, borrow against collateral, and repay loans without a bank approving the transaction.
DeFi users usually interact through crypto wallets. They keep control of their assets unless they choose to deposit them into a protocol.
Why It Matters In Crypto
DeFi is one of the clearest examples of what blockchains can do beyond simple payments. It creates open financial markets that run around the clock and are accessible to anyone with a compatible wallet.
It also brings risks. Smart contract bugs, poor collateral management, and weak governance can lead to losses.
A simple example: a user deposits stablecoins into a DeFi lending protocol and earns interest from borrowers who use the same platform.