DeFi

What is DeFi?

DeFi — decentralised finance — is the set of financial services built on public blockchains using smart contracts rather than companies. Lending, trading, borrowing and yield products run as open code, so there is no account application, no gatekeeper and no business hours.

What it replaces

A conventional exchange matches orders and holds your money. A decentralised exchange lets you swap tokens directly from your own wallet against a pool of assets, with the smart contract handling pricing and settlement.

A bank decides whether to lend to you. A lending protocol lets anyone deposit collateral and borrow against it automatically, at rates set by supply and demand in the pool.

Why people use it

The appeal is access and transparency. Anyone with a wallet can use the same products on the same terms, and every transaction and reserve is visible on-chain rather than reported quarterly. Assets stay in your own custody until the moment you interact with a contract.

The risks are real and different

DeFi removes the intermediary but not the risk — it changes its shape.

Smart contract risk: a bug can be exploited and funds drained irreversibly. Audits reduce this but do not eliminate it.

Liquidation risk: loans are over-collateralised, and if your collateral falls in value the protocol sells it automatically, often at the worst moment.

No recourse: there is no support desk, no chargeback and no deposit insurance. A mistaken transaction or an approved malicious contract is final.

Yields advertised in DeFi are compensation for these risks, not free money. Anything offering unusually high returns is pricing in a correspondingly high chance of loss.