DeFi
DeFi uses smart contracts to provide permissionless financial services such as trading, lending, borrowing, and asset issuance.
- Also known as
- Decentralized Finance
DeFi, or decentralized finance, refers to financial applications built with smart contracts and open blockchain settlement. Users can often interact directly from a wallet without a bank, broker, or exchange custodying their assets.
DeFi protocols are composable: one protocol's token, price feed, lending position, or liquidity pool can become an input for another protocol. This openness enables rapid experimentation but also creates dependency risk.
DeFi risks include smart contract bugs, oracle manipulation, admin key abuse, bridge failures, liquidation cascades, and unclear regulation. Audits and transparency help, but they do not eliminate risk.
Common DeFi use cases include decentralized exchange, lending, synthetic assets, stablecoins, derivatives, payments, insurance-like coverage, and governance. The degree of decentralization varies widely between projects.
Related terms
Explore connected entries beyond the alphabetical index.
Decentralized Exchange
→A decentralized exchange (DEX) lets users trade digital assets from their wallets through smart contracts or peer-to-peer settlement.
AMM (Automated Market Maker)
→A decentralized exchange mechanism that prices trades against liquidity pools using smart-contract formulas.
Liquidity
→How easily an asset can be bought or sold in size without causing a large price move.