What Is DeFi?
DeFi, short for decentralised finance, is financial software that runs on a blockchain instead of inside a bank. Lending, trading, borrowing and earning interest all happen through smart contracts that anyone can inspect and anyone can use, without opening an account or asking permission.
What you can actually do
- Swap tokens on a decentralised exchange, where prices come from pools of deposited assets rather than an order book.
- Lend and borrow. Deposit an asset to earn interest, or post collateral to borrow against it without selling.
- Earn yield by supplying liquidity, though the headline rates rarely tell the whole story.
You can browse the largest projects in the sector on our DeFi coins page.
Where the yield comes from
This is the question that separates informed users from future victims. Sustainable yield comes from real demand, such as borrowers paying interest or traders paying swap fees. Unsustainable yield comes from a protocol printing its own token to attract deposits. The second kind can look spectacular for months and then collapse. If nobody can explain who is paying you and why, assume you are the product.
The real risks
- Smart contract bugs. Even audited code has been drained. Audits reduce risk, they do not remove it.
- Liquidation. Borrow against volatile collateral and a sharp drop can wipe out your position automatically.
- Impermanent loss. Supplying liquidity can leave you with less value than simply holding, when prices move apart.
- Governance and admin keys. Some protocols can be changed by a small group. Check who holds that power.
How to evaluate a protocol
Look at how long it has been live, how much value is locked in it, whether the code is open source and audited, whether the team is public, and whether there is a track record of handling incidents honestly. Newer is not better in DeFi. Time in production is one of the few genuine safety signals.
Frequently Asked Questions
Do I need permission to use DeFi?
No. Most DeFi applications simply require a self-custody wallet and there is no sign-up or approval step. That openness is the point, and it also means there is no support desk if something goes wrong.
Is DeFi safer than a bank?
It is different, not safer. There is no deposit insurance and no ability to reverse a mistake. What you gain is transparency and control, what you lose is the safety net.
What is total value locked?
Total value locked, or TVL, is the amount of assets deposited in a protocol. It is a rough measure of adoption, though it can be inflated by borrowed or recursively deposited funds.