Decentralized Finance, commonly known as DeFi, is a financial system built on public blockchains that offers services like lending, borrowing, trading, saving, and insurance. These systems are built on blockchains like Ethereum, Solana, or Base and run on smart contracts instead of banks or brokers.
Users can access DeFi websites or apps like Uniswap, Aave, Compound, Curve, etc., or use crypto wallets like MetaMask, Phantom, etc., to make transactions. The money used will be in the form of stablecoins or ETH, SOL that stays in your wallet or in protocol smart contracts. There is no KYC, no paperwork needed, and hence anyone with internet can use it 24/7.
Some of the common services that take place within the DeFi realm include lending crypto to earn interest or even earning yield by providing liquidity. You can swap tokens instantly on apps like Uniswap. You can also borrow by putting up your crypto as collateral. But there are risks, too. Smart contracts run the risks of bug attacks, which can wipe out millions. In case you make a mistake, you won’t find any customer support to help you. They are more prone to volatility in terms of collateral and rates and can be convenient targets for scams and rug pulls.
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In simple terms: DeFi is global, permissionless money software that’s powerful and open to all, but you’re your own bank, so responsibility and risk are 100% on you.