DeFi, short for Decentralized Finance, refers to a broad category of financial services that operate on blockchain networks without the need for traditional financial intermediaries such as banks, brokers, or exchanges. Instead, DeFi utilizes smart contracts—self-executing agreements written in code—to enable secure and transparent transactions.
DeFi applications (commonly called DApps or decentralized applications) offer a range of financial services, including lending, borrowing, trading, staking, yield farming, and insurance. These services are built on blockchain networks, primarily Ethereum, but also on newer blockchains like Binance Smart Chain, Solana, and Avalanche.
Key Features of DeFi:
- Permissionless Access: Anyone with an internet connection can participate without needing approval from a central authority.
- Transparency: All transactions and smart contracts are recorded on a public blockchain, ensuring transparency.
- Interoperability: Many DeFi protocols work together, allowing users to move assets seamlessly between different services.
- Liquidity Provisioning: Users can provide liquidity to DeFi pools and earn rewards.
- Smart Contract Automation: Financial operations are executed through pre-defined logic coded into smart contracts.
Examples of DeFi Protocols:
- Uniswap (DEX) – A decentralized exchange for swapping cryptocurrencies without an intermediary.
- Aave (Lending/Borrowing) – A protocol that allows users to lend and borrow crypto assets.
- MakerDAO (Stablecoin Issuance) – Issues the DAI stablecoin, pegged to the US dollar, using collateralized debt positions.
- Curve Finance (Liquidity Pools) – Focuses on efficient stablecoin trading.
DeFi represents a paradigm shift in how financial services are structured, offering a more open, transparent, and accessible alternative to traditional finance.