Understanding DeFi

DeFi — decentralized finance — rebuilds financial services like lending, borrowing, and trading as open software running on a blockchain, with no bank or broker in the middle. The programs that run these services are called smart contracts.

Instead of a company matching buyers and lenders, DeFi apps use pooled funds and automated rules. On a decentralized exchange, you trade against a liquidity pool rather than a counterparty. In lending protocols, you deposit assets that others borrow, and you earn the interest they pay.

The appeal is openness: anyone with a wallet can use these services permissionlessly, and the rules are visible in code. The risks are real too — bugs in a smart contract can drain funds, and there's no customer support or deposit insurance. DeFi rewards people who understand exactly what they're interacting with, so start small and read each protocol's documentation before committing funds.