What is DeFi (Decentralized Finance)?

DeFi, or decentralized finance, refers to financial applications that run on blockchains through smart contracts rather than through banks or brokers. It lets people trade on a DEX, lend and borrow, provide liquidity, and earn yield directly from their own wallets, usually without handing custody to a company.

This matters because DeFi is where much of the earning and rewards activity in crypto happens. It offers open access and transparency, but it also shifts responsibility onto you, since there is often no support desk or refund if something goes wrong.

Example: instead of depositing at a bank, you supply a stablecoin to a lending protocol’s smart contract and earn interest paid by borrowers, all controlled from your non-custodial wallet.

Safety note: DeFi’s openness means anyone can launch a protocol, including scammers running honeypots or rug pulls. Smart-contract bugs can also drain funds even in honest projects. Stick to audited, established protocols, understand the token approvals you grant, and never deposit more than you can afford to lose. Related terms include DEX, liquidity pool, yield farming, and smart contract.