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Decentralized Finance (DeFi)

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Table of contents
    1. 0.2. How DeFi Works
    2. 0.4. Key Components of DeFi
    3. 0.6. Shifting the Financial Landscape

Decentralized Finance, or DeFi, refers to a financial ecosystem built on blockchain technology that operates without traditional intermediaries like banks or brokers. By using smart contracts on networks like Ethereum, DeFi allows anyone with an internet connection to lend, borrow, trade, and earn interest in a permissionless and transparent way.

How DeFi Works

DeFi platforms use smart contracts—self-executing code on the blockchain—to automate financial transactions. These contracts replace the role of middlemen, enabling peer-to-peer financial services. Users interact with decentralized applications (dApps) via crypto wallets to perform actions like staking, swapping tokens, or earning yields through liquidity pools.

Key Components of DeFi

DeFi includes a range of services such as decentralized exchanges (DEXs), lending and borrowing protocols, stablecoins, yield farming, and synthetic assets. These services work together in a highly composable way, allowing users to move assets and data across platforms seamlessly.

Shifting the Financial Landscape

DeFi challenges traditional finance by making financial tools accessible to anyone globally. It eliminates gatekeepers, reduces costs, and promotes financial inclusion. However, it also comes with risks like smart contract bugs, impermanent loss, and regulatory uncertainty.