DeFi, short for decentralized finance, refers to financial services – lending, borrowing, trading – built on blockchain networks and run by code rather than a traditional bank or broker.
Instead of a bank approving a loan, DeFi lending platforms use smart contracts – self-executing code – to match lenders and borrowers directly, often requiring borrowers to post crypto collateral worth more than the loan itself.
Proponents argue DeFi increases access, since anyone with an internet connection and a crypto wallet can participate, without needing approval from a traditional financial institution.
Risks are significant: smart contracts can contain bugs or be exploited, platforms can be poorly designed, and there’s typically no deposit insurance or regulatory protection comparable to a traditional bank account.
DeFi remains an evolving and largely unregulated corner of the crypto market. It’s worth understanding conceptually, but new users should approach it with caution and only with funds they can afford to lose.