What is Decentralized Finance?

Decentralized Finance (DeFi) refers to financial applications built on blockchain networks, primarily Ethereum, that enable activities like lending, borrowing, trading, and earning interest through automated smart contracts. These protocols aim to create an open, permissionless, and transparent financial system by removing centralized intermediaries such as banks or brokerages.

Users interact with DeFi platforms directly via digital wallets, using cryptocurrencies as collateral for loans or to provide liquidity in exchange for yield. However, DeFi carries unique risks including smart contract vulnerabilities, high volatility, and the lack of traditional consumer protections or regulatory oversight common in centralized finance.