What is DeFi?

DeFi is short for decentralized finance. It describes financial activities such as token swaps, lending and liquidity provision carried out through contracts on a blockchain.

What does DeFi change?

Rules can be enforced through smart contracts rather than the internal records of a bank or exchange account. A user signs with a wallet, and supplied assets can move into protocol contracts. Holding the wallet keys does not mean assets committed to a contract can be recovered under every condition.

The label does not establish that every component is equally decentralized. A website, administrative powers and underlying assets can create further dependencies. Treating DeFi as a list of high-yield coins confuses a financial use case with an investment asset.

Example

Suppose Alex supplies 100 USDC to a lending pool. The tokens move into its contracts and Alex receives a claim within the protocol; supplying alone does not make Alex a borrower. Available liquidity and position conditions matter when withdrawing. Holding USDC is not the same as holding an insured bank deposit, and neither the interest nor the token’s value is guaranteed.

The DeFi beginner decision map compares swapping, supplying and providing liquidity through their entry and exit requirements.