DeFi
Last reviewed November 1, 2026
DeFi stands for decentralised finance: financial services run by smart contracts rather than by a company.
In DeFi you can swap, lend, borrow or supply liquidity without opening an account. You connect your wallet to the app and that is it. Nobody checks your ID and nobody can freeze your account.
The flip side is that nobody can help when something goes wrong. A code bug, a bad signature or a project that walks off with deposits can empty a wallet in seconds.
Decentralised exchanges
On a DEX such as Uniswap you trade straight from your wallet. Instead of an order book there are liquidity pools holding two tokens, and the ratio between them sets the price. The bigger your trade relative to the pool, the worse your price. That gap is called slippage.
Lending and borrowing
Protocols like Aave and Compound match lenders and borrowers. Borrowers must post more collateral than they take out. If the collateral falls too far in value, the position is liquidated automatically. Rates move continuously with supply and demand.
Providing liquidity
Put tokens into a pool and you earn a share of trading fees. If one of the two tokens moves sharply, though, you suffer impermanent loss: you end up with less than if you had simply held. The yield shown on screen does not always make up for it.
The main risks
Smart contract bugs, manipulated oracles, hacked bridges, teams that disappear with deposits (rug pulls), and phishing sites that copy real apps. An audit lowers the risk but does not remove it. If you can't explain where a yield comes from, you are probably the yield.