DeFi (Decentralized Finance) refers to a broad category of financial applications being built on blockchain networks that aim to recreate and improve upon traditional financial services without centralized intermediaries like banks or brokerages.
Core DeFi Services
Lending & Borrowing: Platforms like Aave and Compound allow users to lend assets for yield or borrow against collateral.
Decentralized Exchanges (DEXs): Uniswap, SushiSwap, and others enable peer-to-peer token trading.
Yield Farming: Users provide liquidity to protocols in exchange for token rewards.
Stablecoins: Algorithmic or collateral-backed tokens that maintain a stable value.
Benefits
DeFi offers permissionless access (anyone can participate), composability (protocols can be combined like building blocks), transparency (all transactions are on-chain), and non-custodial control (users maintain ownership of their assets).
Risks
Smart contract vulnerabilities, impermanent loss, oracle manipulation, and regulatory uncertainty remain significant risks in the DeFi space.