What Is DeFi? Decentralized Finance Guide

Decentralized Finance (DeFi) refers to financial services built on blockchain networks that operate without traditional intermediaries like banks, brokers, or exchanges.

How DeFi Works

Instead of trusting institutions, DeFi uses smart contracts - self-executing code that automatically enforces rules. Your funds are controlled by code, not companies.

Traditional Finance vs DeFi

Major DeFi Categories

Decentralized Exchanges (DEXes)

Trade cryptocurrencies directly from your wallet without intermediaries.

Popular DEXes:

• Uniswap (Ethereum)
• PancakeSwap (BNB Chain)
• Raydium (Solana)

Lending & Borrowing

Deposit crypto to earn interest or borrow against your holdings.

Popular Protocols:

• Aave
• Compound
• MakerDAO

Yield Farming

Provide liquidity to protocols and earn rewards.

Strategies include:

• Liquidity provision
• Staking
• Governance token farming

Stablecoins

Cryptocurrencies pegged to stable assets like USD.

Types:

• Fiat-backed (USDC, USDT)
• Crypto-backed (DAI)
• Algorithmic (FRAX)

DeFi Risks

Smart Contract Risk: Bugs in code can lead to loss of funds

Impermanent Loss: Providing liquidity can result in losses if prices change significantly

Oracle Manipulation: Price feeds can be exploited

Rug Pulls: Malicious projects that steal user funds

Getting Started Safely

1. Start with small amounts
2. Use established protocols with audited code
3. Understand what you're signing
4. Never share your seed phrase
5. Use hardware wallets for large amounts