Technical Concepts

DeFi

Decentralized Finance

Financial services executed through blockchain smart contracts

Definition

DeFi is financial activity implemented through blockchain smart contracts, including trading, lending and asset issuance. Non-custodial execution can remove an intermediary, but governance keys, oracles and centralized collateral still introduce trust.

Example

In a hypothetical lending market, depositing 1,000 USDC at a constant 5% simple annual rate earns 50 USDC in a year before fees. The contract, rather than a bank account manager, tracks the claim.

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How it works

Users sign transactions that invoke public contract functions. Contracts update balances and claims according to their code; composing several protocols also composes their failure modes.

Risks to Consider

  • An approval or accounting flaw can expose deposited tokens
  • A shared oracle or collateral failure can spread across protocols
  • Admin keys can change rules or freeze access

Common Questions

Is every dApp DeFi?

No. A dApp is any blockchain-based application; DeFi is the subset providing financial functions. Neither label guarantees permissionless access or decentralization.

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DeFi Glossary