Decentralized finance (DeFi)
A category of financial applications built on public blockchains that provide services such as trading, lending and derivatives through smart contracts rather than traditional intermediaries.
Also called: DeFi
Decentralized finance, or DeFi, includes decentralized exchanges that use automated market makers or on-chain order books, lending protocols that match depositors and borrowers against collateral, stablecoins, derivatives platforms and asset management vaults. Users interact directly from their wallets, and protocols are often governed by token holders.
DeFi offers transparent, programmable and continuously available markets, and composability lets protocols build on one another. It also carries smart contract risk, oracle manipulation risk, governance risk, and the risk of cascading liquidations during volatility. Regulatory treatment of DeFi front ends, developers and governance tokens remains unsettled in many jurisdictions. Institutions increasingly access DeFi through permissioned pools or tokenized assets.
For allocators, DeFi activity and fee generation are indicators of real usage on blockchains and a source of potential yield with distinct risks. Example: a trader deposits ether as collateral in a lending protocol, borrows stablecoins against it, and pays a variable interest rate set by supply and demand.
Related terms
Part of the BlockWest Glossary, plain-language definitions for markets, AI and digital assets. Educational content, not investment advice.