All terms
Financial services built as open smart contracts instead of companies.
Decentralized finance replaces the institution with code. Lending, trading, derivatives and asset management all run as contracts anyone can use directly from a wallet, with no account, no application and no gatekeeper.
The upside is openness and transparency: you can read the code and verify the reserves. The downside is that there is no safety net. A bug or an exploit means the money is gone, and there is no deposit insurance.
Lending on Aave means depositing into a contract and borrowing against it, all without a credit check, but also without any recourse if the contract fails.
That DeFi removes counterparty risk. It replaces a company with code, an oracle, a governance process and whoever holds the upgrade keys. The risks are different and there are more of them, not fewer.
Common questions
Is DeFi safer than a bank?
Do I need to understand the code?
Where this comes up on the site
The guides that actually use this word, rather than a list of everything we have written.
Where to go next
More defi terms
Want this explained out loud?
Some of these land faster in conversation than in writing. Sessions are one to one and you can ask anything, including the things that feel too obvious to ask.