Decentralized finance (DeFi)
Decentralized finance, or DeFi, is a classification of blockchain-based financial applications. DeFi apps mostly use smart contracts to provide services such as trading, lending, borrowing, staking, liquidity provision, and asset management. DeFi applications usually run on programmable blockchains and can be accessed through crypto wallets. Instead of relying on a traditional financial intermediary for every action, the user interacts with smart contracts that follow rules written into code. DeFi includes decentralized exchanges, lending protocols, liquidity pools, stablecoin systems, yield farming, and governance protocols.
Aave is an example of a decentralized finance application. A user can connect an Ethereum wallet to Aave, deposit ETH as collateral, and borrow a stablecoin such as USDC through smart contracts.
Highlights
- Provides financial services without banks or intermediaries.
- Uses blockchain and smart contracts to automate transactions.
- Includes lending, borrowing, trading, and yield farming.