What is DeFi (Decentralized Finance)?
Answer
DeFi (Decentralized Finance) is an ecosystem of financial services built on blockchain technology (primarily Ethereum) that replaces traditional financial intermediaries (banks, brokers, exchanges) with smart contracts. DeFi protocols are: permissionless (anyone with a wallet can use them), trustless (rules enforced by code), composable ("money Legos" — protocols built on other protocols). Major DeFi categories: (1) Decentralized Exchanges (DEX) — trade tokens without a central order book; Uniswap, Curve, Balancer; (2) Lending/Borrowing — lend crypto for interest or borrow against collateral; Aave, Compound, MakerDAO; (3) Stablecoins — DAI (algorithmic), USDC (centralized), FRAX (hybrid); (4) Yield Farming/Liquidity Mining — earn tokens by providing liquidity; (5) Derivatives — perpetuals, options, synthetics; dYdX, GMX, Synthetix; (6) Asset management — Yearn Finance. DeFi TVL peaked at ~$180B in late 2021. Risks: smart contract bugs, liquidation, bridge exploits, regulatory uncertainty.