DeFi, for decentralised finance, refers to financial services (lending, borrowing, swapping, investing) provided not by a bank, but by computer programs that run automatically on a public blockchain. The code keeps the ledger and enforces the rules, with no counter and no intermediary.
1 What is DeFi?
Finance, but with no institution at the centre.
Definition
Financial services carried by code
In traditional finance, a bank or an exchange acts as a trusted intermediary: it keeps the accounts and guarantees the trades. In DeFi, that role is played by smart contracts, public programs that run on a blockchain. Anyone can access them with a digital wallet, with no prior authorisation.
2 How it works
Three building blocks combine.
①
Smart contracts. Programs that enforce their own rules: “if you deposit this, you receive that”, with no third party to validate.
②
Protocols. Specialised applications: lending platforms, decentralised exchanges, where users interact directly.
③
Composability. These public building blocks snap together like Lego: one service can use another, which accelerates innovation.
3 Strengths
What appeals to its supporters.
🔓Openness
Accessible to all, with no authorisation or bank account.
🔎Transparency
The code and the transactions are public and verifiable.
⏱️Availability
Protocols run continuously, with no opening hours.
4 Limits
Openness has a downside.
Points of caution
A flaw in a smart contract can lead to irreversible losses, because the code runs with no possible recovery. Add to this high volatility, fraudulent projects, real complexity for beginners, and the absence of recourse or protective regulation when something goes wrong.
5 Takeaways
To remember.
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DeFi provides financial services without an intermediary, via smart contracts.
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Open, transparent, available around the clock, and composable.
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In return: technical risk, volatility, fraud, little recourse.
This notion illuminates an analysis