What is DeFi (Decentralised Finance)?
Financial services — lending, borrowing, trading, yield — built on blockchain smart contracts, operating without banks or centralised intermediaries.
DeFi refers to a category of financial applications built on blockchains (primarily Ethereum) that operate via smart contracts rather than traditional financial intermediaries. Anyone with a wallet and internet connection can access them.
Core DeFi categories:
| Category | Description | Examples |
|---|---|---|
| Decentralised exchanges (DEX) | Swap tokens without a centralised exchange | Uniswap, Curve |
| Lending / borrowing | Lend assets to earn yield or borrow against collateral | Aave, Compound |
| Yield farming | Provide liquidity to earn protocol rewards | Various |
| Derivatives | Trade perpetuals or options on-chain | dYdX, GMX |
| Stablecoins | Decentralised stablecoin issuance | DAI, FRAX |
DeFi vs. CeFi (Centralised Finance):
| Aspect | DeFi | CeFi (Binance, Bybit, etc.) |
|---|---|---|
| Custody | You control keys | Exchange holds funds |
| KYC required | No | Yes |
| Counterparty risk | Smart contract risk | Exchange insolvency risk |
| Speed of innovation | Fast | Slower |
| Fees | Variable (gas) | Fixed |
Risks in DeFi:
DeFi relevance for futures traders:
On-chain perpetuals (GMX, dYdX) allow leverage trading without KYC. However, liquidity and execution quality are generally inferior to centralised exchanges for retail-size trades.