What is DeFi?

DeFi (Decentralized Finance) refers to financial services — lending, borrowing, trading, earning interest — built on blockchains without traditional intermediaries like banks or brokerages. You interact directly with smart contracts. The pitch: financial freedom, access without gatekeepers, and yields traditional banks can't match. The reality: also rug pulls, hacks, and impermanent loss.

Traditional finance: banks hold your money, require KYC, have operating hours, and are slow but regulated with deposit insurance. DeFi: smart contracts hold your money, anyone with a wallet can participate, runs 24/7, and there's no customer support when things go wrong. The freedom is real. So is the risk.

DeFi carries significant risks: smart contract bugs (billions lost to hacks), protocol exploits, rug pulls, volatile token prices, and the irreversibility of blockchain transactions. Unlike a bank, there's no FDIC insurance, no fraud department, and no 'forgot my password' button. If you lose funds to a bug, you're gone. DYOR is not optional.

Major DeFi protocols include Uniswap (decentralized exchange), Aave and Compound (lending/borrowing), MakerDAO (stablecoin DAI), and Curve (stablecoin trading). The DeFi ecosystem has seen billions in Total Value Locked (TVL) — and billions lost to hacks, exploits, and general chaos. The innovation is real; so is the carnage.

Yes — through yield farming, liquidity provision, lending, and token appreciation. The advertised yields (sometimes 100%+) are usually paid in the protocol's own token, which depreciates as you earn. High sustainable yields tend to attract capital that compresses the yield. If it sounds too good to be true in DeFi, it almost certainly is.