What is DeFi (Decentralized Finance)?

DeFi is an ecosystem of blockchain-based financial applications that enable trading, borrowing, and earning interest without banks.

DeFi (Decentralized Finance) is a movement leveraging decentralized networks and open-source software to create financial products accessible to everyone.

Core DeFi components:
1. DEX (Decentralized Exchanges): Enable direct token swaps (e.g., Uniswap, SushiSwap).
2. Lending Protocols: Allow crypto borrowing and lending with interest (Aave, Compound).
3. Stablecoins: Cryptocurrencies pegged to the dollar (USDC, DAI, USDT).
4. Yield Farming: Strategies to maximize returns from providing liquidity.

Advantages: 24/7 availability, often no KYC, transparency, full control over your assets.

🧒 Explain Like I'm 5

It's like a bank but without bankers. A program (smart contract) automatically issues loans and exchanges currencies. Nobody can deny you service, and you always see where your money is.

❓ Frequently Asked Questions

Is DeFi safe to use?

DeFi carries risks: smart contract bugs, hacks, and impermanent loss. Always do your own research (DYOR) and never invest more than you can afford to lose.

What is impermanent loss?

Impermanent loss occurs when providing liquidity to a pool. If the price ratio of your deposited tokens changes, you might have less value than if you'd simply held the tokens. The loss is 'impermanent' because it disappears if prices return to original levels.

How to start using DeFi?

Start by: 1) Get a crypto wallet (MetaMask, WalletConnect), 2) Buy some ETH or other crypto, 3) Try simple protocols like Uniswap (swaps) or Aave (lending) with small amounts, 4) Research thoroughly before investing larger amounts.

🔗 Related Terms

Prerequisites:

📚 Sources

1. DeFi - Ethereum.org 🏆 Primary

2. Decentralized finance - Wikipedia 📖 Tertiary

3. DeFi Pulse - DeFi Rankings 📊 Secondary

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🧒 Explain Like I'm 5

❓ Frequently Asked Questions

🔗 Related Terms

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