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DeFi (Decentralized Finance)

In short

Financial services built on blockchain — no banks or intermediaries

DeFi is like a bank that runs on code with no employees. You can borrow, lend, trade, and earn interest — all automatically through smart contracts. No bank account needed, no identity verification, just a crypto wallet.

Decentralized Finance encompasses lending protocols (Aave, Compound), decentralized exchanges (Uniswap), yield farming, and stablecoins built on blockchain. Total Value Locked (TVL) measures DeFi health. DeFi offers high yields but with smart contract and liquidity risks.

Related concepts

  • Liquidity Pool — A liquidity pool is a pot of two tokens that lets traders swap between them automatically. You provide the tokens and earn a share of trading fees. Risk: 'impermanent loss' if the prices of the two tokens diverge significantly.
  • Staking — Staking lets you earn rewards by locking your crypto to help run the blockchain. Think of it like a savings account — you lock your coins and earn interest (staking rewards). ETH staking currently yields around 3-4% annually.
  • Gas Fees — Gas fees are what you pay to make transactions on Ethereum. When the network is busy (everyone trading), fees surge. High fees price out small users and signal heavy network activity — often during bull markets.
  • On-Chain Metrics — Unlike stocks, crypto blockchains are public. You can see exactly how many coins are moving, who holds what, and how network activity is changing. When on-chain activity rises before price, it can signal upcoming moves.