DeFi

In plain words

A bank sits in the middle of everything: it takes deposits, makes loans and sets the rates. DeFi replaces the middle with smart contracts. Lenders put coins into a pool, borrowers take loans from it, and the code sets the interest rate by supply and demand and keeps the books, with no loan officer in sight.

Anyone with a crypto wallet can use it, at any hour, without opening an account. The same goes for trading: on a decentralized exchange you swap coins with a pool of other people’s coins, at a price set by a formula.

Most DeFi runs on Ethereum and similar blockchains, and much of the money in it is stablecoins. The two largest were worth about $247B on November 11, 2026.

Example

One level deeper

DeFi grew fast in the “DeFi summer” of 2020, when apps began paying their own new tokens as rewards for lending and trading, a practice called yield farming. Some of the high yields came from those freshly made tokens rather than from real borrowers, and they faded when the tokens’ prices fell.

Its risks are new versions of old ones: bugs in contracts (hacks have taken billions of dollars), price feeds that can be manipulated, sudden runs on pools, and stablecoins losing their peg. There is no deposit insurance and often nobody to sue.

Supporters see open, programmable finance that anyone can audit; critics see much of the activity as crypto traders lending to each other with borrowed coins. Regulators are still working out how rules written for banks and brokers apply.

Why it matters

It shows what finance looks like when the code is the institution: open all the time, to anyone, with every transaction public.

Much of crypto’s borrowed money lives in it, so DeFi liquidations can make crypto crashes faster and deeper.

Its failures repeat old lessons: leverage, runs and over-promised yields work the same way on a blockchain.

A common mistake