DeFi (Decentralised Finance)

DeFi — decentralised finance — is a set of financial services that run on public blockchains through smart contracts instead of banks or brokers. On Ethereum and similar networks, you can trade, lend, borrow and earn yield directly from a wallet, with the rules enforced by code. This page explains the building blocks and, just as importantly, the risks.

What makes it “decentralised”

Traditional finance routes everything through trusted institutions. DeFi replaces many of those middlemen with open-source smart contracts that anyone can use and inspect. You keep custody of your assets in your own wallet and interact with protocols directly. That openness is powerful, but it also means there is often no helpdesk and no one to reverse a mistake.

The core building blocks

How you actually use it

You connect a self-custody wallet to a protocol’s app, approve a transaction, and pay gas fees in the network’s native token. Because contracts compose with one another, funds can flow through several protocols in a single action. Our glossary defines the wallet, gas and liquidity terms you will meet along the way.

The risks you must understand

Regulatory treatment of DeFi is still developing in many places; see regulation for why that matters.

Track the market on TBN Express

Follow prices via Live Crypto Prices, check market sentiment on the Fear & Greed Index, and explore the assets that power DeFi through our live market data.

What you need to get started

Using DeFi typically means connecting a non-custodial wallet directly to an application, with no account sign-up and no intermediary holding your funds. Because most activity happens on networks like Ethereum, you also need a small balance of the network’s native coin to pay transaction fees, or “gas”. That direct, self-custodial access is what makes DeFi powerful — and also what makes it unforgiving, since there is no support desk to reverse a mistaken transaction or recover a lost recovery phrase.

Yield, and why higher returns mean higher risk

Many DeFi protocols advertise yields for lending assets or supplying liquidity. Those returns are not free money: they are compensation for taking on risk. Higher advertised yields generally signal higher risk — newer code, more volatile assets, or incentives that may not last. Liquidity providers also face impermanent loss, where the value of deposited assets can drift below simply holding them. Always ask where a yield actually comes from before chasing it.

Custody and responsibility

In DeFi you are your own bank, which cuts both ways. Smart contracts execute exactly as written, so a bug or exploit can drain funds with no recourse, and approving a malicious contract can put your wallet at risk. Sensible habits — using established protocols, revoking unnecessary token approvals, and never committing more than you can afford to lose — matter more here than almost anywhere else in crypto. We expand on this mindset in risk & volatility.

The main categories of DeFi application

DeFi is not one thing but a family of application types, each with its own mechanics and risks. Understanding the categories makes the landscape far easier to navigate.

Across all of them, two questions cut through the complexity: where does the return actually come from, and what happens to my funds if something breaks? Honest answers to those usually reveal whether a given opportunity is worth the risk. When a yield cannot be explained simply, that is itself a warning. We treat that caution as a baseline, not an afterthought.

Starting small and staying safe

If you choose to explore DeFi, scale your involvement to your understanding. Begin with small amounts on well-established protocols that have operated through real market stress and had their code independently reviewed. Learn to read and limit the permissions you grant a contract, and revoke approvals you no longer need so a single compromised application cannot reach your whole wallet. Keep in mind that advertised returns are never guaranteed and can vanish along with the incentives that funded them. The freedom DeFi offers is real, but so is the absence of a safety net — there is no helpdesk, no chargeback, and no recovery for funds sent in error or lost to a flawed contract. Caution is not timidity here; it is the price of self-custody.

Frequently asked questions