DeFi Guide: The Financial System Without Banks
DeFi stands for "Decentralized Finance" and is one of the most exciting areas in the crypto world. Imagine being able to use all the financial services you know from a bank – but without the bank itself. That's DeFi.
What is DeFi? A Simple Analogy
Imagine a fully automated kiosk that is open 24/7. You can exchange money there (swapping), deposit your money for interest (lending), or borrow money by providing collateral. This kiosk is not run by a person, but by a computer program (a smart contract) whose rules are visible to everyone. No one can change the rules or deny you access. That is the core idea of DeFi.
What can I do with DeFi?
Here are the most common use cases:
Swapping
On decentralized exchanges (DEX) like Uniswap, you can trade any cryptocurrency directly for another without going through a centralized exchange.
Lending
On platforms like Aave, you can deposit your coins and earn interest from other users who borrow your coins.
Yield Farming
This is an advanced strategy where you deposit your coins into liquidity pools to earn transaction fees and additional rewards.
The Biggest DeFi Platforms
Here are some of the most important protocols you should know:
Lido
The largest platform for liquid staking. Here you can stake ETH and receive stETH in return, which you can continue to use in DeFi.
Go to Lido →
Uniswap
The most well-known decentralized exchange (DEX). Here you can trade thousands of different tokens directly from your wallet.
Go to Uniswap →
Aave
A leading protocol for lending and borrowing cryptocurrencies. Here you can earn interest on your deposits.
Go to Aave →The Risks of DeFi
DeFi offers great opportunities, but also significant risks. Be aware:
- Smart Contract Risk: Flaws in a protocol's code can be exploited, which can lead to a total loss of your funds.
- High Volatility: The interest rates (APYs) in DeFi can fluctuate wildly.
- Complexity: DeFi is less beginner-friendly than a centralized exchange. Start with small amounts to understand how it works.
Too complicated? No problem!
DeFi is a topic for advanced users. If this was all too fast for you, that's completely normal. Stick to simple saving or contact me directly if you have questions.