CryptocurrencyDecentralised Finance
DeFi (Decentralised Finance)
Financial services such as lending, trading and derivatives delivered by smart contracts on public blockchains rather than by institutions.
What DeFi (Decentralised Finance) means
DeFi describes financial applications built as smart contracts on public blockchains, where the code performs the function an intermediary would otherwise provide. The main categories are decentralised exchanges that match trades through automated market makers holding pooled liquidity, lending protocols where deposits earn interest and borrowers post over-collateralised crypto, derivatives platforms offering perpetual contracts and options, and yield aggregators that route capital between the others. Users interact directly from their own wallet, with no account opening and no custodian holding funds.
The properties that distinguish it are openness and composability. Anyone with a wallet and an internet connection can use a protocol without permission, and because contracts can call each other, positions in one protocol can be used as collateral in another, allowing complex strategies to be assembled from simple parts. Everything is visible on chain, so total value locked, borrowing rates and individual positions can be inspected by anyone rather than disclosed at the operator's discretion.
The risk profile is unlike regulated finance. Smart contract bugs and exploits have drained hundreds of millions of dollars from protocols, and there is no deposit insurance, no chargeback and usually no one to sue. Composability means a failure in one protocol can cascade into everything that depended on it. Over-collateralised loans can be liquidated automatically in a sharp move, front-running and other value extraction affect execution quality, and the governance token holders who control many protocols can vote to change the rules.
Worked example
A user supplying 10,000 USD of stablecoins to a lending protocol at 4 percent might borrow 5,000 USD against it at 6 percent, but if collateral requirements are breached the smart contract liquidates the position automatically with no notice or grace period.
Related terms
- Ethereum (ETH)A programmable blockchain whose native asset is ether, running smart contracts and secured by proof of stake since the 2022 Merge.
- Gas FeeThe payment made to a blockchain network for the computation and storage a transaction consumes, priced in the chain's native asset.
- StakingLocking cryptocurrency as collateral to help validate a proof-of-stake network, earning rewards but accepting lock-up and slashing risk.
- StablecoinA crypto token designed to hold a steady value against a reference asset, usually the US dollar, by collateral or algorithmic means.
- BlockchainA shared, append-only ledger of transactions grouped into cryptographically linked blocks and validated by a distributed network.
Frequently asked questions
What does DeFi (Decentralised Finance) mean in forex trading?
Financial services such as lending, trading and derivatives delivered by smart contracts on public blockchains rather than by institutions.
How does DeFi (Decentralised Finance) work in practice?
The properties that distinguish it are openness and composability. Anyone with a wallet and an internet connection can use a protocol without permission, and because contracts can call each other, positions in one protocol can be used as collateral in another, allowing complex strategies to be assembled from simple parts. Everything is visible on chain, so total value locked, borrowing rates and individual positions can be inspected by anyone rather than disclosed at the operator's discretion.
What is an example of DeFi (Decentralised Finance)?
A user supplying 10,000 USD of stablecoins to a lending protocol at 4 percent might borrow 5,000 USD against it at 6 percent, but if collateral requirements are breached the smart contract liquidates the position automatically with no notice or grace period.
Trade with a regulated broker
Understanding the terminology is the cheap part. The expensive part is choosing a counterparty whose execution, financing and withdrawal behaviour match what the marketing implies. Every broker below has been reviewed with a funded live account, and each review states which legal entity and which regulator applies to the account you would actually open.
Check the licence on the regulator's own register before you deposit — our regulators directory explains what each authority enforces, from leverage caps to compensation limits.