What is DeFi? All you need to know about Decentralised Finance

What is DeFi?
What is DeFi?
CROWD Staking




Table of Contents

Welcome to the world of decentralized finance, often referred to as DeFi. If you’re new to cryptocurrencies and blockchain technology, you might wonder, “What is DeFi?” Don’t worry; you’re not alone. DeFi is a buzzword that has been making waves in the financial sector, promising to revolutionize how we think about traditional banking and investing.

But first, let’s start at the beginning. What is DeFi exactly, and why is it generating so much excitement among investors and tech-savvy individuals? Join us as we unravel the fascinating world of decentralized finance, offering you insights, advice, and accurate information you can trust. By the end of this article, you’ll have a solid understanding of what DeFi is and why it matters in today’s rapidly evolving financial landscape.

So, without further ado, let’s dive into the world of DeFi and discover how it’s reshaping the future of finance.

What is defi?

Decentralized Finance (DeFi) is a blockchain-based financial ecosystem that aims to recreate traditional financial services without the need for traditional intermediaries like banks.

It leverages smart contracts and self-executing agreements to automate and facilitate various financial functions such as lending, borrowing, trading, and earning interest on cryptocurrencies. DeFi platforms are open-source and accessible to anyone with an internet connection, offering greater financial inclusivity and control over one’s assets. DeFi is characterized by transparency, security, and the potential for higher yields, making it an exciting frontier in finance.

Several years after the introduction of the blockchain network and the cryptocurrency craze in recent years, various concepts and words are being coined daily. DeFi is one of those words that has attracted much attention, especially in 2020.

DeFi is the integration of traditional banking services with decentralized technologies such as the blockchain. It’s also known as Open Finance because of its pervasiveness. It’s an attempt to introduce an alternative to all current financial services.

Integrating financial services into decentralized features of the blockchain opens new windows to the financial world. It is getting power from blockchain networks, which offer an alternative to centralized systems to eliminate human gatekeepers who may slow down and complicate transactions while giving consumers less direct control over their funds. Taking advantage of this feature of blockchain offers a unique opportunity that extends the application and utility of blockchain beyond a simple transfer of assets from one person to another towards more financial applications.

How Was Decentralized Finance (DeFi )Born?

MakerDAO, a platform that started in 2015 and enabled users to use cryptocurrencies as collateral for loans, is frequently referred to as the bedrock of DeFi and gets the credit for being the flag-bearer of decentralized finance. DeFi protocols, like regular cryptocurrencies, are introduced to cut out the mediators to move towards a decentralized financial system that hands the control over to the users of financial services. DeFi extends on Bitcoin’s core principle, i.e., digital money, to provide a fully digital alternative to Wall Street without the accompanying fees.

The main goal of DeFi is to offer a more open and fairer financial market that anybody can access.

DeFi plays an essential role in the evolution of finance for many reasons. The first reason is that it expands the concept and performance of money by increasing access to it. Since all you need to participate in DeFi is just a smartphone and an active interaction, there is much potential for the global economy to expand beyond our imagination. As a result, analysts see this as one of the most critical developments in the blockchain and cryptocurrency world.

There is a thriving crypto-economy where you may lend, borrow, invest in long/short positions, earn interest, and more. Crypto-savvy Argentinians have utilized it to avoid catastrophic inflation in their country. In addition, this technology has helped companies to pay their employees in real time. It might surprise you to hear that some people have taken out and paid off multimillion-dollar loans. Thanks to the blockchain network, this has been made possible through decentralized financial affairs.

How Does Decentralized Finance (DeFi) Work?

How Does Decentralized Finance (DeFi) Work?

Blockchain technology, which has laid the foundation for the successful, ever-more practical application of cryptocurrencies, is also the main idea behind decentralized finance. To better understand DeFi, it can help to know how blockchain works.

Blockchain is a distributed digital ledger in which transactions get stored as blocks and subsequently validated by other participants. All validators reach a consensus on the validity of transactions, which is then executed. When these transactions come a certain number on a block, that block is closed and encrypted, and a new block is generated containing information from the preceding block. 

The information in each subsequent block “chains” the blocks together, thus giving the blockchain its name, and there is no way to edit a blockchain since information in prior blocks cannot be modified without manipulating the subsequent blocks. The safety aspect of a blockchain is ensured through this notion and other security mechanisms.

Through these merits of the blockchain network, it introduced one of the most secure, fastest, and most available forms of financial services. 

It is a solution that addresses many shortcomings of traditional financial systems. In decentralized finance, you don’t have to delegate your money management to the government or a particular business or meet particular criteria to receive certain financial services.

For specific requirements, financial transactions are using DeFi’s smart contracts. Borrowing, lending, and other transactions are all possible with smart contracts, and the transaction conditions in the code. By taking advantage of DeFi, anyone can apply for a loan, lend assets, and receive fascinating services that were impossible through traditional banking systems.

What Does Decentralized Finance Do?

Decentralized finance (DeFi) is a form of financial technology that enables the creation of digital banking services without using traditional intermediaries such as banks, brokers, or other financial institutions. It uses open-source protocols and technologies to reduce costs and enable the secure transfer and storage of value outside traditional financial systems.

Decentralized finance, or DeFi, does many things that traditional finance does, but in a different way. It uses blockchain technology and smart contracts to provide financial services without intermediaries or centralized institutions. It does things like :

Lending and borrowing:

It allows users to lend and borrow assets directly from each other without going through banks or lenders. Users can earn interest on their deposits or collateral or pay interest on their loans or debts. Some examples of DeFi lending and borrowing platforms are Aave, Compound, Maker, and Cream.

Trading and swapping: 

It allows users to trade and swap assets directly with each other without going through brokers or exchanges. Users can access various assets, such as cryptocurrencies, stablecoins, tokens, derivatives, etc. Some examples of DeFi trading and swapping platforms are Uniswap, SushiSwap, Curve, Balancer, and Synthetix.

Investing and saving:

It allows users to invest and save their assets in various ways, such as staking, farming, pooling, etc. Users can earn passive income or rewards for providing liquidity or participating in governance.

Insurance and protection:

It allows users to insure and protect their assets against various risks, such as hacks, bugs, defaults, etc. Users can buy or sell insurance policies or coverage for their assets or protocols. 

Read more about Yield Farming vs DeFi Staking – CrowdSwap.

Decentralized Finance(DeFi) vs. traditional finance

is a new type of decentralized financial system, meaning that traditional financial organizations or institutions do not control it. This makes it more secure and resilient to attack or manipulation.

Furthermore, DeFi provides users access to financial services previously only available to banks and other financial providers, such as lending, borrowing, and investing. This makes it a powerful tool for people to access and manage their money without the need for traditional banking intermediaries.

Decentralized Finance(DeFi) vs. centralized finance

Decentralized Finance(DeFi) vs. centralized finance

DeFi differs from centralized finance (CeFi) in several aspects:


DeFi is powered by decentralized network nodes that run the Ethereum blockchain and the smart contracts that enable DeFi applications. No single entity or authority can control or censor the system. CeFi is powered by centralized platforms or intermediaries that have full control over the system and can impose rules or restrictions on users.


DeFi is on open-source code and public data that anyone can access and verify. Users can trust the system without relying on third parties or intermediaries. CeFi is on proprietary code, and private data is often hidden or inaccessible to users. This means that users must trust the platform or intermediary without knowing how the system works or what happens behind the scenes.


DeFi is accessible to anyone with an internet connection and a crypto wallet. This means users can participate in the system without barriers or discrimination based on their identity, location, or status. CeFi is accessible only to those who have an account with a platform or intermediary. This means users may face barriers or discrimination based on their identity, location, or status.

Read more: What is the difference between Cefi and Defi? – CrowdSwap

Why Do We Need Decentralized Finance(DeFi)?

DeFi continues to play an important role in the evolution of finance for many reasons. The first reason is that it expands access to money and financial services. Since all you need to participate in DeFi is just a smartphone, there is a lot of potential for the global economy to expand beyond the current borders.

Decentralized applications increase developers’ access to financial systems, which enables anyone from all over the world to participate in DeFi platforms. Therefore, all you need is a smartphone with internet access, and you can join the DeFi community in just a few minutes.

As a result, DeFi dApps have the ability to provide financial services to the ‘unbanked,’ which means those people who do not have a bank account or do not receive any financial service from financial institutions. Giving services to the unbanked worldwide is happening for the first time in history. This is a big improvement compared to the current banking system, which does not provide banking services to about 40% of the world’s population.

When thinking about the unbanked, you may imagine a remote village in the middle of the desert, but this is not the truth. Reports show that even developed countries in America and Europe have people who still need to receive banking services. It may surprise you that in 2021, in the United States, 7 percent of households are unbanked, as a report states. It provides financial services to everybody in the easiest and the most co. 

Read more:What is BYOB? Why is DeFi Becoming Increasingly Important? CrowdSwap

What are the Challenges of Decentralized Finance (DeFi)?

Though DeFi offers a lot of potential, several challenges still need to be addressed. For example, its protocols are still relatively new, and this space lacks regulation. Also, the security of projects is of utmost importance, as some high-profile hacks in the past have resulted in the loss of millions of dollars.

Finally, there is also a need to educate people on DeFi better so they understand the risks involved and can make informed investment decisions.

Challenges of DeFi

Some of the main challenges are


Ethereum has a limited capacity to process transactions and smart contracts, which leads to high fees and congestion on the network. This affects the user experience and the efficiency of DeFi applications. Various solutions are being developed to improve scalability, such as layer two protocols, sharding, and rollups.


DeFi applications rely on smart contracts that are written by human developers and may contain bugs or vulnerabilities that hackers or malicious actors can exploit. This can result in loss of funds, data breaches, or system manipulation. To ensure security, smart contracts need to be audited, tested, and verified by experts and the community.


DeFi operates in a largely unregulated and permissionless environment, posing legal and compliance challenges for users and developers. Depending on the jurisdiction and the nature of the service or product, DeFi may be subject to different laws and regulations that govern taxation, anti-money laundering, consumer protection, securities, and more. Users must know their rights and obligations when using DeFi, and developers must follow best practices and standards to ensure compliance.


DeFi is a complex and innovative field that requires a high level of technical knowledge and financial literacy to understand and use. Users must educate themselves on how it works, its benefits and risks, and how to protect their assets and privacy. Developers must educate themselves on designing and building secure, scalable, and user-friendly DeFi applications.

Advantages of Decentralized Finance(DeFi)

DeFi, or decentralized finance, is a term that refers to the use of blockchain technology and smart contracts to provide financial services without intermediaries. DeFi has many advantages over traditional finance, such as


DeFi is open to anyone with an internet connection and a compatible wallet. You don’t need to access services through identity verification, credit checks, or paperwork. You can also participate in global markets and access alternative currencies and assets that may not be available in your local area.


DeFi transactions are faster and cheaper than traditional ones, as they don’t rely on intermediaries or centralized systems that can cause delays or charge fees. You can also benefit from the automation and programmability of smart contracts, which can execute complex financial logic without human intervention or error.


DeFi is built on public blockchains, meaning anyone can verify the transactions and the code behind the services. You can also see the real-time data and performance of DeFi protocols and products and the risks and rewards involved.


DeFi is a rapidly evolving space that offers new and exciting opportunities for users and developers. You can find various products and services that cater to different needs and preferences, such as lending, borrowing, trading, investing, insurance, and more. You can also create your own DeFi applications or join communities that shape the future of finance.

DeFi Is Not Risk-Free

No technology is risk-free, and it is not an exception to this. If you plan to use the incredible services that DeFi brings about, you need to be aware of the risks as well. It is the way to use financial services, and investing in such a revolutionary technology early on might pay off handsomely.

Newcomers to this field may find it difficult to distinguish between trustworthy and untrustworthy platforms and offers that can be seen all over the community these days. Examples of dead projects are all over the internet, each of which has died for a reason: hacking, smart contract bugs, or failure to stick to the promises and roadmaps. Take the example of YAM Protocol, which crashed amidst the peak of the popularity of DeFi in 2020. The failure of the YAM Protocol brought its market capitalization from $60 million to $0 in a matter of just 35 minutes! Other DeFi businesses, such as Hotdog and Pizza, suffered the same fate, with many investors losing significant money.

Furthermore, while the interesting features of smart contracts make transactions easier to use and more efficient, they also make them more vulnerable to unfixable failures. Smart contracts are strong, but once the rules are baked into the protocol, they cannot be modified, which means faults are typically permanent, raising the risk.

Read more about 10 Things to Avoid While Using DeFi Services – CrowdSwap

What can you do with Decentralized Finance (DeFi)?

DeFi offers users a wide range of possibilities to access and manage their money. Users can lend and borrow funds, trade digital assets, and even earn interest on their funds.

It also allows users to access more advanced financial services like options trading, prediction markets, and more.

Ethereum and Decentralized Finance (DeFi)

Ethereum is a blockchain platform that enables smart contracts, decentralized applications (DApps), and decentralized finance (DeFi).  It is a term that refers to various financial services and products that are built on top of Ethereum, such as lending, borrowing, trading, investing, and insurance. DeFi aims to create a more open, transparent, and inclusive financial system that any central authority or intermediary does not control.

What Is Total Value Locked in Decentralized Finance (DeFi)?

Total value locked (TVL) in DeFi is a metric that measures the number of assets that are locked or deposited in various DeFi platforms or products. TVL is often used as an indicator of the size, growth, popularity, or health of DeFi.

TVL can be calculated by multiplying the assets locked in a platform or product by their current market price. For example, if a platform has 100 ETH locked in it, and ETH’s price is $4,000 USD at the time of calculation, then the TVL of that platform is $400,000 USD.

The total value locked platforms and staking services. The total value locked in DeFi projects has grown rapidly over the past few months as more people discover decentralized finance’s advantages. As of April 2021, the total value locked in DeFi protocols was over $73 billion. 

Read more about What is TVL in DeFi? Why is it important? – CrowdSwap

Current examples of Decentralized Finance (DeFi)

Some of the current and future examples of DeFi applications are

Aave: A decentralized lending platform that allows users to borrow various crypto assets with variable or fixed interest rates. Aave also offers innovative features such as flash loans, credit delegation, and liquidity mining.

Uniswap: A decentralized exchange that allows users to trade or swap any ERC-20 token with other users or liquidity providers without intermediaries or fees. Uniswap also enables users to provide liquidity and earn fees from the trading volume.

Yearn. Finance: A decentralized asset management platform that allows users to invest their crypto assets in various strategies and vaults. Yearn. Finance also offers governance and utility tokens that enable users to participate in decision-making and benefit from the platform’s growth.

Crowdswap: A decentralized exchange platform is known for its easy cryptocurrency swapping, staking, and liquidity pools. Stay tuned for reliable updates and insights as we explore this dynamic community together.

Read more about: What is a DEX? – CrowdSwap



Daily Interest


Daily Interest
Daily Interest
Daily Interest

The Future of Decentralized Finance (DeFi)

DeFi is still a nascent and evolving space with much potential and room for growth. Some of the possible trends and developments that may shape the future of DeFi are

Cross-chain interoperability: Interoperability is the ability of different blockchain networks to communicate and exchange data and value with each other. This can enable more seamless and efficient transactions and collaborations across DeFi platforms and products and expand the user base and liquidity of DeFi.

Layer 2 solutions: Layer 2 solutions aim to improve the scalability and performance of blockchain networks by moving some of the computation and storage off the main chain. This can reduce the congestion and costs of transactions on Ethereum, which is the main bottleneck for DeFi growth.

Institutional adoption: Institutional adoption refers to the involvement and participation of traditional financial institutions and organizations in DeFi. This can bring more legitimacy, credibility, and capital to DeFi and foster innovation and integration between the old and new financial systems.

Regulatory clarity: Regulatory clarity refers to governments and authorities establishing and enforcing clear and consistent rules and standards for DeFi. This can help protect the rights and interests of DeFi users and providers and promote compliance and accountability in DeFi.

What Makes Up Decentralized Finance (DeFi)?

DeFi is made up of many different components. These include protocols, smart contracts, decentralized applications, and tokens.

Protocols provide the infrastructure for decentralized transactions. Smart contracts are programs that execute certain functions automatically in certain conditions. Decentralized applications, or dApps, are built on decentralized networks. Tokens are digital assets that are used to represent a variety of different financial instruments, such as loans and investments. 

How to Invest in Decentralized Finance (DeFi)

How to Invest in Decentralized Finance (DeFi)

For investing in Defi, first, You will need a wallet that supports Ethereum and other tokens. A wallet is a software or hardware device that stores your private keys and allows you to interact with blockchain networks. Some popular wallets include MetaMask, Trust Wallet, Ledger, Trezor, and Coinbase Wallet.

 After a wallet, you need to get some tokens, such as ETH. ETH is the native currency of Ethereum, which is the widest blockchain for DeFi. You will need some ETH to pay for gas fees, which are the costs of executing transactions on Ethereum. You can buy ETH from centralized exchanges or decentralized exchanges like Crowdswap.

Many DeFi platforms offer different products and services, such as lending, borrowing, trading, investing, insurance, etc. You can use aggregators to discover and compare various DeFi platforms

Always research. Before investing in any DeFi platform or product, you should do your own research and due diligence. You should understand how the platform works and the risks and rewards involved.

 Also, keep in mind that Investing in DeFi can be rewarding and risky. You should only invest what you can afford to lose and start with small amounts until you gain more experience and confidence. You should also diversify your portfolio and avoid putting all your eggs in one basket.

Read the complete article: How to Invest in DeFi – CrowdSwap.

Is investing in Decentralized Finance (DeFi) safe?

DeFi investments’ security largely depends on how users approach these products. Doing your own research and understanding the risks associated with investing in DeFi products is important. It is also important to take precautions such as using secure wallets and being aware of the potential for malicious attacks, scams, and hacks.

Some of the main risks are

Smart contract risk

The smart contracts that enable DeFi applications may contain bugs or vulnerabilities that hackers or malicious actors can exploit. This can result in loss of funds, data breaches, or system manipulation. To mitigate this risk, you need to check the security and audit status of the smart contracts before using them and only use reputable and trusted platforms or developers. 

Market risk

The risk is that the market conditions may change unfavorably for your investments or trades. Such as price fluctuations, liquidity shortages, interest rate changes, etc. This can result in a loss of

How do I make money with Decentralized Finance(DeFi)?

There are various ways to make money with DeFi, depending on your risk appetite, time horizon, and investment goals. One common way is 


You can lend your crypto assets to other users or platforms and earn interest from them. Choose between variable or fixed interest rates depending on your preference and market conditions. Also, you can withdraw your funds anytime unless they are in a smart contract. 


You can borrow crypto assets from other users or platforms. Use them for various purposes, such as leveraging your positions, accessing liquidity, or arbitraging price differences. Pay interest on your borrowed funds, which may vary depending on your collateral ratio and market conditions. You must also repay your debt at some point; otherwise, you may face liquidation or penalties.


You can trade or swap your crypto assets with other users or platforms and profit from price movements or differences. Choose between spot or derivative trading depending on your preference and strategy. Also, you have to pay fees or commissions for your trades, affecting your profitability.


You can invest your crypto assets in various strategies or portfolios by smart contracts or other users and profit from their performance or growth. Choose between passive or active investing depending on your preference and involvement. Also, you must pay fees or commissions for your investments, affecting your profitability.

Providing liquidity:

You can provide liquidity to other users or platforms and earn fees from their trading v or activity. Choose between different pools or pairs depending on your preference and risk-reward ratio. You may also have to face impermanent loss or volatility risk, which may affect your profitability.


Decentralized finance (DeFi) is revolutionizing how we access and manage our money. It offers the potential for users to access financial services that were previously only available to banks and other financial providers but in a much more secure and decentralized way. With the total value locked in DeFi protocols now over billions of dollars, it is clear that DeFi is quickly becoming a significant part of the financial landscape. Despite the challenges that exist, DeFi is nonetheless an exciting and powerful movement that has the potential to redefine finance as we know it.


What are the benefits of using DeFi?

DeFi offers many advantages, such as increased financial access, easier lending and borrowing, quicker and more secure transactions, and the ability to trade assets without large fees.

What are Decentralized Exchanges (DEXs)?

DEXs are decentralized exchanges that are built on blockchain technology. Unlike centralized exchanges, these are powered by blockchain-based smart contracts, meaning any third party or government does not control them.

What are the risks of using DeFi products? 

As with any financial-related product, there are risks involved when using DeFi products. These include the risk of losing your money due to the volatility in the price of cryptocurrencies and the risk of losing money due to hacking or other malicious activities.

How do I get started with DeFi?

Before getting started with DeFi, you should research the various projects and understand their respective risks. Once you have done that, you can decide which projects and services to get involved in.

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