What Exactly Is DeFi?
DeFi stands for Decentralized Finance, referring to financial services built on blockchain smart contracts that do not require intermediaries like banks or brokerages. You interact directly with on-chain programs using your own wallet to perform operations such as swapping, lending, and earning yields. It mostly runs on public blockchains like Ethereum. For background, see What Is Ethereum.
How Is It Different from Centralized Exchanges?
| Centralized (CEX, e.g., Binance) | Decentralized (DeFi) | |
|---|---|---|
| Asset Custody | Platform holds assets | You control private keys in your wallet |
| Registration/KYC Required | Yes | Usually not; just connect your wallet |
| Who to Contact for Issues | Platform customer support | No customer support; you bear the consequences |
| Barrier to Entry | Low, suitable for beginners | High, requires understanding of wallets and risks |
Common DeFi Applications
- Decentralized Exchanges (DEX): Swap tokens directly without a central platform.
- Lending: Borrow stablecoins by collateralizing assets, or deposit assets to earn interest.
- Staking / Liquidity Mining: Provide funds to earn rewards, but with price volatility and contract risks.
Risks Beginners Should Know
Advice for absolute beginners: First build a solid foundation on centralized exchanges (registration, security settings, spot trading), thoroughly understand wallets and private keys, then try DeFi with small amounts. Never invest more than you can afford to lose entirely. This article is for educational purposes only and does not constitute investment advice.