DeFi — short for decentralized finance — is financial activity carried out by public smart contracts on a blockchain rather than by a company holding customer balances. There is no account to open. A user connects a wallet, calls a contract, and the contract's code, its rules and the assets it holds are readable by anyone.
The three things most of it does
- Swapping. An automated market maker holds two or more assets in a pool and quotes a price from the pool's own balances instead of from an order book. Whoever deposits into the pool earns a share of the trading fees.
- Lending and borrowing. Depositors supply an asset; borrowers draw against collateral worth more than the loan. If that collateral falls past a threshold, the position is liquidated by whoever repays it first.
- Issuing. A stablecoin can be minted against overcollateralized on-chain deposits rather than against a bank balance.
A worked example
Suppose a pool holding two dollar-linked stablecoins crosses $10 million in deposits and advertises a maximum APR of 14.5%. That figure is the pool's trading fees plus any token incentives, divided across the deposits — so the same fee stream spread over twice the deposits produces roughly half the rate. An advertised APR is a snapshot of a ratio, not a promised yield, and it moves as fast as the deposits do.
How MoonWire covers it
We hold protocol feeds and analyst feeds in one corpus, so we can set what a protocol published about its own pools beside how its token was being traded in the same week — two arguments that often never touch. See Tokenized Stocks vs Tokenized Equities vs RWAs and the DeFi topic hub.
What DeFi is not
It is not a synonym for crypto: a centralized exchange is neither decentralized nor a smart contract. It is not automatically decentralized either — many protocols keep upgrade keys, price oracles or fee switches under the control of a small group, which is why the Bank for International Settlements has written about a "decentralisation illusion" in the sector. And a yield figure quoted by a protocol or by a third party is a measurement of the recent past, never a recommendation.