--- title: "What Is DeFi (Decentralized Finance)?" term: "DeFi (decentralized finance)" type: glossary_term canonical: https://www.moonwire.org/insights/glossary/defi.html --- # What Is DeFi (Decentralized Finance)? > DeFi is financial plumbing - swapping, lending, borrowing, issuing - run by public smart contracts on a blockchain instead of by a company. Users interact from their own wallet, and the rules, balances and fees are readable on chain by anyone. **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](/insights/tokenized-stocks-vs-tokenized-equities-vs-rwas.html) and the [DeFi topic hub](/insights/topics/defi.html). ## 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. ## Further reading - [BIS Quarterly Review: DeFi risks and the decentralisation illusion](https://www.bis.org/publ/qtrpdf/r_qt2112b.htm) - [Wikipedia: Decentralized finance](https://en.wikipedia.org/wiki/Decentralized_finance) ## Where this appears in MoonWire analysis - [The DeFi Pitch This Week Was a Receipt. One of Them Was a Disclosure Form.](https://www.moonwire.org/insights/sector-rotation-2026-09-15.md) — Sep 15, 2026 - [Three Firms Counted Crypto's H1 Thefts and Got Three Different Answers](https://www.moonwire.org/insights/sector-rotation-2026-07-31.md) — Aug 15, 2026 - [Bitcoin's 20% Lag Was Read Two Ways in One Day: Verdict or Precondition](https://www.moonwire.org/insights/market-pulse-2026-08-11.md) — Aug 11, 2026 - [Macro takes the wheel: a weak jobs print, an unchanged policy rate, and a tape that keeps thinning](https://www.moonwire.org/insights/prognosis-daily-2026-08-08.md) — Aug 8, 2026 - [Strategy Sold Bitcoin to Pay a Dividend, and Saylor Separated His Coins From the Company's](https://www.moonwire.org/insights/market-pulse-2026-08-03.md) — Aug 4, 2026 - [Market Pulse - July 30: Bitcoin's Exchanges Spent the Day Listing Oil, the S&P 500 and Event Contracts.](https://www.moonwire.org/insights/market-pulse-2026-07-30.md) — Jul 30, 2026 - [Source Spotlight - Ansem, Week of July 21: Seven Days on Solana's App Layer, and Not One Mention of the Closures](https://www.moonwire.org/insights/source-spotlight-ansem-2026-07-27.md) — Jul 28, 2026 - [Sector Rotation - Week of July 21: Crypto's Venue Layer Emptied and Refilled in the Same Seven Days](https://www.moonwire.org/insights/sector-rotation-2026-07-27.md) — Jul 28, 2026 - [Prognosis daily - 2026-07-23: choppy holds as coverage cools; one fresh short-horizon XRP lean](https://www.moonwire.org/insights/prognosis-daily-2026-07-24.md) — Jul 23, 2026 - [MoonWire Crypto Security Tracker (2026): Losses Fell Below $1 Billion Even as Incidents Hit a Record - and the Threat Moved From Stolen Keys to Manipulated Logic](https://www.moonwire.org/insights/crypto-security-tracker-2026.md) — Jul 14, 2026 - [Sector Rotation - Week of July 7: The Loudest Sector in Crypto Wasn't Crypto - Attention Rotated Toward AI and the Real World](https://www.moonwire.org/insights/sector-rotation-2026-07-14.md) — Jul 14, 2026 - [Market Pulse — July 8: The Builders Stepped Back, and the Balance Sheets Stepped In](https://www.moonwire.org/insights/market-pulse-2026-07-08.md) — Jul 8, 2026 --- *MoonWire surfaces and summarizes public crypto news.* **General information only — not financial advice.** MoonWire Ltd. is not licensed by ASIC and holds no AFSL. 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