Imagine being able to borrow, earn interest, trade assets, or simply hold your crypto portfolio — all without ever stepping into a bank or asking anyone for permission. That’s the idea behind DeFi, short for Decentralized Finance.
DeFi is a movement (and an ecosystem of financial applications) built on blockchains that replaces traditional intermediaries (like banks and brokers) with smart contracts¹ to automate everything.
Instead of trusting an institution, you trust the code. You keep control of your assets, and everything is transparent and open for anyone to use.
In this article, you’ll learn what DeFi is, how it works, its main features, how it differs from centralized finance, which projects lead the sector, its most relevant use cases, and of course, the risks involved.
How Does DeFi Works?
DeFi works through smart contracts — code that runs directly on blockchains like Ethereum and Solana.
Think of them as digital vending machines: you input an action on one side (like sending tokens), and on the other, you get the programmed outcome (such as a loan, an asset swap, or yield on your deposit).
Everything happens automatically and in real time, with no need for someone’s approval or waiting days for a response.
Once deployed, smart contracts function exactly as programmed — with no delays.
Let’s say you want to lend your crypto to earn yield. Instead of going through a bank, you can use a lending protocol like Aave. Just deposit your assets, and the smart contract handles the rest: it finds borrowers, calculates interest, and distributes earnings automatically.
Want to swap tokens? A DEX like Uniswap does it automatically, based on supply and demand.
What is Dex?
A DEX, or decentralized exchange, is a platform for trading cryptocurrencies without relying on a centralized company.
Instead of creating an account and going through identity verification, you simply connect your wallet and trade directly from it.
All transactions happen on the blockchain, with full transparency.
DEXs use liquidity pools² — token reserves provided by users — to enable asset swaps.
Popular examples include:
- Voxswap
- Uniswap
- SushiSwap
- Curve Finance
- Balancer
These platforms are among the most widely used in DeFi because they operate 24/7, anywhere in the world, with no intermediaries.
And there’s more: if you choose to provide liquidity to these pools, you can earn a share of the trading fees.
In other words, you’re not just a user of the platform — you can also become part of it and get rewarded for participating.
Key Features of DeFi
DeFi isn’t just a new way to manage money — it redefines how financial infrastructure can operate when permission, centralized control, and geographic barriers are removed.
Here are the core pillars that make this possible:
- No Permission Needed
If you have internet access and a crypto wallet, you can use DeFi. No forms to fill out. No middlemen. No gatekeepers.
- Always On
DeFi runs 24/7 — including weekends and holidays. Protocols operate automatically, without relying on business hours or traditional banking systems.
- You Hold the Keys
Your assets stay in your custody, in your wallet. There’s no bank or exchange holding your funds. You’re in control — and with that control comes full responsibility.
- Transparency by Default
All transactions are public, recorded on the blockchain, and open for anyone to audit. No closed reports or hidden data. Protocol code is open-source, meaning anyone can inspect how it works.
- Composable by Nature
DeFi apps work like Lego blocks — they can be combined to build entirely new solutions. You might use one protocol to provide liquidity, another to borrow, and a third to earn yield. All integrated, automated, and interoperable.
Centralized Finance (CeFi) vs. Decentralized Finance (DeFi)
To understand what makes DeFi so different, it’s helpful to compare it with the traditional model known as CeFi (centralized finance).
The table below summarizes the key differences between the two:
| Feature | Centralized Finance (CeFi) | Decentralized Finance (DeFi) |
| Asset Control | Banks, brokers, or institutions hold your assets | You keep the assets in your own wallet |
| Access Requirements | Requires sign-up, approval, and KYC | Anyone with internet access can use it |
| Operating Hours | Limited, subject to holidays and time zones | Available anytime, anywhere |
| Transparency | Closed operations, not visible to the public | Everything is recorded on the blockchain |
| Intermediation | Relies on companies and institutions | Runs via smart contracts |
| Yield on Assets | Limited, often with hidden fees | You can earn through lending, DEXs, yield farming³, etc. |
| Risks | Regulation, human error | Smart contract bugs, attacks, and market volatility |
How does DeFi challenge the traditional banking system?
Let’s be realistic: banks charge fees, impose bureaucracy, control who can or cannot access their services — and still take days to process simple transactions.
Millions of people are left out for not meeting the minimum criteria required by financial institutions.
DeFi flips this logic. You don’t need a bank account or anyone’s approval. You only need a crypto wallet. Here are some of the main friction points:
- Barrier-free access: people around the world — especially in regions with limited banking access — can join a global financial system that is open and programmable.
- Full transparency: anyone can check how a protocol works, how much liquidity it holds, and who is interacting with it. Banks, on the other hand, operate with closed data, unclear fees, and internal processes that are rarely open to public audit.
- Cross Border Payments made easy: Sending money across the world using traditional methods is still slow and expensive. Intermediaries, currency conversions, and compliance checks delay the process and raise costs. With DeFi, global transfers are faster, cheaper, and often settled in minutes.
- Speed and efficiency: while international bank transfers can take days and involve high fees, DeFi transactions are often confirmed in minutes (or seconds), with significantly lower costs — especially on optimized blockchains.
DeFi isn’t just an alternative to banks — it’s a model that forces them to rethink how they operate.
Even if it doesn’t fully replace the traditional system, it’s already driving real changes in the global financial sector.
What Are Some DeFi Projects?
Source: DeFiLlama
A DeFi project is a financial protocol or application built on a blockchain.
It offers services — like lending, token swaps, stablecoins, or yield generation — in an autonomous way, powered by smart contracts.
These projects are distinguished by their Total Value Locked (TVL), the amount of crypto assets secured in a protocol. TVL acts as a proxy for trust, adoption, and usage. The higher the TVL, the more capital the protocol is managing.
Here’s your starter kit with some of the top names in DeFi:
Ethereum-Based Projects
- Lido
- Aave V3
- Uniswap V3
Solana-Based Projects
- Jupiter Exchange
- Pump.fun
Tron-Based Projects
- JustLend
Binance Smart Chain (BSC) Projects
- Venus Protocol
- PancakeSwap
These projects represent a fraction of the dynamic DeFi landscape, each contributing unique functionalities and innovations to the ecosystem.
For those interested in exploring further, platforms like DappRadar and DefiLlama offer comprehensive insights and rankings of DeFi protocols across various blockchains.
Real Use Cases With DeFi
Earn Passive Income
Lend your crypto and earn interest. It’s like putting money into a savings account — but usually with much better rates.
Examples: Aave, Compound
Trade Assets
Swap one token for another instantly, without giving up custody of your funds.
Examples: Uniswap, Curve, Voxswap.
Stablecoins for Everyday Use
Want a crypto that doesn’t swing wildly in value? DAI and USDC are built for that.
Crowdfunding and Token Launches
DeFi makes it easier for creators and projects to raise capital from anywhere in the world.
On-Chain Insurance
Yes, DeFi even covers losses from bugs or hacks — platforms like Nexus Mutual offer protection without relying on traditional insurance companies.
So… What Are the DeFi Risks?
Alright, it’s not all staking rewards and smooth sailing. Like any financial system, DeFi comes with risks.
The difference here is that the responsibility lies much more with the user. Understanding these risks is essential for making informed decisions:
Bugs in Smart Contracts
Smart contracts are public code — but that doesn’t mean they’re bug-free.
A well-exploited flaw can lead to the loss of funds, even in well-known protocols. That’s why security audits and usage history are key factors to review before interacting with a project.
Rug Pulls and Scams
The lack of intermediaries and open access also creates space for bad actors.
Rug pulls — when developers drain protocol funds and disappear — still happen, especially in newer, unaudited projects.
Volatility
Crypto prices fluctuate heavily. If you use volatile assets as collateral, the smart contract can automatically liquidate your position.
That means you can lose money even if you didn’t make a mistake.
Infrastructure Risks
Even though it’s decentralized, DeFi still depends on blockchains, oracles, and wallets.
If any of these fail — for example, a congested blockchain or an oracle feeding bad data — it can seriously disrupt a protocol’s performance.
How to Start with DeFi Safely
If you’re ready to truly explore DeFi — lending, swapping, and earning yield — you’ll need a crypto wallet that’s up to the task.
This wallet acts as your gateway to the ecosystem: it’s where you sign transactions, store your assets, and track your portfolio.
A simple and secure option? Klever Wallet.
Why Use a Klever Wallet?
- Non-custodial: You have full control over your private keys and crypto assets — your security keys stay with you.
- Browser Extension: Easily access Aave and other Ethereum-based dApps directly from your desktop, making DeFi interactions faster and more convenient.
- Multi-chain Support: Manage assets across Ethereum, Solana, BNB Chain, Polygon, and other popular DeFi networks.
- Buy Crypto with Card or Bank Transfer: Klever lets you purchase crypto directly through the app using multiple payment methods.
- Fast, Intuitive Interface: No clutter. Just the tools you need to access DeFi in a simple, streamlined way.
- Constant Updates: Regular improvements and active support for new tokens and protocols.
Download Klever Wallet now and start on DeFi securely
Secure tips
Before connecting your Wallet to any DeFi platform, it’s crucial to ensure the project’s legitimacy to protect your assets from potential crypto scams. Here are some steps to help you verify the trustworthiness of a DeFi project:
- Check for Smart Contract Audits
- Research the Development Team
- Evaluate Community Engagement
- Review the Whitepaper
- Use Trusted Sources for Information
- Be Cautious of Unrealistic Promises
- Verify URLs
Quick Glossary: DeFi Terms You Should Know
DeFi (Decentralized Finance)
A system of financial tools and applications built on blockchain that don’t rely on traditional banks or intermediaries.
DEX (Decentralized Exchange)
A peer-to-peer trading platform where you can swap crypto assets directly from your wallet, without signing up or giving up custody.
Smart Contract
A self-executing piece of code that runs on the blockchain. It automatically carries out the terms of an agreement — no humans needed.
Liquidity Pool
A shared pot of tokens provided by users that powers DEXs and lending platforms. Users who deposit earn fees or rewards in return.
Yield Farming
A strategy where users move crypto across protocols to earn the best returns, often by providing liquidity or staking tokens.
APY (Annual Percentage Yield)
The rate of return earned on a DeFi investment in one year, including compounding interest.
Stablecoin
A cryptocurrency pegged to a stable asset (like USD). Examples include USDC, USDT, and DAI.
Collateral
Assets you lock up in a DeFi protocol to borrow other assets. If the value drops too much, you can get liquidated.
TVL (Total Value Locked)
A metric that shows how much money is deposited in a DeFi protocol. A higher TVL generally means more trust and usage.
Rug Pull
A scam where developers create a DeFi project, attract users, and then suddenly withdraw all funds — leaving users with worthless tokens.
Gas Fees
Transaction fees on blockchains like Ethereum. Fees can vary based on network congestion and the complexity of the operation.