---
title: "What is DeFi (Decentralised Finance)?"
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language: en
description: "Financial services (trading, lending, borrowing) run by smart contracts on a public blockchain instead of by a bank or broker."
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---

TECHNOLOGIES

# DeFi

Decentralised Finance

Financial services (trading, lending, borrowing) run by smart contracts on a public blockchain instead of by a bank or broker.

Last reviewed: 2026-06-02 by [Kevin Riedl](/team/kevin-riedl/) [wiki ↗](https://www.wikidata.org/wiki/Q139796365)

DeFi replaces the intermediary in a financial transaction with code. Instead of a broker matching trades, a decentralised exchange (DEX) uses an automated market maker: a [smart contract](/glossary/smart-contract/) that holds two assets in a pool and prices swaps by a formula. Instead of a bank deciding who gets a loan, a lending protocol lets anyone borrow against collateral they lock in a contract, often a [stablecoin](/glossary/stablecoin/), with interest rates set algorithmically by supply and demand. Nobody approves you; the contract just executes.

The genuine innovation is composability. Because every protocol is a public contract on the same chain, they snap together like Lego. A position in one protocol can be collateral in another, which can be wrapped and traded in a third, all in a single transaction. This is something the traditional financial stack, with its walled APIs and settlement delays, cannot do. It is also why DeFi failures cascade: when one building block breaks, everything stacked on it breaks too.

The risks are real and specific. Smart-contract risk: a bug drains the pool, and there is no chargeback. Oracle risk: protocols depend on price feeds, and a manipulated oracle lets an attacker borrow against fake collateral.

The risk founders underestimate most is regulatory, not technical. In the EU, a business that builds on DeFi rails or offers DeFi-adjacent services can fall under MiCA, anti-money-laundering obligations, and licensing requirements that “decentralised” does not exempt you from. Regulators increasingly look at who actually controls and profits from a protocol, not at the marketing. If your model assumes the permissionless nature of DeFi means no compliance burden, price in a legal review before you ship, because getting the classification wrong is far more expensive than the contract work. We have shipped payment infrastructure that touches DeFi rails (Scramble), and our position is that DeFi is powerful for the narrow set of use cases that need permissionless, composable finance, and a liability for everyone using it as a yield casino. Our [blockchain work](/services/blockchain/) starts with which one you are.

// FAQ

## FAQs

### What is DeFi?

Financial services run by smart contracts instead of banks or brokers: trading on automated market makers, borrowing against on-chain collateral, earning yield from lending. The contract executes the rules; no intermediary approves the transaction.

### What are the real risks in DeFi?

Smart-contract risk (a bug drains the funds with no chargeback), oracle risk (a manipulated price feed lets an attacker borrow against fake collateral), and cascade risk (composability means one broken building block takes down everything stacked on it). These are not edge cases; they are the dominant loss vectors.

### Is DeFi worth it for my business?

Only if you need permissionless, composable finance that a bank rail cannot provide. For most businesses, a regulated payment processor is cheaper, safer, and faster to integrate. DeFi earns its risk in a narrow set of use cases and is a liability everywhere else.

Related terms

- [Smart Contract](/glossary/smart-contract/)
- [Web3](/glossary/web3/)
- [Stablecoin](/glossary/stablecoin/)
- [Blockchain](/glossary/blockchain/)

Related services

- [Blockchain](/services/blockchain/)

Related case studies

- [Scramble Pay](/case-studies/scramble-pay/)

Related guides

- [How to choose a software development agency](/software-development-guide/how-to-choose-a-software-agency/)

Talk to us

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