Understand DeFi primitives. Lending, borrowing, swaps, and the risks.
Definition
DeFi is financial activity executed by smart contracts instead of traditional intermediaries. Code becomes the rules.
Main building blocks
- Swaps. Trade tokens using automated markets.
- Lending. Deposit to earn, borrow with collateral.
- Derivatives. On-chain positions that track prices.
Benefits and risks
DeFi is open and composable, but it is also complex. Risks include bugs, oracle failures, liquidation cascades, and user mistakes.
Safe start
Use a small test wallet for new protocols and keep your main storage separate.
Warning
High APY is not free. It is payment for risk. Always identify the risk first.
Quick quiz
- What replaces intermediaries in DeFi?
- Name two DeFi building blocks.
- Why can APY be high?