DeFi protocols carry risks such as smart contract bugs, exploits of locked funds, and high volatility. No central institution insures your losses.

What is the difference between DeFi and CeFi?

CeFi (centralized finance) means an exchange or company holds your assets on your behalf. In DeFi, assets are locked in a smart contract and you interact with it directly from your own wallet.

Guide

What Is DeFi (Decentralized Finance)?

DeFi (decentralized finance) is a set of financial services — trading, lending, borrowing, earning yield — built on blockchains with smart contracts instead of a bank or a brokerage. You hold the assets in your own wallet and interact with the protocol directly; there is no company in the middle approving the transaction.

How DeFi differs from a bank or an exchange

In centralized finance (CeFi), a company (a bank, or an exchange like Binance or Coinbase) holds your funds and keeps its own internal ledger. In DeFi, your funds sit in a smart contract — code published on a public blockchain that anyone can read — and you keep control of the private key. That removes a company from the middle, but it also means there is no customer support line to call if something goes wrong: the code is the final word.

The building blocks of DeFi

Most DeFi activity falls into a few categories. Decentralized exchanges (DEXs) let you swap tokens directly from your wallet without a company matching the trade for you. Lending protocols let you deposit an asset to earn interest, or borrow against collateral you lock up. Liquid staking lets you stake an asset like ETH while still holding a tradeable token that represents your stake. Oracles are a separate but essential piece: they feed real-world data — prices, in particular — onto the blockchain so these protocols know what an asset is worth.

The risks, plainly

Smart contracts can have bugs, and a bug in a contract holding funds can mean those funds are lost or stolen — this has happened to large, well-reviewed protocols before. Prices can move sharply with little warning. If you provide liquidity to a trading pair, the value of what you withdraw can end up lower than if you had just held the two assets separately, a pattern known as impermanent loss. And because you hold your own keys, losing them means losing access to your funds permanently, with no password reset.

DeFi tokens by 24h trading volume

Ranked by live Binance USDT trading volume among DeFi-tagged coins on this site, refreshed on each page load.

Frequently asked questions

Is DeFi safe?

DeFi protocols carry real risks — smart contract bugs, exploits, and high volatility — and no central institution insures your losses the way deposit insurance does for a bank account.

Do I need an exchange account to use DeFi?

No. DeFi protocols are accessed directly from a self-custody wallet. You typically still need an exchange at some point to convert between traditional currency and crypto.

What is impermanent loss?

It is the gap that can appear between the value of assets you deposited into a liquidity pool and the value you would have had by simply holding those same assets, caused by price movements between them while they sit in the pool.

Related analysis guides

CoW Protocol (COW) — a DEX aggregator API3 — a first-party oracle Band Protocol (BAND) — a cross-chain oracle EIGEN — restaking shared security

This page is for information only and is not investment advice. Crypto assets, and DeFi protocols in particular, carry high risk and you can lose some or all of your funds; only use money you can afford to lose.