DeFi: The Ultimate Beginner’s Guide to Decentralized Finance – Decrypt

In brief

  • The decentralized finance world is made up of a multitude of decentralized, non-custodial financial products.
  • They include decentralized exchanges, lending protocols and synthetic derivatives.
  • DeFi is a highly experimental and risky niche within the wider cryptocurrency space.

Decentralized finance, or DeFi, sits at the white-hot center of 2020’s crypto bull run.

DeFi is crypto’s big thing at the moment, a little like how Initial Coin Offerings (ICOs) were all the rage back in 2017. Back in June, just $1 billion was locked up in DeFi protocols, according to metrics site DeFi Pulse. By the end of August, investors had poured $9 billion worth of cryptocurrencies into DeFi smart contracts.

What is DeFi?

So what is this powerful, wild beast known as DeFi? And isn’t all of crypto decentralized finance, anyway? Sort of. The DeFi movement refers to a specific genre of financial product that champions decentralization above all else, and uses lucrative incentive mechanisms to encourage investors to play along. 

The decentralized finance world is made up of a multitude of non-custodial financial products, built around a culture of highly-experimental, highly-lucrative crypto projects that’s caught the eye of top companies and venture capitalists—and not a few scammers. 

How does DeFi work?

Among the most popular