What Is DeFi and How to Use It Safely

Decentralized finance removes intermediaries from financial services using blockchain technology.

Core DeFi Concepts

DeFi protocols are applications on blockchains—primarily Ethereum. Smart contracts automate lending, trading, and yield generation.

• Permissionless access: Anyone with a wallet can interact
• Transparency: Contract code and transactions are on-chain
• Composability: Protocols integrate with each other

Popular DeFi Use Cases

Lending protocols like Aave let you earn interest or borrow against collateral. DEXs like Uniswap enable peer-to-peer swaps. Staking provides yield for securing PoS networks.

• Yield farming: Earning rewards by providing liquidity
• Borrowing: Use crypto as collateral without selling
• Swapping: Exchange tokens directly via smart contracts

Security Risks and Mitigation

DeFi carries unique risks. Smart contract bugs can lead to exploits. Impermanent loss affects liquidity providers.

• Audit and reputation: Prefer protocols with multiple audits
• Approval hygiene: Approve only amounts needed; revoke old approvals
• Hardware wallet: Ledger keeps keys offline; even if connected to a malicious site, keys remain secure

Getting Started Safely

Begin with well-known protocols. Use Ledger Live or hardware-wallet-connected browser extension. Start with small test transactions.