Smart Contracts and DeFi, Explained Simply
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What is a smart contract?
A smart contract is a program stored on a blockchain. Once deployed, it runs exactly as written whenever someone sends it a valid transaction. Ethereum popularised the idea, and many other networks now support it.
What is DeFi?
Decentralized finance, or DeFi, is a group of applications that offer financial services such as trading, lending and borrowing using smart contracts instead of a traditional intermediary. Users interact through a crypto wallet.
- Decentralized exchanges let users swap tokens directly from their wallets.
- Lending protocols match people who want to lend with people who want to borrow.
- Stablecoins aim to track the value of another asset.
Risks to understand
DeFi can be complex. Smart contracts can contain bugs, users can lose access to their wallets, and some projects are poorly designed or dishonest. Always research a project before using it and never put in more than you can afford to lose.
Keep learning
New to the basics? Start with Bitcoin basics, then explore the DeFi hub and the Ethereum hub.
This article is for general information only and is not financial advice.
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