Definition
Decentralized finance is an umbrella term for financial applications implemented through blockchain-based protocols, commonly using smart contracts. Activities include asset exchanges, collateralized borrowing, lending pools, derivatives, and automated liquidity provision. Publicly accessible contracts can make transaction rules and recorded activity inspectable, but visibility alone does not establish safety. A protocol may depend on price oracles, administrator permissions, external custodians, or governance decisions. Combining several applications can create useful workflows while also carrying failures from one component into another. Advertised yields may come from trading fees, borrower payments, token incentives, or arrangements that expose depositors to losses; the source should not be assumed. Bitcoin-related DeFi may additionally require a bridge or separate execution network. The useful distinction is between what the code enforces directly and what still depends on operators, external information, collateral value, or redemption arrangements.
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