DeFi

Decentralized Finance (DeFi) refers to financial applications built on a blockchain that operate without centralized intermediaries, using smart contracts to enable trustless lending, borrowing, trading, and more.

What is DeFi?

Decentralized Finance (DeFi) on Ethereum is a category of blockchain-based applications that leverage Ethereum’s smart contract functionality to provide financial services—such as lending, borrowing, trading, and yield farming—without traditional intermediaries like banks or brokers. DeFi protocols run on Ethereum’s decentralized network, utilizing open-source code and transparent, immutable smart contracts to automate transactions, ensuring trustlessness and permissionless access.

As of 2025, Ethereum hosts over 90% of the DeFi ecosystem’s total value locked (TVL), amounting to approximately $150 billion across thousands of protocols, making it the dominant blockchain for DeFi. Key DeFi applications on Ethereum include decentralized exchanges (DEXs) like Uniswap; lending platforms like Aave; and stablecoin protocols like Sky(formerly MakerDAO), which issues DAI, a decentralized stablecoin pegged to the USD with over $10 billion in circulation.

Despite its dominance, DeFi on Ethereum faces challenges, including smart contract vulnerabilities—exploits have caused over $3 billion in losses since 2020—and layer-2 fragmentation, which can silo liquidity. However, innovations like account abstraction and cross-rollup bridges are improving user experience and interoperability. Ethereum’s DeFi ecosystem continues to lead due to its robust developer community, open governance, and infrastructure, with platforms like Curve optimizing yield generation and liquidity provision, solidifying Ethereum’s role as the backbone of decentralized finance.