DeFi & lending
DeFi explained
DeFi means decentralized finance: financial services running on public code instead of a bank's ledger. You can lend, borrow, swap and hedge without anyone approving your application. This guide covers how those protocols work, where the yield actually comes from and which risks you buy along with it.
The core: rules in code, balances in a contract
A DeFi protocol is a set of smart contracts on a blockchain. Depositors receive an on-chain claim; borrowers lock collateral that is sold automatically once it is worth too little. There is no credit committee — only balances, prices and thresholds.
That makes DeFi good at anything collateral can enforce. A salary-based mortgage is out of reach; borrowing against bitcoin or ether you already own is not. Nearly all DeFi yield traces back to demand for borrowed money.
Everything is publicly verifiable, which beats a bank balance sheet published quarterly — but a bug in the code is a bug anyone can exploit.
- No credit checks, but always collateral
- Balances and rules are public
- Yield comes from borrowers, not from thin air
The four building blocks
Lending markets pool deposits and lend them out, with rates that move with utilisation.
Decentralised exchanges let people swap against a shared reserve; liquidity providers earn fees but carry price risk on both assets.
Stablecoin issuance such as DAI works like a pawn shop: lock collateral, mint a stable token, repay to unlock.
Liquid staking turns a staking position into a tradable token you can reuse as collateral — convenient, but each layer stacks risk.
Where it goes wrong
Contract bugs can empty a pool instantly. Audits reduce the odds but guarantee nothing; look at track record and value secured over time.
Price risk is just as large: volatile collateral can be liquidated overnight, usually when markets are thin.
And beware of yield that is not yield — rewards paid in the protocol's own token. If that token falls, you earned nothing. Convert every offer back to euros.
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Frequently asked questions
Is DeFi legal in Europe?
Using it yourself is allowed. Regulators are drafting rules for front-ends and intermediaries, and your results remain taxable.
Do I need a bank to start?
For the first step yes: buy crypto with euros through a regulated venue, then move to your own wallet.
Is 10% yield normal?
Only when borrowing demand is high. Double-digit rates that stay flat for months usually come from token emissions.
Read next
Borrowing against crypto collateral
How borrowing against crypto works: loan-to-value, health factor, variable rates and the point where your position is liquidated.
Checklist before you deposit
A practical DeFi checklist covering contract risk, oracles, admin keys, liquidity and exit scenarios.
Utility coins explained
Utility coins exist to make a network run: fees, compute, storage or data. Here is how they differ from bitcoin, stablecoins and equities.