WTF is... DeFi

TLDR: DeFi is a whole new way to conduct financial transactions without a middleman, through the power of cryptocurrency.

Will crypto save us from drowning in rising cost of living and really bad inflation?Is it a life raft for more economic opportunity? More than riding waves of meme stocks and weird doggo crypto trends, cryptocurrency as a whole is going to remain part of the ocean-sized financial landscape for a long time to come. So even if you’re enjoying a thrilling life of coasting down a river of index funds and chill in a floatie, it’s in your best interest to at least have a good working idea of what crypto really means as it begins to intersect the personal finance world. 

One of the trickier concepts in crypto land: decentralized finance often referred to simply as DeFi. 

Picture it, 1848…

1848? Yep, January 2, 1848 was the start of the California Gold Rush. It’s what spurred the rise of the American West, and there are a few parallels this event shares with the concept of decentralized finance. 

You see, DeFi is supposed to be about tearing down barriers in finance. Within the world of crypto, DeFi is basically the ability to buy, sell, and trade crypto assets without dealing with a middleman. 

It’s like the Old West in many ways: 

OK, that last one might be up for debate, but hear me out: DeFi is a game changer, at least on paper. If you wanted to get a loan in the traditional finance world, you’d have to go through a few hoops. In the DeFi world, it can be as simple as putting up some collateral and entering an agreement with someone else. Underlying crypto technology takes care of the pesky details, leaving you free to conduct business with, well, anyone. 

The DeFi Starter Kit 

Without banks controlling your money, financial products, and financial services, here’s a quick list of everything you’ll need to stick your toes in the DeFi pool: 

You can do quite a bit with DeFi, including contributing to liquidity markets (in exchange for rewards), trading one crypto for another (which is sometimes necessary if you need to change blockchains), and even loaning out your crypto coins to other people in exchange for interest. 

So, what’s the catch? 

One of the core mechanisms to understand with DeFi is the smart contract. Smart contracts are basically DeFi’s top bestie, hanging out on the blockchain and devoted to doing something specific without any issues. Revenge of the (crypto) nerds? Maybe a little in the sense that sophisticated programming does go into smart contracts, but anybody can use smart contracts to get things done in DeFi. 

The catch is that not all smart contracts are created equal; after all, they are pieces of code. Code can be buggy or even hold exploits. That’s why it’s important to keep an ear to the community before getting deep down the DeFi / smart contract rabbit hole. (It’s also why columns like WTF is exist, so we can break down the tough stuff for ya.)

It’s a big, bold world and we’ve only scratched the surface in this edition of WTF is. Let us know what you want to hear about in the crypto ecosystem and we’ll reel in the highlights in a digestible “cereal first, milk second” kind of way. 

Milk first? Absolutely not. We’re not barbarians, you know. Just a little too excited about cryptocurrency. 

This is not financial advice. If you don't want to spend money investing in crypto or Web3 — you don’t have to. The intent of this article is to help others educate themselves and learn.

Serise Lange is a contributor to, the money management app helping all users build a future of wealth. 

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