DeFi is built on decentralized applications or dApps, which are apps built on blockchain networks like Ethereum. dApps connect users directly, so they provide services to each other without centralized intermediaries. For example, a lending dApp allows users to lend and borrow funds directly from each other without involving banks. The code inside dApps executes transactions and handles functionality via smart contracts. dApps provide the infrastructure for the DeFi ecosystem.

Smart contracts

Smart contracts are self-executing lines of code stored on the blockchain that trigger actions when certain conditions are met. They enable the automation of agreements and transactions in a transparent way without third parties. In DeFi, smart contracts replace traditional contracts and paperwork. For instance, a smart contract automatically releases loaned funds to a borrower once collateral is deposited, keeping everything on the blockchain transparent and immutable. Smart contracts power dApps and underpin most DeFi services.

Decentralized exchanges (DEXs)

DEXs allow peer-to-peer cryptocurrency trading without centralized exchanges acting as middlemen. Users retain custody of their funds when trading on DEXs. Everything is executed by smart contracts that connect parties, manage trade settlements, and finalize transactions. Without centralized servers, DEXs offer non-stop trading and give users more control over their assets. Leading DEXs like Uniswap use automated market makers to provide liquidity and enable trading in a decentralized manner. DEX trading volumes now rival centralized exchanges.

Lending & borrowing protocols

DeFi lending and borrowing protocols allow users to lend and borrow funds peer-to-peer using cryptocurrencies and stablecoins. The compound is a leading lending protocol where users earn interest by depositing crypto into liquidity pools where borrowers take loans. No credit checks are needed. A supply-and-demand algorithm determines interest rates. Users also borrow funds instantly by collateralizing their crypto assets without selling them. DeFi lending offers unsecured loans and global access to borrowing/lending services without intermediary gatekeepers.

Derivatives

DeFi derivatives protocols allow users to trade synthetic assets and derivatives trustlessly on-chain. For example, with synthetic stocks, users gain exposure to equities without owning the actual shares. Derivatives enable speculation, hedging, arbitrage, and gaining exposure without limitations. DeFi derivatives provide broader access to risk management tools traditionally limited to institutions.

Payments

DeFi enables fast, global peer-to-peer transfer of value digitally without intermediaries. Whether sending money overseas or paying a friend, DeFi apps offer speed, lower costs, and global reach. For merchants, DeFi payments allow accepting payments from customers anywhere in any currency like stablecoins or crypto. Solutions like Lightning Network use state channel technology to make DeFi payments instantaneous and highly scalable. DeFi payments are faster, affordable, borderless, and more accessible.

The DeFi movement aims to transform retik finance into an open, global system that empowers users to directly interact with one another. By leveraging blockchain technology, DeFi protocols offer transparent, accessible, and democratic financial services to the world. The decentralized future of finance is here.