Decentralised finance replaces the intermediary with code. Instead of depositing funds with an exchange or a lender, users interact directly with smart contracts that hold the assets and enforce the rules, and they keep custody through their own wallet throughout. Anyone can use the contracts without an account, and anyone can read them.
The trade-offs are specific rather than general. There is no counterparty deciding whether to honour a position, but there is also no one to appeal to: a bug in the contract, an oracle feeding a wrong price, or a transaction sent to the wrong address is final. Yields are often higher than centralised equivalents because they compensate for exactly those risks.
Is DeFi safer than a centralised exchange?
It removes custody risk — nobody else holds your assets — and replaces it with smart contract risk. Neither is strictly safer; they fail in different ways, and DeFi failures are generally irreversible.
Last updated October 17, 2026