// GLOSSARY -- BLOCKCHAIN & CRYPTO FUNDAMENTALS

What is DeFi (Decentralized Finance)?

1 min read Updated

Decentralized Finance (DeFi) is the ecosystem of financial applications built on blockchain smart contracts — enabling lending, borrowing, trading, and other financial services without traditional intermediaries.

WHY IT MATTERS

DeFi recreates financial services on blockchain rails. Instead of a bank managing deposits, a smart contract does it. Instead of an exchange matching orders, an automated market maker provides liquidity algorithmically.

Key properties: permissionless (anyone can use it), transparent (all on-chain), composable (protocols build on each other like Lego), and non-custodial (users control their assets).

DeFi's total value locked reaches tens of billions across lending (Aave, Compound), trading (Uniswap, Curve), derivatives (dYdX, GMX), and yield optimization (Yearn).

HOW POLICYLAYER USES THIS

DeFi is where PolicyLayer's value is most clear. AI agents executing DeFi strategies need precise controls. PolicyLayer enables agents to interact with DeFi within policy bounds: maximum swap sizes, approved protocols, position limits, and loss thresholds.

FREQUENTLY ASKED QUESTIONS

DeFi vs CeFi?
DeFi uses smart contracts — transparent, permissionless, non-custodial. CeFi (Binance, Coinbase) uses traditional infrastructure — faster but requires trusting the platform.
Is DeFi safe?
DeFi carries smart contract risk (bugs), economic risk (oracle failures), and market risk (impermanent loss, liquidation). Audits reduce but don't eliminate these risks.
How much money is in DeFi?
TVL fluctuates but has reached $50-200B+ across all chains. Ethereum dominates with significant activity on L2s and Solana.

FURTHER READING

Enforce policies on every tool call

Intercept is the open-source MCP proxy that enforces YAML policies on AI agent tool calls. No code changes needed.

npx -y @policylayer/intercept
github.com/policylayer/intercept →
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