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DeFi is short form for decentralized Finance.

The traditional finance or the current finance world we live in is centralised meaning the banks+government have complete control over how finance works for general public.

On the other hand, Decentralized finance is disrupting the finance world by removing banks as middle man and giving complete control to users.

You don’t need permission from banks or heavy paper work to use De-Fi.

For any de-fi protocol, following aspects are crucial:

  • Openness
  • Privacy
  • Security

Most of the above aspects are covered by blockchain so most of the De-fi protocols you use today like Aave, Compound are based on blockchain.

Most of current De-fi protocols are built on Ethereum – world’s second largest crypto currency however this is changing rapidly as few protocols getting built on polygon and avalanche (avax).

How does De-Fi actually work:

As it’s powered by blockchain which focuses on removing middle man, de-fi protocols work on smart contract code.

For example, a smart contract code has a specific code that establishes the exact terms and conditions of a loan between individuals or parties. 

If certain terms or conditions are not met, collateral could be liquidated. All of this is conducted through a specific code rather than manually by a bank.

Top Defi Tokens by

4 layers of any Defi protocol :

1) Settlement Layer: 

This is the layer on which Defi transactions are built. It consists of a public blockchain and its native digital currency or cryptocurrency. Transactions occurring on DeFi apps are settled using this currency, which may or may not be traded in public markets. Eg: Ethereum 

2) Protocol Layer: 

This is the layer that contains all the smart contract code. This establishes the terms of the agreement. 

Basically a governing layer on De-Fi Protocol.

An example of a DeFi protocol is Synthetix, a derivatives trading protocol on Ethereum. It is used to create synthetic versions of real-world assets.

3) Application Layer

This is the layer which users interact with the De-fi Protocol.

Users can perform multiple actions here i.e exchange, lending, borrowing and more.

4) Aggregation Layer

This layer connects various applications from the previous layer to provide a service. 

For example, transfer of funds to different financial instruments to maximize returns. 

Lending and borrowing is an example of a service that exists on the aggregation layer.

As of Dec 2021, the total value locked in De-fi protocols is around $99.93B and growing rapidly (Source)

Some Defi examples:

With De-Fi, you can earn interest, borrow, lend, buy insurance, trade derivatives, trade assets, and more.

Earning Interest – 

Interest that is paid is paid within a day and not month. Unlike fixed deposits, it’s totally fine if you cash out your stake. You will still enjoy the interest!

Borrowing/Loans – 

One of the notable features of De-fi is borrowing. You can borrow crypto/fiat with the help of your existing crypto. You don’t need to do any paper work.

Buying derivatives –

Make long or short bets on certain assets. Think of these as the crypto version of stock options or futures contracts. 

Leveraged Trading – 

Using the existing crypto, you can actually use additional crypto/fiat for trading in more volumes!

Unlike traditional finance, it’s faster, secure and doesn’t require paperwork or a third party to validate.

PROs of De-fi:

1) P2P Lending is possible with De-fi protocols

2) No need for heavy paper work

CONs of De-fi:

1) De-Fi is still in early-stage and is susceptible to hacks and rug-pulls.

2) As everything runs on your crypto wallet, if you forget or misplace your private keys, no one can restore your funds. 

3) Since “Code is the Law”, some software mishaps can be concerning.

Top Defi Platforms (in terms of Total Value Locked) – 

1) MakerDao


MakerDAO enables the generation of Dai, the world’s first unbiased currency and leading decentralized stablecoin.

2) Curve Finance

Curve Finance logo

Curve is an exchange liquidity pool on Ethereum designed for: extremely efficient stablecoin trading, low risk, supplemental fee income for liquidity

3) InstaDApp

instadapp logo

InstaDApp is a DApp built on the Ethereum network that integrates DeFi protocols into one platform for easy asset monitoring and management. Through the InstaDApp dashboard, users can track their assets across protocols, identify optimal DeFi parameters, and execute transactions via the underlying smart contracts.

4) Aave


Aave is an open source and non-custodial liquidity protocol for earning interest on deposits and borrowing assets.

5) Compound.Finance


Compound is an algorithmic, autonomous interest rate protocol built for developers, to unlock a universe of open financial applications.

De-Fi Resources

  1. – Find list of defi protocols ranging for Lending, Dexes, Derivatives, payments, Options and more
  2. DeFi Reddit – Includes an active stream of posts mainly centred around DeFi
  3. DEX Tracker – An easy to use scanner to keep track of all the DeFi activity any given Ethereum wallet has accumulated.

DeFi Red Flags:

When it comes to investing in new DeFi products, there are a few key components to keep an eye on and be extra careful if one or more conditions are met:

If the rates are too good to be true, they probably are. Whether this is lending, staking or mining pools, there are general standards for what acceptable rates are. Be sure to use the tools listed below to cross-reference the rates of any given service.

Anonymous or lack of team. Despite the fact that DeFi is entirely built on the assumption of “decentralized” infrastructure, virtually all of the top platforms boast an extremely strong and seasoned team. If you’re viewing a project and can’t find any mention of the team or who’s working on it, this can likely be a flag that something nefarious might be happening behind the scenes.

GitHub Inactivity. One of the easiest ways to check if a team has been delivering on its promises is to view the project’s GitHub. Seeing as the large majority of DeFi project are open-sourced, this means that all changes and updates are made public from the moment they happen. If you stumble across a GitHub and notice that there hasn’t been any activity in months, it may be a sign that the project has been abandoned and that you should utilize the service with extra caution. [1]

So this was all about DeFi and using DeFi. Hope you found this guide useful.