DeFi replaces the middleman with a program: a liquidity pool is the market maker, the lending protocol is the bank, the smart contract is the contract — enforced by code rather than by a legal department. Composability is the magic: protocols plug into each other like Lego, because every contract is a public API.
The same properties define the risk: code is law, so a bug is a bank robbery; there is no chargeback, no support line, and 'audited' is a necessary rather than sufficient defence. The yield that looks too good is usually pricing a risk that is not on the label.
Related terms
Smart contract
A program deployed to a blockchain that runs exactly as written, that anyone can call, and that usually cannot be changed afterwards.
Smart contract audit
An independent review of contract code before it goes live, looking for the ways it can be drained, locked or manipulated.
Crypto wallet
The thing that holds your keys, not your coins — signs transactions to prove 'it was me' without ever showing the private key.
