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Last updated 2026-11-05

What Is DeFi?

DeFi is a set of financial services that run as smart contracts instead of companies. This page explains what those services do, what replaces the institution, and which risks you accept by using them.

Who this is for

Anyone who has seen a lend, earn, or stake button in a wallet and wants to know what sits behind it before connecting.

What it is

DeFi, short for decentralized finance, is code deployed to a chain that performs a financial job when called. A lending contract takes deposits and lets others borrow against collateral. A trading contract swaps one token for another out of a pool. A stablecoin contract issues a token designed to track a currency.

The pattern is the same each time. You sign a transaction, the contract runs the rules written into it, and the chain records the result. There is no account manager, no credit committee, and no phone number. The rules are public, so anyone can read them and anyone can find the flaw in them.

On Bitgold, using DeFi means connecting a wallet and approving what a contract may do. Your BTG stays in your address until a transaction moves it, and a contract cannot take a balance without your signature or an allowance you granted earlier. What Is a Decentralized Wallet? covers the custody model that makes this possible.

Why it matters

No intermediary does not mean no risk. It moves risk into code, liquidity, and your own approvals.

Contract risk. A contract can hold a bug, a hidden admin function, or an upgrade path its deployer controls. An audit reduces that risk and never removes it: it is an outside review, not a warranty.

Liquidity risk. A shallow pool cannot absorb a large trade without moving its price. A position can be worth less than the screen implied when you entered it.

Approval risk. Many actions need an allowance, and an unlimited allowance can be used later by whoever controls the contract. DApp Approval Scam shows how that gets abused.

Those risks are the honest part of the product. Reading this page does not remove them, and no advertised return should be read as a promise.

Common misunderstandings

  • "DeFi is safer because it is code." Code is deterministic, not correct. Bugs and admin keys are the usual failures.
  • "DeFi yields are guaranteed by the protocol." Returns come from borrowers, trading fees, or token emissions, and every one of those can fall or stop.
  • "My funds sit inside the app." They sit in a contract balance. The app is a screen that builds transactions.
  • "DeFi has no company behind it." Many deployments have a team, a governance token, and an upgrade key. Decentralization is a spectrum.

Key takeaways

  • DeFi swaps an institution for a contract that runs fixed rules.
  • You keep custody, and you keep the consequences of every signature and approval.
  • The main risks are contract bugs, thin liquidity, and standing permissions.
  • No DeFi return is guaranteed, and nothing here is investment advice.

Next steps