Recently, a friend asked me what DeFi really means, and I found that many people still have some vague concepts about this sector. Actually, DeFi (Decentralized Finance) has become one of the hottest tracks in the crypto space in recent years, and it’s definitely worth paying attention to.

In simple terms, DeFi is the abbreviation of Decentralized Finance. It translates to decentralized financial services. Its core feature is operation through smart contracts, completely removing traditional financial intermediaries like banks and brokers, allowing users to directly engage in trading, lending, insurance, and other financial activities. To put it plainly: it’s not controlled by a single person or institution, but maintained by code and the community together.

The emergence of DeFi actually has a background. After the 2008 financial crisis, Satoshi Nakamoto created Bitcoin mainly to solve the problem of central banks over-issuing fiat currency leading to inflation. The logic of DeFi is similar—it aims to address pain points in traditional finance (CeFi), such as opaque operations, fraud, privacy leaks, and high entry barriers.

Regarding the development of DeFi, people started building decentralized applications on Ethereum around the end of 2017, and DeFi was truly born. By 2021, the entire ecosystem experienced an explosion, with TVL (Total Value Locked) reaching a historic high of $180 billion. Although there was a correction afterward, as of now, DeFi’s TVL remains stable around $119 billion, indicating that the ecosystem has entered a relatively stable development stage.

Currently, DeFi can be divided into several main directions: decentralized exchanges (DEX), lending, derivatives, insurance, and oracles. Among them, DEX is the most popular, with Uniswap (UNI) being the leading project, currently priced around $3.23. In the lending sector, major projects include Aave (AAVE) and Compound (COMP), with AAVE now priced at $83.41. Derivatives are represented by Synthetix (SNX) and dYdX (DYDX). ChainLink (LINK) is the benchmark in oracles, currently at $9.16.

As for whether DeFi is worth investing in, I think the key lies in its real-world application support. DeFi projects generate income by providing financial products and services, and this income is directly or indirectly distributed to token holders, so tokens have intrinsic value support, unlike some purely speculative projects. Moreover, during bull markets, demand for financial services increases, project revenues grow, and token prices naturally rise.

However, risks must also be noted. Smart contracts may have vulnerabilities or be hacked, and there are many scam projects in the DeFi ecosystem. If you participate via a wallet, losing your private key means permanently losing your assets. Cryptocurrencies are highly volatile, and lending involves risks of liquidation. The operation threshold is relatively high, and careless actions might lead to buying fake tokens or granting permissions to unsafe applications.

Currently, there are about 2,533 DeFi-related cryptocurrencies, with the entire sector’s market cap around $28.9 billion, accounting for nearly 10% of the entire crypto market. If you are optimistic about DeFi’s future, you can start with the leading projects, such as Uniswap in the DEX sector and Aave in lending, which have more solid fundamentals. Of course, specific choices should still depend on your risk tolerance and investment strategy.