{"id":39853,"date":"2020-09-02T22:59:03","date_gmt":"2020-09-02T20:59:03","guid":{"rendered":"https:\/\/www.coinpro.ch\/uncategorized\/defi-is-the-traditional-financial-system-about-to-be-replaced\/"},"modified":"2026-05-30T03:28:29","modified_gmt":"2026-05-30T01:28:29","slug":"defi-is-the-traditional-financial-system-about-to-be-replaced","status":"publish","type":"post","link":"https:\/\/www.coinpro.ch\/en\/knowledge\/defi-is-the-traditional-financial-system-about-to-be-replaced\/","title":{"rendered":"DeFi explained simply: What decentralized finance means"},"content":{"rendered":"<p>It\u2019s Sunday evening, just before 11 PM, and you need a loan or want to put your money to work. At your bank, you\u2019re faced with closed doors: no counter open, no transfer that will go through now, no clerk who can quickly approve it. You wait until Monday. DeFi doesn\u2019t have this problem. Here, loans, swaps, and interest run around the clock, every day of the year\u2014without a bank behind it. That\u2019s exactly what <strong>Decentralized Finance (DeFi)<\/strong> is about, and this guide shows you how it works, what you can do with it, and where the risks lie.<\/p>\n<h2>What is DeFi?<\/h2>\n<p>DeFi stands for Decentralized Finance\u2014decentralized finance. It refers to financial services built on a <a href=\"https:\/\/www.coinpro.ch\/en\/knowledge\/what-is-a-blockchain-basics-and-functionality\/\">blockchain<\/a> that work without central control. Where a bank checks, safeguards, and intermediates in the traditional system, in DeFi a piece of code takes over these tasks. Transactions are handled directly between the parties involved\u2014peer to peer.<\/p>\n<p>The core idea is cutting out the middleman. No one has to approve an account; no clerk authorizes a transfer. Instead, the rules written into the underlying programs decide. That makes DeFi usable 24\/7 and, in principle, accessible to anyone with a <a href=\"https:\/\/www.coinpro.ch\/en\/reviews-en\/crypto-wallet-comparison-the-best-providers-and-types\/\">crypto wallet<\/a> and internet access.<\/p>\n<script type=\"text\/plain\" data-tcf=\"waiting-for-consent\" data-id=\"20572\" data-bid=\"1\" data-placement=\"33872\">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<\/script><h2>How does DeFi work?<\/h2>\n<p>The foundation of DeFi is <a href=\"https:\/\/www.coinpro.ch\/en\/knowledge\/what-are-smart-contracts-explanation-for-beginners-examples\/\">smart contracts<\/a>. The easiest way to understand them is with a vending machine. You insert a coin\u2014that\u2019s the condition\u2014and the machine dispenses the soda\u2014that\u2019s the action. There\u2019s no need for a seller to take the money, check the order, and hand over the can. The machine simply does what it\u2019s programmed to do as soon as the condition is met.<\/p>\n<p>A smart contract is nothing else\u2014just as a program on the blockchain. When a predefined condition occurs, the stored action follows automatically. Once deployed, such a contract keeps running independently, and the rules can\u2019t simply be changed afterward. There\u2019s no one behind it who still has to approve or deny a payout.<\/p>\n<p>The actual applications are built on these smart contracts, often called decentralized apps, or dApps. They work like building blocks that can be combined in any way. This composability is one of DeFi\u2019s biggest strengths: one service can build on another without asking permission.<\/p>\n<p>By far the most important base for DeFi is still <a href=\"https:\/\/www.coinpro.ch\/en\/tag\/ethereum-en\/\">Ethereum<\/a>. A large share of all capital locked in DeFi sits on this blockchain or networks built on top of it. In addition, other blockchains\u2014and especially Layer-2 networks\u2014have become established, enabling cheaper and faster transactions.<\/p>\n<h2>What is DeFi used for? The most important applications<\/h2>\n<p>DeFi isn\u2019t a single product, but a whole spectrum of services. These areas shape the sector.<\/p>\n<h3>Loans and lending<\/h3>\n<p>The best-known use case is issuing and taking out loans. If you own cryptocurrencies, you can lend them out via a platform and earn interest. Other users borrow these funds against posted collateral. Both work without a bank\u2014solely via smart contracts that automatically manage interest and collateral.<\/p>\n<h3>Decentralized exchanges (DEX)<\/h3>\n<p>On a decentralized exchange, or DEX, users swap coins and tokens directly from their own wallet, without entrusting their assets to a platform. That\u2019s what sets a DEX apart from a traditional <a href=\"https:\/\/www.coinpro.ch\/en\/reviews-en\/crypto-exchange-comparison-switzerland-germany-and-austria-the-best-providers-in-the-2025-test\/\">crypto exchange<\/a>, which holds customers\u2019 balances in custody. Trading itself is handled via smart contracts and so-called liquidity pools.<\/p>\n<h3>Stablecoins<\/h3>\n<p><a href=\"https:\/\/www.coinpro.ch\/en\/knowledge\/what-are-stable-coins-anyway-background-and-benefits\/\">Stablecoins<\/a> are pegged to a fixed value, usually the US dollar. That means they lack the strong volatility of other cryptocurrencies. Within DeFi, they\u2019re indispensable because they provide a stable unit of account that lets you borrow, save, and trade without constantly being exposed to the market\u2019s ups and downs.<\/p>\n<h3>Staking and liquid staking<\/h3>\n<p>With <a href=\"https:\/\/www.coinpro.ch\/en\/knowledge\/cryptocurrencies-explained-what-is-staking\/\">staking<\/a>, users provide their coins to a network to help secure it and receive a reward in return. A further development is liquid staking: in exchange for their staked coins, investors receive a tradable token that lets them remain active in other DeFi applications at the same time. This means the staked capital is no longer locked up. Liquid staking is now one of the largest areas in the entire DeFi market.<\/p>\n<h3>Tokenized assets (RWA)<\/h3>\n<p>Perhaps the most important trend is bringing DeFi together with the traditional financial world. Under the term Real World Assets, providers bring real-world assets such as government bonds or money market funds onto the blockchain as tokens. This is no longer a niche experiment: asset manager BlackRock runs the largest tokenized US Treasury fund on Ethereum with its BUIDL fund, and JP Morgan launched its own tokenized money market fund at the end of 2025. When the biggest names in traditional finance start using the same infrastructure, it shows how seriously the sector is now being taken. This application in particular makes DeFi more than a parallel world\u2014it becomes a bridge into the established system.<\/p>\n<h2>DeFi coins: What\u2019s behind them?<\/h2>\n<p>Many DeFi protocols issue their own token. This often serves a dual purpose. First, it gives holders a say in decisions about the platform\u2014similar to a shareholder vote. Second, it can entitle holders to a share of the protocol\u2019s revenue or rewards.<\/p>\n<p>The key distinction: DeFi coins are not equity securities in a legal sense and are not subject to the same protection mechanisms as regulated securities. Their value depends heavily on the success of and trust in the respective protocol and can fluctuate accordingly. A blanket assessment of whether a particular DeFi coin is worth it isn\u2019t possible\u2014it depends on the individual case and your own risk tolerance.<\/p>\n<h2>The benefits of DeFi<\/h2>\n<p>DeFi\u2019s appeal lies in a few characteristics the traditional financial system doesn\u2019t offer in this form. The key ones at a glance:<\/p>\n<ul>\n<li>24\/7 access, every day of the year, with no opening hours or processing times.<\/li>\n<li>Open to anyone with a wallet and internet access, regardless of where they live or their relationship with a bank.<\/li>\n<li>Often lower costs because expensive intermediaries are removed and lenders and borrowers connect more directly.<\/li>\n<li>High transparency, since transactions can be tracked openly on the blockchain.<\/li>\n<li>Self-custody, because assets stay in your own wallet instead of with a provider.<\/li>\n<\/ul>\n<p>That also explains why the Sunday-evening hurdle described at the start disappears here. If you\u2019re active in DeFi, you\u2019re not tied to trading hours or processing windows\u2014you act whenever you want.<\/p>\n<h2>The risks of DeFi<\/h2>\n<p>These opportunities come with very real risks. If you use DeFi, you should know them\u2014because unlike a bank, there\u2019s no deposit insurance and usually no entity that\u2019s liable if something goes wrong.<\/p>\n<p>The biggest technical risk is bugs in the smart contract. If there\u2019s a programming error in the code, attackers can exploit it and drain funds. Because many applications are interconnected, a problem can also spread across multiple services. There\u2019s also the so-called admin-key risk: in some projects, developers retain the ability to make central changes or even stop an application.<\/p>\n<p>Other risks relate to the market and the network\u2019s technology. When demand is high, transaction fees can rise sharply, and those who pay more get processed first. In extreme phases, the network can become congested. There are also liquidity risks if there isn\u2019t enough capital to process transactions smoothly. One central rule for all users is therefore: keep your wallet\u2019s private keys secure and inaccessible to third parties\u2014because if you lose them or share them, you lose access to your assets.<\/p>\n<h2>Is DeFi always truly decentralized?<\/h2>\n<p>Not every offering that calls itself DeFi is fully decentralized. In practice, there are many hybrid forms, for which the term semi-decentralized has become common. One example: a platform holds users\u2019 coins in centralized custody, but sets interest rates and prices via decentralized mechanisms. The distribution of power is also an issue. If a single protocol controls a very large share of an area\u2014such as liquid staking\u2014this creates a concentration that contradicts the decentralized core idea. So it\u2019s worth taking a close look at each service to see how decentralized it really is.<\/p>\n<h2>DeFi today: the current state<\/h2>\n<p>DeFi has left its wild early phase behind and has become significantly more mature. Capital locked in the sector, measured by Total Value Locked, will be in the range of over one hundred billion US dollars in 2026. Ethereum remains by far the most important foundation and accounts for the largest share of this value.<\/p>\n<p>The focus has shifted. A large part of activity now takes place on Layer-2 networks, which are cheaper and faster than the main chain. Liquid staking has also grown strongly, as has the restaking built on it, where already staked coins are additionally used to secure further services. And with the tokenization of real-world assets, DeFi\u2014as described above\u2014is moving ever closer to the traditional financial system.<\/p>\n<h2>Conclusion<\/h2>\n<p>DeFi makes financial services possible without a bank, governed by smart contracts on the blockchain. The benefits are open access, often lower costs, and full transparency. But there are real risks\u2014especially technical bugs, lack of liability, and the question of how decentralized a service really is.<\/p>\n<p>For beginners, the rule is: DeFi isn\u2019t a sure thing and not a guaranteed return. If you want to get started, start small, understand how a service works, and only use capital you can afford to lose. If you know the basics, you can assess the opportunities in this sector much better.<\/p>\n<section id='' \n                class='helpie-faq accordions faq-toggle open-first' \n                data-collection='' \n                data-pagination='0' \n                data-search='0' \n                data-pagination-enabled='0'\n                role='region'\n                aria-label='FAQ Section'\n                aria-live='polite'><h2 class=\"collection-title\">Frequently asked questions about Decentralized Finance (DeFi)<\/h2><article class=\"accordion \"><div class='helpie-faq-row'><div class='helpie-faq-col helpie-faq-col-12' ><ul><li class=\"accordion__item \"><div class=\"accordion__header \" \r\n                id=\"accordion-header-post-43246\"\r\n                role=\"button\"\r\n                aria-expanded=\"false\"\r\n                aria-controls=\"accordion-content-post-43246\"\r\n                data-id=\"post-43246\" \r\n                data-item=\"hfaq-post-43246\" data-slug=\"what-do-i-need-to-use-defi\" \r\n                style=\"background:transparent;\" \r\n                data-tags=\"\"\r\n                tabindex=\"0\"><div class=\"accordion__title\">What do I need to use DeFi?<\/div><\/div><div id=\"accordion-content-post-43246\" \r\n                class=\"accordion__body\" \r\n                role=\"region\"\r\n                aria-labelledby=\"accordion-header-post-43246\"\r\n                style=\"background:transparent;\"><p>Essentially, a crypto wallet, internet access, and cryptocurrencies. Many services don&#8217;t require traditional registration, so you need to protect your wallet&#8217;s private keys especially well.<\/p>\n<\/div><\/li><li class=\"accordion__item \"><div class=\"accordion__header \" \r\n                id=\"accordion-header-post-43247\"\r\n                role=\"button\"\r\n                aria-expanded=\"false\"\r\n                aria-controls=\"accordion-content-post-43247\"\r\n                data-id=\"post-43247\" \r\n                data-item=\"hfaq-post-43247\" data-slug=\"is-defi-safe\" \r\n                style=\"background:transparent;\" \r\n                data-tags=\"\"\r\n                tabindex=\"0\"><div class=\"accordion__title\">Is DeFi safe?<\/div><\/div><div id=\"accordion-content-post-43247\" \r\n                class=\"accordion__body\" \r\n                role=\"region\"\r\n                aria-labelledby=\"accordion-header-post-43247\"\r\n                style=\"background:transparent;\"><p>There is no deposit insurance and usually no liability. The biggest risks are errors in the smart contract, attacks, and concentration on individual protocols. Anyone who participates bears the risk themselves.<\/p>\n<\/div><\/li><li class=\"accordion__item \"><div class=\"accordion__header \" \r\n                id=\"accordion-header-post-43248\"\r\n                role=\"button\"\r\n                aria-expanded=\"false\"\r\n                aria-controls=\"accordion-content-post-43248\"\r\n                data-id=\"post-43248\" \r\n                data-item=\"hfaq-post-43248\" data-slug=\"which-blockchain-is-most-important-for-defi\" \r\n                style=\"background:transparent;\" \r\n                data-tags=\"\"\r\n                tabindex=\"0\"><div class=\"accordion__title\">Which blockchain is most important for DeFi?<\/div><\/div><div id=\"accordion-content-post-43248\" \r\n                class=\"accordion__body\" \r\n                role=\"region\"\r\n                aria-labelledby=\"accordion-header-post-43248\"\r\n                style=\"background:transparent;\"><p>Ethereum. The majority of capital locked in DeFi is on Ethereum or the Layer 2 networks built on top of it.<\/p>\n<\/div><\/li><li class=\"accordion__item \"><div class=\"accordion__header \" \r\n                id=\"accordion-header-post-43249\"\r\n                role=\"button\"\r\n                aria-expanded=\"false\"\r\n                aria-controls=\"accordion-content-post-43249\"\r\n                data-id=\"post-43249\" \r\n                data-item=\"hfaq-post-43249\" data-slug=\"what-are-defi-coins\" \r\n                style=\"background:transparent;\" \r\n                data-tags=\"\"\r\n                tabindex=\"0\"><div class=\"accordion__title\">What are DeFi coins?<\/div><\/div><div id=\"accordion-content-post-43249\" \r\n                class=\"accordion__body\" \r\n                role=\"region\"\r\n                aria-labelledby=\"accordion-header-post-43249\"\r\n                style=\"background:transparent;\"><p>These are the tokens of individual DeFi protocols. They often give you a say in the platform&#8217;s governance and can allow you to share in its earnings. However, they are not regulated securities, and their value can fluctuate significantly.<\/p>\n<\/div><\/li><\/ul><\/div><\/div><\/article><\/section>\n","protected":false},"excerpt":{"rendered":"<p>It\u2019s Sunday evening, just before 11 PM, and you need a loan or want to put your money to work. At your bank, you\u2019re faced with closed doors: no counter open, no transfer that will go through now, no clerk who can quickly approve it. You wait until Monday. DeFi doesn\u2019t have this problem. Here,&#8230;<\/p>\n","protected":false},"author":14,"featured_media":35402,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[17331],"tags":[17594,17807],"class_list":["post-39853","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-knowledge","tag-cryptocurrencies","tag-knowledge"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.8 (Yoast SEO v27.8) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>DeFi explained simply: What decentralized finance means - CoinPro.ch<\/title>\n<meta name=\"description\" content=\"What is DeFi? 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