Decentralized finance, or DeFi, refers to financial services delivered through blockchain-based applications and smart contracts, with substantial parts of transaction execution governed by software.
DeFi applications include trading, lending, borrowing, derivatives, collateral management, and liquidity provision. Users often interact directly with smart contracts through wallets, while governance, interfaces, oracles, developers, and token holders can still exercise important forms of control. Stablecoins are widely used within DeFi as trading pairs, collateral, borrowed assets, and settlement instruments.
DeFi can reduce reliance on conventional intermediaries for transaction execution, but the systems can retain concentrated governance, oracle, developer, or infrastructure dependencies.
DeFi is a major source of stablecoin demand and creates additional layers of smart-contract, liquidity, governance, and composability risk.
A decentralized exchange can allow users to swap stablecoins through an automated liquidity pool governed by smart-contract rules.