The term “DeFi” — short for decentralized finance — has become increasingly common in the cryptocurrency world. DeFi refers to blockchain-based financial services that aim to offer decentralized alternatives to traditional banks, exchanges, and insurance providers.
Instead of relying on centralized institutions, DeFi protocols use smart contracts — self-executing agreements coded onto blockchains. As IBM defines them, smart contracts are “programs stored on a blockchain that run when predetermined conditions are met.” They remove the need for intermediaries, reduce delays, and streamline automated workflows. When conditions are satisfied, the contract triggers the next step without requiring human intervention.
DeFi enables users to access services like lending, borrowing, savings, trading, and insurance — all in a permissionless, trustless environment. Most DeFi applications are built on Ethereum, which is open-source and allows anyone to interact with smart contracts without needing approval from banks, brokers, or attorneys.
Here are several popular DeFi use cases:
Stablecoins: These digital assets are pegged to fiat currencies like the US dollar or to commodities like gold. They aim to reduce the volatility typical of other cryptocurrencies. Popular stablecoins include Tether (USDT), USD Coin (USDC), and Binance USD (BUSD).
Decentralized Exchanges (DEXs): DEX platforms allow peer-to-peer cryptocurrency trading, enabling users to exchange tokens directly without a centralized intermediary. Notable examples are Uniswap, PancakeSwap, and SushiSwap.
Lending and Borrowing: Crypto holders can lend their digital assets and earn interest, or use their crypto as collateral to borrow other assets. This can be done without credit checks or Know-Your-Customer (KYC) procedures. Leading platforms include Aave, MakerDAO, Compound, Uniswap, and InstaDApp.
Prediction Markets: DeFi also enables prediction platforms where users can speculate on outcomes ranging from sports events to elections. Projects like Augur, Gnosis, and Omen.eth facilitate these decentralized betting systems.
Asset Management: DeFi simplifies investing and portfolio management with tools that automate strategies and reduce costs. Examples include Balancer, Curve, and DeFi Saver, which help users allocate assets and manage risk.
Why are people drawn to DeFi? The appeal lies in its accessibility, lower fees, potential for high yields, increased transparency, and independence from centralized financial entities. However, DeFi is still an emerging sector and carries substantial risks — including code vulnerabilities, lack of customer support, and the absence of mechanisms to recover lost funds in the event of fraud or technical failure.
As the space evolves, many experts predict that DeFi will reshape the financial industry. CoinShares’ Chief Strategy Officer, Meltem Demirors, believes DeFi will bring forth high-yield savings accounts and a wide range of innovative financial tools. Other analysts agree, seeing DeFi as a disruptive force in global finance.
Monero holders can also participate in DeFi by converting their XMR or ETH into Wrapped Monero (WXMR), a tokenized version of XMR on Ethereum, available on exchanges like BTSE and Uniswap. Keep in mind, however, that as an ERC-20 token, WXMR does not inherit Monero’s full privacy features — it relies on Ethereum’s more limited privacy protections.
Regardless of whether you plan to enter the DeFi space, safeguarding your Monero assets is critical. Use a combination of hot and cold wallets to protect your holdings. If you prefer a browser-based solution, consider using XMRWallet. This open-source web wallet is free to use, supports fast and anonymous transactions, and requires no software installation — keeping you in full control of your Monero at all times.
