What’s DeFi?

Disclaimer: This article is for educational purposes and not financial advice. bunq doesn't give trading advice. Manage crypto at your own risk. Always do your own research or consult a qualified financial advisor before making any investment decisions. Cryptocurrency investments come with risks, including the potential loss of the principal invested. Prices can fluctuate significantly. bunq Crypto is managed through our partner Kraken.

What exactly is DeFi?

DeFi is a system of financial tools built on the blockchain.
Instead of relying on banks or brokers, it uses smart contracts. These are self-executing programs that handle tasks like charging interest or processing trades automatically.

How does DeFi work?

DeFi platforms use blockchain-based protocols to offer a range of services, including:

• Lend and borrow: Platforms like Aave or Compound let you lend crypto to earn interest or borrow from others.

• Trade crypto: Decentralized exchanges like Uniswap let you swap tokens without using a central exchange.

• Use stablecoins: These are crypto assets tied to real-world currencies like the dollar. They help reduce volatility.

• Earn rewards: By adding crypto to liquidity pools, you can earn tokens in return. This is known as yield farming.

You’ll need a secure crypto wallet to get started with any of these.

Why do people use DeFi

Some of the biggest benefits of DeFi include:

• Full control: You hold your assets and private keys. No third party gets access.

• Open access: Anyone with an internet connection can take part.

• Transparency: Transactions are recorded on the blockchain and visible to everyone.

• Ongoing innovation: New platforms and tools are launched all the time.

What are the risks?

DeFi comes with some risks too. Make sure you understand them before diving in.

• Smart contract bugs: Code errors can sometimes be exploited.

• Impermanent loss: If you provide liquidity, the value of your assets might change over time.

• Volatility: Many tokens change price quickly, which can impact your returns.

• No regulation: Unlike traditional finance, DeFi is not regulated, which means less protection.

Want to manage your risk better? Check out our guide on how to invest in crypto safely.

How to get started with DeFi

If you’re curious about DeFi, here’s how to begin:

1. Learn the basics: Understanding what you’re doing is key.

2. Choose a secure wallet: This is where your crypto will be stored.

3. Buy crypto: You can get started directly in the bunq app.

4. Connect to a DeFi platform: Once your wallet is ready, you can explore platforms like Aave or Uniswap.

5. Start small: Try a small amount first and see how it works.

Is DeFi the future of finance?

It might be. DeFi is already changing the way people manage money. It’s faster, more open, and built around you instead of a financial institution.

If you’re already using bunq to manage crypto, you’re in a great place to start exploring DeFi too.

Not using bunq yet? Now’s the time to see what’s possible when finance puts you first.