Lesson 6 — DeFi Introduction

DeFi, or decentralized finance, refers to financial applications built on blockchain networks. These applications can support swaps, lending, borrowing, liquidity pools, derivatives-like systems, yield strategies, and other financial mechanisms without traditional intermediaries.

This lesson introduces the basic structure of DeFi. Users interact with protocols through wallets. Smart contracts execute the rules. Liquidity providers supply assets to pools. Traders swap assets through decentralized exchanges. Borrowers and lenders interact through protocol-based markets.

DeFi is important because it changed the way users access financial services in crypto. Instead of relying only on centralized exchanges, users can interact directly with blockchain-based financial tools. This creates openness and flexibility, but also responsibility and risk.

Students must understand that DeFi yield is not free money. Yield may come from trading fees, lending interest, token incentives, liquidity risk, leverage, or other mechanisms. If the source of yield is unclear, the risk may be misunderstood.

The goal of this lesson is to understand DeFi clearly and practically. DeFi can be powerful, but it must be approached with risk awareness, wallet safety, and protocol research.

1. Explain DeFi in one paragraph.
2. Choose one DeFi protocol and identify its main function.
3. Write three possible sources of DeFi yield.
4. Write three risks a DeFi user should understand before connecting a wallet.