# What is DeFi? Financial applications built from smart contracts DeFi is a group of financial applications that use blockchain contracts to carry out activities such as exchanging tokens and managing collateralized loans. An application can have public settlement while still depending on administrators, data feeds, token issuers and a particular website. Evidence: [Ethereum DeFi overview](https://ethereum.org/defi/); [Access control](https://docs.openzeppelin.com/contracts/5.x/access-control) Canonical: https://degreesofsatoshi.com/encyclopedia/what-is-defi/ Published: 2026-10-02 Substantively modified: 2026-10-02 Independently verified by an automated reviewer: 2026-10-02T15:08:18.373Z AI-assisted research and drafting with a separate automated source-verification pass; no external expert or named human review is implied. ## Key facts - **Execution:** Contract rules determine allowed state changes. ([Ethereum DeFi overview](https://ethereum.org/defi/)) - **Example:** Aave V3 separates supplying assets, borrowing and repayment. ([Aave V3 Pool](https://aave.com/docs/aave-v3/smart-contracts/pool)) - **Control:** Roles can authorize privileged actions in a contract. ([Access control](https://docs.openzeppelin.com/contracts/5.x/access-control)) ## Separate the application into its parts A DeFi screen combines several different things: a blockchain that records execution, tokens that represent assets, contracts that hold balances and apply rules, and an interface that prepares requests. The website can disappear while the contracts remain on the chain. A contract can also depend on services that the website does not make obvious. Decentralization is therefore a question about particular powers. Who can change the implementation, pause withdrawals, replace an oracle or issue the asset? An answer about validators does not answer those questions about an application. Evidence: [Ethereum DeFi overview](https://ethereum.org/defi/); [Access control](https://docs.openzeppelin.com/contracts/5.x/access-control) ## Follow a simple lending example Imagine a lending market where Alice supplies 1,000 units of a token. Bob supplies a different accepted asset as collateral and borrows 100 units from that market. The contracts record a supply claim for Alice and debt for Bob. Their positions do not become a private agreement between the two people. Bob must satisfy the market’s collateral rules. Alice’s ability to withdraw depends on available liquidity and the rules of her position. This example describes pooled lending; an exchange pool instead changes token inventory when someone trades. Evidence: [Aave V3 Pool](https://aave.com/docs/aave-v3/smart-contracts/pool) ## What a successful transaction establishes Successful execution establishes that the chain accepted the requested operation under the contract’s rules. It does not establish that the token has sound backing, that a quote was favorable or that a contract contains no exploitable error. Those are separate questions. Start an investigation with the exact chain, contract and version. Then identify the asset, accounting, withdrawal path, external prices and administrative roles. The linked entries explain these components separately so that a familiar brand name does not substitute for understanding the mechanism. Evidence: [Aave V3 Pool](https://aave.com/docs/aave-v3/smart-contracts/pool); [Access control](https://docs.openzeppelin.com/contracts/5.x/access-control) ## Questions ### Does DeFi always mean nobody can change the rules? No. A contract can assign privileged roles, and an application may use an upgradeable implementation. Inspect the actual administrative powers rather than infer immutability from the DeFi label. Evidence: [Access control](https://docs.openzeppelin.com/contracts/5.x/access-control) ## Claims and scope ### what-is-defi-quick-answer DeFi is a group of financial applications that use blockchain contracts to carry out activities such as exchanging tokens and managing collateralized loans. An application can have public settlement while still depending on administrators, data feeds, token issuers and a particular website. Scope: {"collection":"defi","dataAsOf":null,"blockHeight":null} ### what-is-defi-fact-execution Execution: Contract rules determine allowed state changes. Scope: {"collection":"defi","dataAsOf":null,"blockHeight":null} ### what-is-defi-fact-example Example: Aave V3 separates supplying assets, borrowing and repayment. Scope: {"collection":"defi","dataAsOf":null,"blockHeight":null} ### what-is-defi-fact-control Control: Roles can authorize privileged actions in a contract. Scope: {"collection":"defi","dataAsOf":null,"blockHeight":null} ## Sources - [Ethereum DeFi overview](https://ethereum.org/defi/) — ethereum.org contributors. Financial applications and the distinction between blockchain, assets, protocols and interfaces. Locator: What is DeFi?; How does DeFi work?. Retrieved: 2026-10-02. - [Aave V3 Pool](https://aave.com/docs/aave-v3/smart-contracts/pool) — Aave. Pool operations, collateral restrictions and liquidation settlement. Locator: supply; withdraw; borrow; repay; liquidationCall. Retrieved: 2026-10-02. - [Access control](https://docs.openzeppelin.com/contracts/5.x/access-control) — OpenZeppelin. Ownership, roles, administrator authority and timelock limitations. Locator: Ownership and Ownable; Role-Based Access Control; Delayed operation. Retrieved: 2026-10-02. ## Revision history - 2026-10-02: First publication after primary-source research and independent automated verification. - 2026-10-02: Before first publication, independent review checked and revised: prerequisites. Read Ethereum’s definition and contract mechanisms, Aave supply/borrow/withdraw, and OpenZeppelin ownership/roles. QA and facts correctly distinguish public contract execution from administrative decentralization. The Alice/Bob lending illustration states pooled accounting and conditional withdrawal. Changed prerequisite to Ethereum smart contracts so the reading path introduces the actual mechanism. ## Cite this entry Degrees of Satoshi editorial project. “What is DeFi? Financial applications built from smart contracts.” Published 2026-10-02; updated 2026-10-02. https://degreesofsatoshi.com/encyclopedia/what-is-defi/