DeFi Overview
Lending, DEXs, yield.
DeFi Overview is a free Web3 & DApp Development Fundamentals lesson on CoddyKit — lesson 1 of 4. You can read the complete lesson below for free — then practise it hands-on in the browser with a built-in code editor and a 24/7 AI tutor. It is part of the Web3 & DApp Development Fundamentals learning path, one of 4 lessons in the course, and your progress syncs across the web and the CoddyKit app.
What Is DeFi?
Decentralized Finance (DeFi) recreates financial services — lending, trading, borrowing, earning interest — using smart contracts on a blockchain instead of banks or brokers.
Anyone with a wallet can use these services permissionlessly, with no account approval and no intermediary holding the funds.
Smart Contracts as the Backbone
Every DeFi protocol is built from smart contracts: self-executing code deployed on-chain. The contract holds the rules and often the funds.
Because the logic is transparent and runs deterministically, users can audit exactly how a protocol behaves before trusting it.
Lending and Borrowing
Lending protocols like Aave and Compound let users deposit assets to earn interest, while borrowers take out loans against collateral.
Loans are overcollateralized: you must lock more value than you borrow, protecting lenders from default.
Deposit: Alice supplies 1000 USDC -> earns APY
Borrow: Bob locks 1.5 ETH collateral
-> borrows 1000 USDC
If collateral value falls -> liquidationDecentralized Exchanges (DEXs)
A DEX lets users swap tokens directly from their wallets without a centralized order book or custodian.
Most modern DEXs (Uniswap, Curve) use Automated Market Makers instead of matching buyers and sellers.
Yield and Liquidity Provision
Yield is the return earned by putting capital to work. Liquidity providers earn trading fees, lenders earn interest, and stakers earn protocol rewards.
This is the engine that attracts capital into DeFi.
Composability: Money Legos
DeFi protocols are composable — one contract can call another freely. A single transaction can borrow, swap, and deposit across several protocols.
This stacking of building blocks is nicknamed money legos.
tx {
1. borrow USDC from Aave
2. swap USDC -> ETH on Uniswap
3. deposit ETH into a vault
} // all atomicStablecoins
Stablecoins are tokens pegged to a stable value, usually the US dollar. They are the lifeblood of DeFi, used for trading pairs, loans, and savings.
Examples include USDC, USDT, and DAI (which is crypto-collateralized).
Governance and Tokens
Many DeFi protocols issue governance tokens that let holders vote on parameters like fees and supported assets.
This pushes control toward the community and away from a single company — a step toward true decentralization.
Risks in DeFi
DeFi is powerful but risky:
- Smart contract bugs — code exploits drain funds
- Oracle manipulation — bad price feeds
- Liquidation — collateral sold in a crash
- Impermanent loss — for liquidity providers
Oracles
Smart contracts cannot read off-chain data on their own. Oracles like Chainlink bring real-world prices on-chain so protocols know an asset is worth.
Reliable oracles are critical — a manipulated price can trigger wrongful liquidations or drain a pool.
Putting It Together
DeFi rebuilds finance as open, composable smart contracts: lending markets, DEXs, stablecoins, and yield strategies, all coordinated by governance and fed by oracles.
Next we focus on the core trading engine: Automated Market Makers.
Quick Check
Test your DeFi fundamentals.
Recap: DeFi Overview
You learned that:
- DeFi recreates finance with smart contracts, no intermediaries
- Core pieces: lending, DEXs, stablecoins, yield
- Protocols are composable money legos
- Oracles feed real-world prices on-chain
- Risks include bugs, liquidation, and oracle attacks
Next: how AMMs price trades.
Frequently asked questions
Is the “DeFi Overview” lesson free?
Yes — the full text of “DeFi Overview” is free to read here on the web, and the Web3 & DApp Development Fundamentals course includes 4 lessons in total. To practise it interactively (a built-in code editor and a 24/7 AI tutor) and unlock the rest of the Web3 & DApp Development Fundamentals course, upgrade to CoddyKit PRO.
What will I learn in “DeFi Overview”?
Lending, DEXs, yield. You practise Web3 & DApp Development Fundamentals with hands-on code you run directly in the browser, and a 24/7 AI tutor answers your questions as you work through the lesson.
Do I need any experience to start Web3 & DApp Development Fundamentals?
No prior experience is required. Web3 & DApp Development Fundamentals on CoddyKit is structured for beginners through advanced learners; this is — lesson 1 of 4, so you can start here or from the beginning and move at your own pace.
How long does the “DeFi Overview” lesson take?
Most CoddyKit lessons take about 5–10 minutes. Each one is bite-sized and interactive, so you make steady progress and pick up exactly where you left off across the web and the app.
Can I write and run code in this Web3 & DApp Development Fundamentals lesson?
Yes. Every Web3 & DApp Development Fundamentals lesson includes a built-in code editor, so you write and run real code right in your browser and get instant AI feedback — no local setup required.