DeFi (Decentralized Finance) refers to financial services built on blockchain networks that operate without traditional intermediaries like banks or brokerages. Using smart contracts on platforms like Ethereum, DeFi applications enable lending, borrowing, trading, and earning interest directly between users. The key advantage is permissionless access, transparency, and 24/7 availability, though users bear full responsibility for security and smart contract risks.
Example:
A user can deposit $10,000 worth of ETH into a DeFi lending protocol like Aave and immediately start earning interest without approval from any bank. They can also borrow against that collateral instantly. All transactions are visible on the blockchain and executed automatically by code.