DeFi is finance run by smart contracts instead of companies. Anyone with a wallet can use it, the rules are public, and nobody can freeze your account. It also means nobody can undo your mistakes.
Basics
What is DeFi?
Decentralized finance, DeFi for short, is the collection of financial services that run as smart contracts on a public blockchain: exchanges, lending markets, stablecoins, and the tools built on top of them. Instead of a company holding your money and deciding who may trade, a script holds the funds and enforces the same rules for everyone.
You use DeFi through DApps with your own wallet. The DApp builds the transaction, you check what it does and sign it, and the contract on chain settles it. That takes the bank out of the middle, though not every gatekeeper: a DApp's website can still refuse or delay service, and a trade can carry protocol, liquidity provider or batcher fees on top of the network fee. On Cardano that is also why the rest of this page keeps coming back to the wallet: it is your account, your login and your signature in one.
Compared
How does DeFi differ from a bank or an exchange?
- Custody. A bank holds your money in its books and owes it to you. In DeFi the funds sit in your wallet, where only your signature moves them, or in a contract whose rules you can read, where those rules decide.
- Access. Opening an account needs an application and an approval. A DeFi protocol asks for neither, only a wallet and some ada. The rules where you live still apply.
- Hours. Markets on chain have no opening hours. There is no cut-off time, no settlement day and no bank holiday.
- Transparency. Every rate, every pool and every transaction is on the ledger for anyone to check, instead of in a quarterly report. Reserves held off chain, such as the bank deposits behind a fiat-backed stablecoin, still depend on the issuer's own reporting.
- Recourse. If a bank makes a mistake, there is a complaints process and, in many countries, deposit insurance. If you sign the wrong transaction or a contract has a bug, there is usually no one to call. That trade-off is the heart of DeFi, and the reason to understand it before using it.
What you can do
What can you do with DeFi on Cardano?
The building blocks are the same as anywhere else in DeFi. What differs is how they run on Cardano, which the next section explains.
Swap tokens
A decentralized exchange, a DEX, lets you trade ada for other native tokens without an order book run by a company. On most DEXs prices come from liquidity pools that other users fund, and a swap starts with a single transaction you sign.
Lend and borrow
Lending protocols let you deposit tokens to earn interest paid by borrowers, or borrow against tokens you lock as loan collateral. Rates move with supply and demand, and a loan that falls below its collateral requirement can be liquidated by anyone, under the rules the contract enforces rather than at someone's discretion.
Hold stable value
Stablecoins are tokens designed to track a currency such as the US dollar, backed by reserves or by locked crypto. They are the unit trading and lending is commonly priced in. Cardano has several, built on different backing models.
Provide liquidity
Depositing a pair of tokens into a DEX pool earns you a share of the trading fees. In return you take on the risk that the two tokens move apart in price, which can leave you with less than if you had simply held them, an effect usually called impermanent loss.
Move assets across chains
A bridge locks a token on one chain and issues a matching one on another, so value from other networks can be used on Cardano and back. Bridges are among the most attacked pieces of DeFi anywhere, so the choice of bridge matters as much as the token.
Stablecoins have their own page with the backing model of each one. The showcase lists every app we track, with on-chain activity where we have it.
Explore all appsOn Cardano
How is DeFi on Cardano different?
Cardano tracks value with the extended UTXO model instead of account balances, and that changes a few things a DeFi user notices. There are no token approvals: a DApp can only spend what the transaction you sign spends, so there is no standing permission to revoke and no risk of an old approval being drained later. The contents, the fee and the script result of a transaction are known before you sign, so nothing about it can change afterwards. It can still be rejected if a coin it planned to spend was spent first, in which case nothing happens, and a script that fails on chain costs the collateral your wallet set aside. What that means for a swap price comes below.
Tokens are native to the ledger, so a stablecoin or a DEX token is handled by the ledger itself, without a wrapper contract that could fail. Ada in your wallet keeps earning staking rewards while you use DApps, delegation never locks it. Ada you send into a contract follows that contract's rules, and whether it still earns rewards for you depends on the protocol.
The model also has a cost. A UTXO can be spent only once, so a pool that everyone wants to trade against cannot be used by many separate transactions in the same block. Cardano DEXs solve this by collecting orders and settling them in batches, or by splitting liquidity across many outputs. In practice that means a swap can take a block or two longer than you might expect, and the price you get is the price at settlement, within the limit you set. On a batched DEX the batcher also decides the order in which queued swaps settle, within the limits each user set.
Risks
What are the risks?
DeFi removes the middleman and, with it, the safety net. These are the risks to understand before you put in more than you can afford to lose.
- Contract bugs. A flaw in a protocol's code can lose funds for every user at once. Audits reduce the risk, they do not remove it.
- Price risk. Tokens can lose most of their value quickly. Providing liquidity adds the risk of ending up with less than holding, and borrowing adds the risk of liquidation when your collateral drops.
- Depegs. A stablecoin can trade below the currency it tracks if its reserves or its mechanism come under pressure.
- Oracles and bridges. Protocols that rely on outside price feeds or on bridged tokens inherit the risks of those systems.
- Scams. Fake DApps, fake tokens with a real name, and links from strangers. The usual rules on protecting your ada apply twice here.
- No reversal. Once a transaction is on chain, there is no support line that can undo it.
- Key loss. Your recovery phrase is the only way back into your wallet. Lose it and no one can restore it, share it and anyone can empty the wallet.
This page is educational, not financial advice. Nothing here is a recommendation to use any protocol or to buy any asset.
Get started
How do I start?
- Set up a wallet you control and back up the recovery phrase.
- Get some ada. Every transaction needs a little for fees, and most DeFi is priced against ada or a stablecoin.
- Pick a DApp from the showcase, reach it through its official link, and connect your wallet.
- Start with an amount you can afford to lose, read every transaction before you sign, and look for audits and open code.
FAQ
Is DeFi safe?
It is as safe as the contract you use and the care you take. Well-audited protocols with open code and a long track record have held up for years, and new or unaudited ones fail regularly. Never put in more than you can afford to lose, and treat every transaction you sign as final.
Do I need to approve tokens for a DApp on Cardano?
No. Cardano has no allowance system, so the revoke-approvals housekeeping you may know from other chains does not exist here. Your signature commits to the exact transaction you sign and nothing more, so review the inputs, outputs and warnings your wallet shows. A DApp cannot spend anything else from your wallet later.
Are DeFi yields guaranteed?
No. Yields come from trading fees, borrower interest or token rewards, all of which change with demand and can drop to zero. A yield that looks far above the rest usually carries a risk that is not on the label.
Can I lose more than I put in?
A protocol cannot take funds you did not lock into it. With a swap or a lending deposit the most at stake is the amount you sent, and a contract bug can still cost you all of it. With borrowing you can lose the collateral you locked if its price falls and the position is liquidated.
Do I keep earning staking rewards while I use DeFi?
Ada in your wallet keeps earning rewards from the pool you delegate to, and using it in a DApp does not undo the delegation. Ada you send into a contract is controlled by that contract's rules, and whether it still earns rewards for you depends on how the protocol handles staking.
Which stablecoins exist on Cardano?
Several, with different backing models: fiat-backed, crypto-backed and synthetic designs. The stablecoins page lists each one with how it keeps its value.