What is DeFi? Its full name is Decentralized Finance. Why decentralize?

The reason is simple. Most of us are used to bank accounts, stock investing, or credit card spending—all of which rely on centralized institutions for management and approval. The result, as everyone has likely experienced firsthand: frequent delays, cumbersome processes, and fees set unilaterally by the central institution.

DeFi (Decentralized Finance) offers a brand-new financial model. Through blockchain and smart contracts, asset management, lending, trading, and even wealth management can all be completed without intermediaries. You no longer need to rely on banks, nor worry about human delays or complicated procedures. Funds operate automatically on-chain according to rules, and every step is transparent and auditable.

DeFi is not just a new concept—it is gradually reshaping the global financial ecosystem. It allows users to control their funds autonomously while participating in multiple financial activities: you can lend assets to earn interest, provide liquidity to receive trading rewards, and use automated strategies to optimize returns. Compared with traditional finance, DeFi’s advantages lie in openness, transparency, and flexibility, but it also carries risks such as smart contract vulnerabilities, market volatility, and regulatory uncertainty.

From the perspective of the SuperEx Popular Science Series, this article provides a comprehensive interpretation of DeFi. We will introduce DeFi’s core concepts, market hotspots, operating guidelines, as well as technology and trends—so that you both understand its logic and know how to participate in practice, enabling digital assets to work better.

DeFi Basics

1. What is DeFi

Imagine a world with no bank counters and no central institutions, yet you can still complete lending, trading, insurance, and even derivatives investing. That is DeFi. DeFi stands for Decentralized Finance, and its core idea is to use blockchain and smart contracts to replace intermediaries in traditional finance.

In the traditional financial system, your funds must be processed by banks, brokerages, or payment institutions. Every step involves human intervention, along with fees, delays, and credit risk. In DeFi, smart contracts are “digital stewards.” Once rules are written on-chain, they cannot be tampered with; anyone can operate according to the code’s rules—truly decentralized.

2. Core components of DeFi

1. Smart Contract

Smart contracts are the soul of DeFi. They are like auto-executing programs: once the trigger conditions are met, the contract terms execute automatically. For example, depositing assets on Aave or Compound will automatically calculate interest and distribute yield without human intervention.

2. DEX

Examples include Uniswap and SushiSwap. They have no centralized servers; all trades are matched automatically on-chain via liquidity pools. You don’t need to open an account, nor worry about an exchange collapse.

3. Liquidity Pool

Think of it as a giant digital pool. Users deposit tokens to be used for others’ trades. In return, you receive trading fees and liquidity-mining rewards.

4. Lending Protocol

Traditional lending requires credit checks. DeFi lending uses collateral instead. For example, you can borrow USDC by collateralizing ETH. The entire process requires no manual approval—everything is handled by on-chain contracts.

5. Yield Aggregator

Projects like Yearn.finance act like smart wealth managers. They automatically allocate funds among different DeFi protocols to help you maximize returns.

DeFi Market Hotspot Analysis

1. Current popular protocols

• Uniswap: a leader in the AMM model, with the highest trading volume among DEXs. E.g., SuperEx Free Market AMM

• Aave & Compound: core protocols in the lending market, with flexible, adjustable rates.

• Curve: a stablecoin trading platform with low slippage and high efficiency.

• Yearn.finance: a yield aggregator that automatically optimizes strategies to grow assets.

2. Market data and trends

As of 2025, total value locked (TVL) in DeFi exceeds US$150 billion. The Ethereum ecosystem remains dominant, while chains like Solana, Polygon, and Arbitrum are growing rapidly. Active user addresses exceed 12 million, with a steadily rising number of participants in lending, trading, and liquidity provision.

3. Current trends include:

1. Cross-chain interoperability: enhancing asset liquidity across different chains.

Specifically, this refers to enabling assets and information to flow freely among different public chains. In the early stages, users could only operate assets on a single chain, limiting capital flexibility and use cases. For example, if your funds are on Ethereum, you can’t directly participate in DeFi projects on Solana or Polygon, which reduces efficiency across the entire DeFi ecosystem. To break this limitation, cross-chain technology emerged. Bridges like Wormhole and LayerZero allow assets on different chains to circulate freely, enabling users to participate in lending, liquidity provision, or arbitrage on multiple chains. This not only improves capital utilization, but also accelerates DeFi’s expansion and interconnection.

2. Layer 2 scaling: reducing transaction costs and increasing speed.

Scaling addresses congestion and high fees on main chains like Ethereum. At peak times, Ethereum’s transaction costs can reach tens of dollars—too high a barrier for small users. Layer 2 solutions such as Arbitrum and Optimism offload part of the transaction processing off-chain, then batch-write back to the main chain, dramatically lowering costs while increasing speed. This allows users to participate in DeFi operations more frequently—such as providing liquidity, conducting lending operations, or executing arbitrage—without high fees eating into returns.

3. Stablecoin innovation: providing a safer, low-volatility medium of exchange.

This is also an important trend in DeFi’s development. Stablecoins are crypto assets pegged to fiat to reduce the impact of price volatility on user operations. Common stablecoins include USDT, USDC, and DAI. As DeFi scales, demand grows for safer, more transparent, and lower-volatility stablecoins. The new generation of stablecoins optimizes collateral and algorithmic mechanisms and enhances compliance and transparency—helping users manage assets more safely in DeFi trading and lending while reducing potential risks.

Overall, these three trends reinforce each other to improve liquidity, efficiency, and security across the DeFi ecosystem—making DeFi attractive not only to high-net-worth investors but increasingly suitable for ordinary users, thereby pushing decentralized finance toward maturity.

4. Risks and regulation

• Smart contract vulnerabilities: may be exploited by hackers.

• Market volatility: highly volatile assets may trigger collateral liquidations.

• Regulatory uncertainty: policies are still evolving in many countries and may affect returns and operational freedom.

DeFi Practical Guide

For users who want to participate in DeFi, understanding operating steps and risk management is crucial. While DeFi brings more freedom and return opportunities, there is no traditional financial institution to backstop you. Security awareness and strategy selection directly determine your experience and the safety of your funds. Below are detailed notes on four aspects: wallet choice, security measures, capital allocation, and common strategies.

1. Wallet choice and security

A wallet is the entry point to DeFi. It not only stores your assets but also signs transactions and accesses DeFi protocols. Different wallets suit different needs:

1. MetaMask

The most commonly used wallet for Ethereum and EVM chains, available as a browser extension and mobile app. With MetaMask, you can directly access DeFi protocols like Uniswap, Aave, and Compound. It’s simple and beginner-friendly. The downside is that you manage your private key and seed phrase yourself; leakage or loss can result in asset loss.

2. Trust Wallet

Trust Wallet supports multi-chain assets and offers an excellent mobile experience—suitable for users who operate frequently on phones. It has a built-in DApp browser that connects to most DeFi protocols. As with any self-custody wallet, keep your seed phrase safe.

3. Super Wallet

Super Wallet is a decentralized, multi-chain Hierarchical Deterministic wallet that provides security for using the Dapp Open System and for storing large crypto assets. At the same time, Super Wallet integrates perfectly with the SuperEx operational system, providing asset segregation for everyone—ensuring assets are 100% safe—while giving SuperEx the trading efficiency of a CEX and the storage security of a DEX.

As the first platform to propose and integrate Web3 wallet and CEX exchange functions, SuperEx put forward the integration design on March 25, 2022, broke down the barrier between Web3 and the CEX app, and completed the in-app Web3 wallet product.

4. Security essentials:

• Never disclose your private key or seed phrase. Whether via email, chat apps, or web forms, it can be phished or stolen.

• Avoid entering wallet information on insecure websites or unknown DApps. Always verify URLs and DApp sources.

• Check on-chain transaction records regularly. Even if your wallet is secure, monitor for anomalies and act promptly.

• By choosing the right wallet and maintaining strong security hygiene, users can greatly reduce operational risk and lay a solid foundation for DeFi practice.

2. Capital allocation strategy

• High returns in DeFi come with high volatility, so capital management is key. For beginners entering the market, follow these principles:

• Start small: begin with small amounts to get familiar with wallet connections, borrowing and lending, and liquidity provision—understand operating costs and risks.

• Diversify: don’t put all funds into a single protocol or token. For example, split assets among lending platforms, liquidity pools, or yield aggregators. Diversification lowers risk and increases opportunity.

• Keep an emergency reserve: DeFi operations can be affected by big market swings, on-chain congestion, or protocol upgrades. Keeping a reserve helps you avoid forced liquidations or losses at bad prices.

For example, if you have US$10,000 for DeFi:

• 30% into stablecoin lending to earn steady interest

• 30% into mainstream-asset liquidity pools to earn fees

• 20% via yield aggregators to optimize strategies

• 20% as an emergency reserve to operate during volatility or top up collateral

This configuration maintains participation while reducing risk exposure.

3. Common strategies and how to operate them

1. Liquidity mining

One of the most common DeFi strategies. Users deposit tokens into liquidity pools for trading and receive fees plus platform-token rewards. For example, by providing ETH/USDC liquidity on Uniswap, you earn trading fees and may receive UNI rewards. Note the risk of impermanent loss: when the price swing between the pair is large, your position’s value may underperform simply holding the tokens.

2. Lending arbitrage

This strategy earns from rate differentials. Borrow assets on a platform with lower rates, then lend them on a platform with higher rates to capture the spread. For example, borrow USDC on Aave and lend USDC on Compound. If executed properly, you can earn steady returns. Beware of liquidation risk: if collateral is insufficient or the market swings too much, the system will liquidate your collateral.

3. Yield aggregators

Yield aggregators like Yearn.finance or Beefy automatically allocate user funds among different protocols to maximize returns. For example, Yearn can rotate deposited stablecoins among lending platforms to get the highest interest. This suits users who don’t want to operate frequently, but you still need to consider platform security and smart contract risk.

4. Risk reminders:

• Impermanent loss: providing liquidity may lead to returns below expectations when prices fluctuate—balance reward versus risk.

• Liquidation risk: maintain adequate collateral ratios in lending, or the system will liquidate your position.

• Smart contract risk: protocol bugs or hacks can cause asset loss.

• Operating costs: on-chain gas fees can rise at peak times and affect strategy returns—evaluate in advance.

With the above strategies, users can participate flexibly in the DeFi market, but must tailor plans to their own risk tolerance and monitor positions at all times.

DeFi Glossary

1. TVL (Total Value Locked)

The total value of assets locked in a DeFi protocol. TVL measures a protocol’s scale and liquidity. For example, Aave’s TVL is the total assets deposited or borrowed on Aave.

2. APY (Annual Percentage Yield)

The annualized return a user may obtain in a DeFi protocol. APY varies with rate fluctuations and reward-token distributions. For example, depositing USDC on Compound might yield 4%–6% APY.

3. AMM (Automated Market Maker)

A DEX model that matches trades automatically via smart contracts and liquidity pools—no order book needed. Uniswap and SushiSwap are typical AMMs.

4. Liquidity Pool

A pool where users deposit assets to facilitate trading, earning fees and reward tokens. For example, deposit equal-value assets in an ETH/USDC pool to participate in liquidity mining.

5. Liquidity Mining

Providing assets to liquidity pools in exchange for rewards—usually trading fees plus platform tokens. One of the main ways DeFi users earn additional yield.

6. Collateralized Lending

Borrowing funds by posting crypto as collateral. For example, collateralize ETH to borrow USDC. Insufficient collateral or large price swings can trigger liquidation.

7. Impermanent Loss

When you provide assets to a liquidity pool, price changes in the pair can make your position worth less than simply holding the tokens. As the market reverts or when you exit, losses may be partially or fully realized.

8. Liquidation

When a borrower’s collateral is insufficient or the borrow ratio is too high, the system automatically sells part of the collateral to repay debt. Liquidation is part of lending risk management.

9. Stablecoin

A crypto asset pegged to fiat, such as USDT, USDC, or DAI. Used to reduce volatility and facilitate trading, lending, and payments.

10. Staking

Locking tokens in a protocol to receive rewards or participate in network governance. For example, staking ETH in Ethereum 2.0 to receive block rewards.

11. Governance Token

A token representing governance rights in a protocol. Holders can vote on decisions such as rate adjustments, listing new assets, or reward distribution. AAVE and UNI are governance tokens.

12. DAO (Decentralized Autonomous Organization)

An organization form based on smart contracts, governed collectively by token holders. DAOs enable decentralized decision-making; users are participants and rule-makers.

13. Yield Aggregator

A tool that automatically allocates funds across protocols to obtain the highest yield. For example, Yearn.finance reallocates based on rate changes to maximize returns.

14. Cross-Chain Bridge

A tool or protocol that enables assets to flow between different blockchains. For instance, Wormhole can move USDC from Ethereum to the Solana ecosystem.

15. Layer 2

An expansion solution that runs on top of a main chain (e.g., Ethereum) to increase speed and reduce fees. Common Layer 2s include Arbitrum and Optimism.

16. Transaction Fee

The fee paid to execute a transaction or smart contract on a blockchain. High gas during peak times can impact DeFi strategy returns.

17. Mining

In DeFi, usually refers to earning tokens by contributing assets, providing liquidity, or staking—different from consensus mining but similar in logic: contribute resources, earn rewards.

18. Composable Strategy

Combining operations across DeFi protocols to build more complex strategies. For example, combining borrowing and lending, liquidity provision, and yield aggregators for layered returns.

19. Risk Ratio / Collateral Ratio

An indicator measuring the ratio of collateral to borrowed assets. Falling below required thresholds may trigger liquidation; a high risk ratio indicates insufficient collateral or high volatility.

20. AMM Constant Product Formula

The formula used by AMMs like Uniswap (x*y = k) to maintain pricing and liquidity. Understanding it helps assess liquidity-provider returns and risk.

Summary and Action Guide

DeFi is a new financial model that enables autonomous operation of funds, transparent management, and flexible use. To participate in DeFi, keep the following in mind:

• Create a secure wallet and safeguard your seed phrase

• Start small and diversif

• Learn strategies such as liquidity mining, lending arbitrage, and yield aggregation

• Follow protocol updates, market data, and regulatory developments

Through the SuperEx platform, you can conveniently access the DeFi ecosystem, let digital assets truly play their role, and achieve efficient management and growth.