How does DeFi work?
An example of an AI chatbot conversation about decentralized finance (DeFi) and its mechanisms.
Can you explain how decentralized finance (DeFi) works?
Sure! DeFi refers to financial services using smart contracts on blockchains, primarily Ethereum. It allows users to lend, borrow, and trade without intermediaries.
What are some common DeFi applications?
Common DeFi applications include decentralized exchanges (DEXs), lending platforms like Aave, and yield farming protocols.
How is DeFi different from traditional finance?
DeFi operates on a decentralized network, removing intermediaries, while traditional finance relies on banks and institutions for transactions.
What are the risks associated with DeFi?
Risks include smart contract vulnerabilities, market volatility, and regulatory uncertainties. It's essential to do thorough research before participating.
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