DeFi

DeFi contracts record positions and execute market rules. A DEX exchanges assets; a lending protocol manages deposits, collateral and debt; a vault may combine strategies. Composability connects contracts but can also transmit risk between applications.

An application can allow direct wallet interaction without a custodian signing for the user. This does not eliminate operators: sequencers, stablecoin issuers, price providers or administrators may retain influence or upgrade powers. Access may also be restricted by a contract or interface.

Risks include contract errors, liquidations, incorrect price data and insufficient liquidity. Regulatory treatment depends on the activities and entities involved. The DeFi label does not establish a legal exemption or identify who controls the system.