Decentralized Finance is a category of financial services built on blockchain without traditional intermediaries. Banks, brokers, exchanges, and insurance companies are intermediaries. They take a cut. They have gatekeeping power. They can freeze accounts. They can deny service. DeFi replaces these intermediaries with smart contracts.
A DEX (decentralized exchange) lets you trade assets peer-to-peer. A lending protocol lets you deposit assets and earn interest, or borrow against collateral. An insurance protocol lets you buy protection against smart contract failures. Staking protocols let you earn rewards by securing a network. All of this happens without a company running the service. The code runs on the blockchain.
The more code runs, the more value gets locked in it. Total value locked in DeFi has exceeded 100 billion dollars. It's real. The advantages are permissionlessness, anyone can access DeFi regardless of their bank account or location, and composability. You can combine protocols like Lego blocks. Build an application on top of a lending protocol on top of a trading protocol.
The disadvantage is that DeFi is immature. Hacks happen. Smart contracts fail. Liquidations can be devastating to users who misunderstood the risks. DeFi works best for traders and experienced users. It's not yet ready for ordinary financial needs. But it represents a genuine alternative to traditional finance.