What is DeFi?

Happy Thursday, advisors!

In today's "Crypto for Advisors" newsletter, Jennifer Rosenthal from the DeFi Institute breaks down decentralized finance and surveys investors in the space.

Then, in "Ask an Expert", Sam Boboev from Fintech Wrap Up provides insights into the trends he's seeing with DeFi and AI.

Happy reading!

– Sarah Morton

Demystifying DeFi

(Desmond Marshall/ Unsplash)

As we mark another anniversary of Bitcoin, it's worth pausing to reflect on how far the cryptocurrency industry has evolved, and what it may mean for financial professionals exploring the digital asset class for the first time.

A new national study from the DeFi Education Foundation, conducted by Ipsos on KnowledgePanel and supplemented by in-depth interviews in the Bronx and Queens, New York, shows that roughly 1 in 5 Americans (18 percent) report having owned or used crypto at some point in their lifetime. Our research also found that there is a diverse demographic base of Americans who have owned or used crypto over the last 12 months, including roughly one-quarter of American Millennials (30- to 44-year-olds); 1 in 5 Americans who identified as Black, Non-Hispanic; 1 in 5 of all American men; and 1 in 6 Americans who have a bachelor's degree or higher.

By contrast, only 3 percent of Americans have heard of "decentralized finance" or DeFi, for short.

So, what is DeFi?

Decentralized Finance (DeFi) is a software system of financial applications that enables individuals to have full control over their financial transactions online: individuals make all the decisions and maintain control over their digital assets at all times, with no intermediaries or middlemen like credit card companies. This is possible because of a technological innovation called "permissionless blockchains." A blockchain is a decentralized digital ledger that securely records and verifies transactions across a network of computers without a central authority. Many believe that Bitcoin is the first example of a decentralized finance asset. Other DeFi assets include Uniswap, a DeFi exchange for crypto trading, and Aave, a DeFi tool for lending and borrowing digital assets. It can be helpful to think about DeFi as a 'sector' of the crypto universe.

Most don't fully understand how the internet is coded, but appreciate that there is an entire online economy that's investable (e.g., tech stocks). Similarly, many will not need to understand how DeFi works but may be interested in exploring the investable tools and applications built on it.

Interestingly, the Ipsos research shows us that even if Americans are not specifically familiar with the term "decentralized finance," they are interested in the potential that DeFi technology and innovations can unlock. For example, more than half of all Americans agree that we should "have a way to digitally send money to people without any third-party involved."

Survey respondents also express deep frustration with the traditional financial system (fewer than half of Americans feel the current financial system meets their needs), and as technology continues to evolve, one can imagine that consumers and investors will seek trusted alternatives in financial services. Relatedly, 42 percent said they would be likely to try DeFi if proposed legislation is passed, and would use it to make purchases, pay bills, and save money.

Financial professionals have a unique opportunity to lead clients in learning about and gaining exposure to DeFi as a timely investment theme. With DeFi adoption still in this early phase — plus the newly launched suite of digital asset ETPs that provide familiar, regulated exposure to DeFi assets — the financial professionals who can provide their clients with clarity, credible research, and free resources about crypto and its sectors, like DeFi, will be in a strong position to win the next generation of investors.

Americans are increasingly curious about the possibilities that emerging technologies and investments can unlock, and financial professionals are well-placed to help clients construct portfolios that are ready for the future. The new "Demystifying DeFi" research provides timely, methodologically sound third-party data that can help make client conversations more concrete and actionable.

For further reading, you can download the full research report here.

- Jennifer Rosenthal, chief communications officer, DeFi Education Fund

Ask an Expert

Q. What key trend will shape the next phase of DeFi growth?

The biggest driver of DeFi's next phase is the tokenization of real-world assets (RWAs). According to a16z's State of Crypto 2025, on-chain U.S. Treasury tokenization grew over 700 percent year-over-year, reaching $1.2 billion in value locked. Institutions are finally entering DeFi — not for speculation, but for yield and efficiency. As stablecoin volumes exceeded $9 trillion annually, tokenized assets are becoming the new collateral backbone. The next frontier is regulated DeFi, where permissioned pools and KYC-enabled protocols merge institutional trust with DeFi's liquidity and transparency.

Q. How is AI influencing DeFi innovation?

AI is reshaping DeFi by bringing autonomous decision-making to finance. Gartner estimates that by 2030, $30 trillion in purchases will be made or influenced by AI agents. Smart agents now rebalance liquidity pools, manage collateral ratios, and forecast market shifts in real time. This convergence of AI and DeFi is paving the way for self-optimizing financial ecosystems — where AI agents operate treasuries, execute trades, and even design new financial products dynamically.

- Sam Bobo ev, founder, Fintech Wrap Up

Keep Reading

JPMorgan CEO Jamie Dimon now acknowledges that crypto and stablecoins are "real" and here to stay.
Mastercard is in talks to acquire crypto payment rail company Zero Hash with a rumoured price tag of $2 billion.
BlackRock's Larry Fink says "we're not talking about it enough. Most countries aren't ready for what's coming" regarding tokenization and digitization of assets and currencies.

CoinDesk Disclosure: The information contained in this newsletter, and any information linked through the items contained herein, is not intended to provide sufficient information to form the basis for an investment decision. You should seek additional information regarding the merits and risks of investing in any cryptocurrency or digital assets.