What is DeFi? The skater's short version

DeFi is short for decentralized finance: programs on a blockchain doing jobs that a bank or an exchange usually does. No teller, no office, no opening hours. Just code that anyone can use, and that does exactly what it was written to do, good or bad.

The vending machine idea

The easiest picture is the vending machine outside the park. You put something in, the machine follows its rules, and something comes out. Nobody behind a counter decides whether to serve you.

A DeFi program works the same way. It's called a smart contract: a program that lives on the chain, holds funds and follows written rules. You send it something, it checks the rules, and it sends something back.

What DeFi includes

• Swaps. Trade one token for another through a program, without a company in the middle.
• Liquidity pools. Pots of two tokens that people deposit so others can swap against them. The people who deposit usually earn a share of the swap fees.
• Lending and borrowing. Deposit tokens so others can borrow them, or put something up as collateral and borrow against it.

A worked example: one swap, step by step

Say someone wants to swap some SOL for a token through a swap app.

1. They open the app on a domain they typed themselves.
2. They pick the two tokens and an amount. The app shows a quote: roughly how much of the token they'll get.
3. They see a slippage setting. That's how far the price is allowed to move before the swap fails instead of going through at a worse rate.
4. Their wallet asks for approval. The screen shows what leaves the wallet and what's expected to come in.
5. The program does the swap against a pool, and the transaction is recorded. Like any Solana transaction, it can't be reversed.

If the quote looked too good, or the token's address didn't match the one on the project's own site, step 4 is where to stop.

The real risks

DeFi has risks that don't go away just because the code is public:

• Bugs. If the program has a mistake, funds can be lost, and there's often no one to refund them.
• Prices move fast. A token can drop a lot in minutes.
• Pool deposits can shrink. When prices in a pool move apart, what you can take out can be worth less than what you put in.
• Fake tokens and fake apps. Copycats are everywhere.
• Approvals. Some apps ask for permission to move your tokens later. A malicious one can use that permission to drain them.

Nobody can remove those risks for you.

How to spot a bad deal

• "Guaranteed" returns. Nothing in DeFi is guaranteed.
• A big number with no explanation of where it comes from.
• Pressure to act fast. "Only ten minutes left" is a tactic, not information.
• A link from a DM or a reply. Go to official sites yourself.

Where Skate Labs fits

None of this is needed to play Global SKATE. The game is free, it doesn't use a wallet, and the app never creates one. This article is here because you'll hear the word around crypto, not because you need it.

What "decentralized" really means here

"Decentralized" means no single company has to approve your swap or hold your funds while it happens. The program is on the chain, and anyone can use it. But in practice, most people reach that program through a website built by a team, and that team may be able to change parts of the app, or even the program, depending on how it was built. So "decentralized" describes how the program runs, not a promise that nobody is responsible or that nothing can change.

Approvals, explained

Some apps don't just ask you to approve one swap. They ask for permission to move a token from your wallet later, sometimes up to any amount. That's convenient, because you don't have to approve every time. It's also the most common way wallets get drained: a malicious app gets that permission once and uses it whenever it wants. Read what you're approving. If it says "unlimited" and you only meant to swap once, that's a reason to stop.

Common mistakes

• Thinking public code means safe code. Public code can still have bugs.
• Ignoring slippage. A loose setting can mean a much worse rate.
• Approving unlimited spending without reading. Approvals can be used later.
• Trusting high numbers. If something promises a lot, ask where it comes from.

FAQ

Is DeFi the same as crypto?

No. Crypto is the coins and tokens. DeFi is a set of programs that do financial jobs with them.

Who runs a DeFi app?

The program runs on the chain. Usually a team built the app and the website around it, but the program itself follows its code.

Can I get money back if a DeFi program has a bug?

Usually there's no one obliged to refund you. That's one of the main risks.

Do I need DeFi to use Skate Labs?

No.

Next: The Skate Labs glossary

Join the testers at skatelabs.app/testers and play a Game of SKATE with your friends. Global SKATE is free and in testing on iPhone and Android.