Decentralised finance (DeFi) refers to financial applications which are run on a permissionless blockchain with a decentralized operation and governance and which use smart contracts automating the provision of financial services without the need for intermediaries.

The types of financial services that are provided by DeFi applications are similar to those offered by traditional financial players, what differs is how these services are delivered (via smart contracts and in a decentralised way) and the fact that they are based on crypto-assets. These services include the purchase of fungible and non-fungible crypto-assets issued on DeFi blockchains, the trading of crypto-assets on decentralised exchanges (DEXs), crypto-asset based lending which is mostly collateralised similarly to securities lending or repos, asset management and payment activities and the provision of derivative and insurance products. Stablecoins, which are used as collateral, for the payment of interest and also as a bridge with traditional financial systems play a key role in the functioning of DeFi platforms.

Although DeFi is an emerging sector of finance and still represents a small portion of cryptocurrency transactions, a sudden surge of activity was observed in 2020 and 2021, raising questions about how to regulate such activities. The proposed EU MiCA regulation does not explicitly cover DeFi, but suggestions have been made that DeFi could be indirectly addressed by rules applying to stablecoins, which are essential to the execution of DeFi protocols and by the regulation of digital asset service providers. The decentralised nature of DeFi platforms and the lack of a central entity to which regulation may be applied is a potential challenge. However some regulators have questioned the truly decentralised nature of DeFi platforms, which are at present run in most cases by a central development team and follow common governance guidelines.