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DeFi deploys lending, trading, insurance, and derivatives as composable smart contracts without traditional intermediaries.

Core modules: DEXs (AMMs), lending pools (over-collateralized), stablecoins, derivatives, and LSTs. Protocols compose like Lego—e.g., use LST as collateral to borrow stables.

ETH plays triple roles in DeFi: gas, collateral, and the base leg of liquidity pairs. ETH volatility transmits liquidation risk across the ecosystem.

Key risks: contract bugs, oracle manipulation, liquidation cascades, governance attacks, and regulatory action. High yield often means higher tail risk.

To study DeFi's impact on ETH price, track TVL, LST share, on-chain leverage, and DEX volume—real-time thermometers of ETH demand and sell pressure.