DeFi rebuilds familiar products as open code. Automated market makers such as Uniswap replace the order book with a pricing formula and a pool of deposited assets; lending protocols such as Aave match depositors and borrowers against posted collateral with rates set algorithmically.
Total value locked, the dollar value deposited across these protocols, is the standard measure of the sector’s size. It flatters itself when token prices rise, since the same tokens are simply worth more, so its direction matters more than its level.
The risks stack. Contract bugs, oracle manipulation, governance capture and the composability that lets one failure cascade through every protocol built on top of it are all live, and several have each destroyed more than a billion dollars.