DeFi protocols use smart contracts to replicate financial services — lending, borrowing, trading, earning yield — without a bank, broker, or centralized company holding the funds or approving transactions. Because the protocols are typically open and permissionless, anyone with a compatible wallet can use them, and different DeFi protocols can be combined like building blocks (sometimes called “money legos”) to create more complex financial products.

The tradeoff founders and investors should weigh carefully: DeFi removes a trusted middleman, but it also removes the protections that middleman usually provided. There’s typically no deposit insurance, no customer support line to call if something goes wrong, and no guarantee the smart contract code is bug-free — DeFi protocols have lost hundreds of millions of dollars historically to exploited code vulnerabilities. Regulatory treatment of DeFi also remains unsettled in most jurisdictions, the Philippines included.

🇵🇭 Philippine Example

The BSP has generally cautioned the Philippine public that DeFi platforms typically operate outside the licensed Virtual Asset Service Provider (VASP) framework that governs regulated exchanges like Coins.ph and PDAX — meaning users interacting directly with DeFi protocols don't get the same regulatory oversight or recourse. Beyond that general regulatory posture, this session did not find a specific, citable BSP circular dedicated solely to DeFi, so this is deliberately described in general terms rather than attributed to a specific rule.

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