What is DeFi? Decentralised finance explained for Indians
DeFi lets you swap, lend, borrow and earn with crypto using apps instead of banks or exchanges. How it works, what you need, the risks and the Indian tax angle.
- Checked against the rules: Oct 2026
- Sources cited · No buy or sell calls
How DeFi is different from an exchange
On an Indian exchange like CoinDCX or ZebPay, a company holds your coins and matches your trades. In DeFi, you keep your coins in your own wallet and interact with smart contracts: programs on a blockchain that hold pooled funds and follow fixed rules.
| Exchange | DeFi app | |
|---|---|---|
| Who holds your coins | The exchange | You, in your wallet |
| Sign-up | KYC with PAN and Aadhaar | Connect a wallet |
| Pay with rupees | Yes | No, you need crypto first |
| If something goes wrong | Support and, sometimes, a refund | Usually no recovery |
What people do in DeFi
- Swap one token for another on a decentralised exchange. Your first DEX swap.
- Lend tokens to a pool and earn interest from borrowers.
- Borrow against your crypto as collateral.
- Stake or use liquid staking to help secure a network and earn rewards.
- Provide liquidity to a trading pool and earn a share of fees.
Uniswap, Aave and Lido explained walks through one example of each.
What you need to start
- A self-custody wallet such as MetaMask or Phantom.
- Some crypto on the right network, moved from an exchange. How to move USDC to your wallet.
- A little of the network's native token to pay fees.
The risks
DeFi can fail in ways a bank account can't: contract bugs, hacks, tokens losing their peg, and scams that copy real apps. Read the DeFi risks checklist before you deposit anything.
Tax in India
Swaps are taxable transfers, and rewards are generally income when received. Staking and DeFi income tax.
Frequently asked questions
Is DeFi legal in India?
Using DeFi apps isn't banned in India. Gains and income are taxable, and you're responsible for reporting them.
Do I need KYC to use DeFi?
DeFi apps usually don't ask for KYC, but you'll need KYC on an Indian exchange to buy crypto with rupees in the first place.
Sources
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