Decentralised finance replaces the operator of a financial service with code. A lending protocol is a smart contract that holds deposits, sets interest rates by formula and liquidates borrowers automatically when collateral falls in value. An automated market maker is a contract holding two assets in a pool that prices trades from the ratio between them. Anyone with a wallet can use these services, at any hour, and every transaction is visible on the chain.
The design removes intermediaries and their costs, and it also removes the people who used to catch errors and stop fraud. Protocols build on one another, so a flaw or a stolen asset in one can create losses in several others within minutes. Most of the value lost in DeFi comes from contract bugs, compromised bridges and stolen keys, rather than market moves.
Regulated finance is now adopting the mechanisms of DeFi while keeping identified participants. The useful question for a board is which mechanisms it wants to use, under what controls, rather than whether DeFi as a whole is safe.