The term Decentralized Finance or DeFi refers to an alternative financial infrastructure built on top of the Ethereum Blockchain. DeFi uses smart contracts to create protocols that replicate existing financial services in a more open, interoperable, and transparent way. In this paper, we highlight opportunities and potential risks of the ecosystem. We propose a multi-layered framework to analyze the implicit architecture and the various DeFi building blocks, including token standards, decentralized exchanges, decentralized debt markets, Blockchain derivatives, and on-chain asset management protocols. We conclude that DeFi still is a niche market with certain risks but also has interesting properties in terms of efficiency, transparency, accessibility, and composability. As such, it may potentially contribute to a more robust and transparent financial infrastructure
