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As a hacker and cryptocurrency liker, I have been hearing for a while about "DeFi" stuff going on in Ethereum without really knowing what it was. I own a bunch of ETH, so I finally decided that enough was enough and spent a few evenings figuring out what was going on. To my pleasant surprise, a lot of it was fascinating, and I thought I would share it with LW in the hopes that other people will be interested too and share their thoughts. Throughout this post I will assume that the reader has a basic mental model of how Ethereum works. If you don't, you might find this intro & reference useful. Why should I care about this? For one thing, it's the coolest, most cypherpunk thing going. Remember how back in 2012, everyone knew that Bitcoin existed, but it was a pain in the ass to use and it kind of felt weird and risky? It feels exactly like that using all this stuff. It's loads of fun. For another thing, the economic mechanism design stuff is really fun to think about, and in many cases nobody knows the right answer yet. It's a chance for random bystanders to hang out with problems on the edge of human understanding, because nobody cared about these problems before there was so much money floating around in them. For a third thing, you can maybe make some money. Specifically, if you have spare time, a fair bit of cash, appetite for risk, conscientiousness, some programming and finance knowledge, and you are capable of and interested in understanding how these systems work, I think it's safe to say that you have a huge edge, and you should be able to find places to extract value. General overview In broad strokes, people are trying to reinvent all of the stuff from typical regulated finance in trustless, decentralized ways (thus "DeFi".) That includes: * Making anything that has value into a transferable asset, typically on Ethereum, and typically an ERC-20 token. A token is an interoperable currency that keeps track of people's balances and lets people transf