You can think of DeFi as a sort of “money Lego”. Decentralized applications are built to be interoperable. For example, you can take out an over-collateralized loan on a platform such as Aave. This is done by locking up your crypto assets and borrowing against them. From here, you could take your newly generated capital and provide liquidity to another lending platform such as Compound and earn COMP tokens as a form of passive income.
These loans are usually over-collateralized to prevent liquidation. Providing that users can avoid liquidation, it is possible to combine several DeFi protocols and use them together to participate in what is known as “yield farming”. This recent trend led many to believe DeFi is taking over crypto, with new protocols popping up almost daily!