A Beginner’s Guide to Decentralized Finance in Malaysia

Decentralized Finance, or DeFi, is a way of using financial services without relying on banks, brokers, or central platforms. Instead, it runs on blockchain technology and computer programs called smart contracts.

If you have ever used online banking, e-wallets, or investment apps in Malaysia, you already understand the problem DeFi is trying to solve. Money today moves fast, but it still depends heavily on banks, platforms, approvals, and middlemen.

So if you are new to this, don’t worry! We will explain what DeFi is and what it actually means for someone in Malaysia trying it for the first time.

What Is Decentralized Finance (DeFi)?

Decentralized Finance is a financial system that works without banks or financial institutions acting as middlemen.

In traditional finance, things usually work like this:

• You deposit money into a bank
• The bank decides how it is used
• Transfers, loans, or investments need approval
• Fees and limits are set by the institution

In DeFi, the system looks very different:

• You control your money directly
• Transactions are handled by code, not people
• There is no single company in charge
• Rules are written into smart contracts and visible to everyone

The best way to think about it:

“Traditional finance is like using Grab, DeFi is like owning the car and deciding where to drive yourself.”

Why Are People Talking About DeFi So Much?

DeFi became popular because it promises things many people feel frustrated about:

• No waiting for bank approval
• No minimum balances
• No fixed office hours
• Global access, not limited by country

For Malaysians who already use online banking or payment gateways, e-wallets like Touch ’n Go, and investment apps, DeFi feels like the next step in digital finance, but without a central authority in the middle.

On the ground, interest isn’t just theoretical. In August 2024, Malaysia’s Digital Minister shared that more than 840,000 Malaysians had opened accounts with regulated digital asset exchanges (DAX), making up over 70% of the investor base on those platforms. 

That’s a strong signal that digital assets have moved from “niche” seen in the West to mainstream curiosity here.

How Does DeFi Actually Work 

DeFi feels “mysterious” at first because it does not look like Maybank2u, CIMB Clicks, or Touch ’n Go eWallet. 

There is no login with your IC, no customer service chat, and no “pending approval” status.

But the core idea is simple: DeFi replaces people and institutions with software rules. 

1) You Create a Crypto Wallet (Not a Bank Account)

A crypto wallet is basically your digital “keychain”.

• It stores your private key, which proves you own your crypto.
• It gives you a public address, which is like your “account number” that people can send crypto to.

What makes it different from a bank account:

• No sign-up approval. No bank officer checks anything.
• No identity built in. A wallet address does not automatically show your name.
• No password reset. If you lose your recovery phrase, it is usually game over.

What you’ll typically see when setting it up:

• A 12 or 24-word recovery phrase (this is your master key)
• A wallet address that looks like random letters and numbers

2) You Put Cryptocurrency Into the Wallet

Your wallet starts empty. To use DeFi, you need crypto inside it.

Usually this happens in one of two ways:

• Buy crypto on an exchange, then withdraw to your wallet address
• Receive crypto from someone else directly to your wallet address

So your wallet does not “store” money like a physical wallet. It is more like a remote control that can move your funds on the blockchain.

Important detail: You usually need a bit of the network’s “gas fee” token to do anything. That fee pays the computers on the network that process your transaction.

“Gas fee is basically a toll”

3) You Connect Your Wallet to a DeFi App

This is where DeFi starts to feel like a normal app.

A DeFi app (often called a dApp)  is like a website or mobile interface that lets you interact with smart contracts.

When you “connect wallet,” what is really happening is:

• The app is asking: “Can I see your wallet address and request transactions?”
• Your wallet is saying: “I can show my address, but I will not do anything unless you approve each action.”

This part is crucial:

Connecting a wallet does not mean the app automatically controls your funds. It means the app can request actions, but YOU decide whether to approve them.

What you will typically see:

• “Connect wallet”
• A pop-up in your wallet saying:
  
  
  • “Sign message” (proves you own the wallet, usually free)
  • or “Confirm transaction” (this costs gas fees and moves funds)

4) Smart Contracts Handle Everything Automatically

This is the heart of DeFi.

A smart contract is basically a program stored on the blockchain that says:

• If X happens, then do Y
• If the rules are not met, reject the transaction

No staff needed. No “back office.” No manual review.

Example A: Lending (Earn Interest)

You deposit stablecoins into a lending pool.

Smart contract rules might be:

• You deposit 1,000 USDT into the pool
• The pool lends it out to borrowers
• Borrowers pay interest
• You receive a portion of that interest

No bank decides your interest rate. It is calculated by supply and demand.

Example B: Borrowing (Using Collateral)

You want to borrow, but DeFi usually requires collateral first.

Rules might be:

• You deposit RM-equivalent crypto worth 2,000
• You are allowed to borrow up to 1,000
• If your collateral value drops too low, the contract liquidates it to protect lenders

This is why DeFi can feel “strict,” because the code does not negotiate.

Example C: Swapping Tokens (Like Money Changer, But Automated)

You swap Token A for Token B using a DEX.

Rules might be:

• The price comes from a pool of Token A and Token B
• The contract calculates the exchange rate
• You approve the trade
• Swap happens instantly

No dealer setting a spread manually. The pool and formula drive pricing.

“If the Rules Are Met, the Transaction Goes Through” 

In traditional finance, your transaction can be stopped for many reasons:

• Compliance flags
• Manual review
• Bank downtime
• Cut-off times
• Internal policy

In DeFi, the smart contract only cares about its programmed rules.

So “rules are met” usually means things like:

• You have enough balance
• You approved the transaction in your wallet
• You have enough gas fees
• The contract conditions are satisfied (collateral ratio, pool liquidity, slippage limit)

If those are satisfied, it executes.

If not, it fails.

And unlike a bank, a failed transaction can still cost you gas fees, depending on how far it got before it failed.

What Beginners Usually Miss (But Should Know)

1) Your Wallet Approvals Matter

Some actions involve giving a contract permission to use a token (a “spending approval”).

For beginners, the idea is:

• Approvals are not the same as a one-time payment.
• You might be granting permission that stays active.

So you should understand what you are approving, and avoid approving unlimited amounts unless you trust the platform.

2) The App Is Not the Protocol

Sometimes the website is just an interface.

• The real “service” is the smart contract on the blockchain
• If the website goes down, the contract may still exist

3) There Is Often No Customer Support

If you send funds to the wrong address, or approve something risky, there is no refund process.

That is the trade-off for control and openness.

How Is DeFi Different From Crypto Trading?

This is an important distinction.

• Crypto trading is usually about buying and selling coins on exchanges
• DeFi is about using crypto as a tool for financial services

You can use DeFi without actively trading prices every day. Many users focus on lending, staking, or earning yield instead.

Is DeFi Legal or Allowed in Malaysia?

DeFi itself is a technology, not a single company or product. In Malaysia, regulators focus more on the businesses that sit between users and digital assets than on the open-source protocols themselves.

In practice, that means regulators look closely at things like:

• Crypto exchanges (Digital Asset Exchanges, or DAX) that let you buy and sell tokens for ringgit
• Custodial services that hold crypto on your behalf
• Investment products and token offerings marketed to the public

These are regulated mainly by Securities Commission Malaysia (SC) under its Digital Assets framework and Recognised Market Operator (RMO) rules. 

As of early 2024, the SC had recognised six registered DAX operators so Malaysians can trade certain cryptocurrencies on regulated platforms.

When it comes to DeFi:

• There is no DeFi-specific licence today.
• Most open DeFi protocols you connect to directly with your own wallet are not individually approved or licensed products in Malaysia.
• Funds you hold in DeFi or on overseas platforms are not protected by PIDM deposit insurance, unlike eligible bank deposits in member banks.

Malaysia is experimenting with ringgit-backed stablecoins like RMJDT on Zetrix and MYRC, as well as a proposed MYR stablecoin by Capital A and Standard Chartered, all under regulated sandbox environments. 

“These are tightly supervised pilots aimed at cross-border payments and institutional use cases, not everyday consumer DeFi apps (at least for now).”

So for an everyday user:

• Using a licensed Malaysian exchange or custodian means you’re in a regulated environment with some investor protections.
• Using DeFi directly from your own wallet usually means you’re outside those protections and taking responsibility for your own decisions, security, and risk.

Risks Beginners Should Understand Before Trying DeFi

This part is often skipped by those fin-influencers on Youtube, but it matters.

You Are Your Own Bank

If you lose your wallet keys, your funds are gone. There is no password reset.

Smart Contract Risks

DeFi platforms are built on code. Bugs and hacks have caused losses in the past.

Price Volatility

Even if interest looks attractive, the value of the token can drop sharply.

Scams and Fake Projects

Anyone can create a DeFi token or platform. Not all of them are genuine.

A First-Timer Approach to DeFi

If you are curious but cautious, start small.

• Use only money you can afford to lose
• Begin with well-known platforms
• Avoid chasing extremely high returns
• Learn how wallets and transactions work before committing larger amounts

Treat your first experience as education, not investment.

Conclusion: Is DeFi for Everyone? Yes if You are Careful

DeFi is powerful, but it is not magic.

DeFi is best seen as an alternative financial system, not a replacement for banks overnight. When approached with curiosity, caution, and realistic expectations, it can be a valuable learning experience rather than an expensive lesson.

At PRESS, we help brands explain complex topics like DeFi in a way everyday audiences can actually understand. As a digital PR agency, we specialise in turning emerging technologies, fintech, and regulatory-sensitive topics into credible, media-ready narratives that build trust, not hype. 

If your business operates in crypto, fintech, or Web3 and needs clear messaging that journalists, regulators, and the public can grasp, we are here to help.

Disclaimer: This article is for general education only and is not financial or legal advice. If you’re unsure whether a DeFi product is suitable or compliant, it’s worth checking the latest information on the SC and BNM websites or speaking to a licensed financial adviser.

Source:

• The Edge Malaysia – “Cryptocurrency adoption in Malaysia drops to 15% of internet users — data” (24 Aug 2022)
• MayCham / NST repost of The Edge crypto adoption data (Surin Murugiah)
• Academic paper citing the same Finder.com / Edge Malaysia adoption figures
• Tiger Research – “Malaysia Web3 Market Overview” (25 Jan 2024)
• Bernama / Astro Awani – “Malaysia ranks among top 10 crypto-friendly destinations – Gobind” (1 Aug 2024)
• The Star – coverage of Gobind’s “top 10 crypto-friendly destinations” comments
• Securities Commission Malaysia – Digital Assets (framework & recognised market operators)
• Example SC Malaysia guideline on Digital Assets (Digital Currency & Digital Token Order, etc.)
• MJSSH paper – “Regulatory Framework for Cryptocurrency: A Comparative Analysis” (confirms 6 recognised DAX)
• Bank Negara Malaysia & SC – “Joint Statement on Regulation of Digital Assets in Malaysia”
• PIDM – Deposit Insurance System (what is and isn’t protected)
• PIDM – Deposit Insurance Handbook
• PIDM editorial – “PIDM does not protect money lost to scams!” (includes note on crypto / digital tokens)
• Fintech News Malaysia – coverage of the RMJDT ringgit-backed stablecoin in national sandbox
• Example RMJDT / Zetrix announcement (issuer and sandbox details)
• BLOX – MYRC ringgit stablecoin (product info page)
• IOSCO – “Decentralised Finance Report” (OR01/2022)
• FSB – “Decentralised Finance: Assessment of Risks to Financial Stability”