Welcome to the most complete DeFi Glossary in the crypto ecosystem. The crypto and Web 3.0 concepts you should know are found here!
If you are tired of those long and complex articles explaining key DeFi concepts, you are on the right spot. Dive in the most simple, yet understandable definitions of the crypto industry!
0
0x
An Ethereum protocol that allows tokens to be traded peer-to-peer at a low cost directly between users.
A
Aave
A non-custodial, open source protocol where users earn interest on deposits and borrow assets.
Agent
A participant of the DeFi and Web 3.0 ecosystem.
Aggregator
A financial trading tool that increases efficiency as a comprehensive explorer by bringing in price and liquidity data from many DEXs.
Alpha Code
Preliminary version of codes and algorithms that are to be developed with the aim to bridge a technological gap.
AML
Anti-Money Laundering or AML in crypto refers to actions taken mostly by centralized exchanges to comply with legal requirements and report potentially malicious activities.
AMMs
Automated Market Makers or AMMs determine price adjustments of tokens and incentivize users to provide liquidity to trading pairs in decentralized exchanges and earn returns. AMMs ensure that there is liquidity for users to buy a specific token, without relying on another party to execute the trade. They eliminate the need to rely on external market makers to provide liquidity for trading pairs.
APR
Annual Percentage Rate or APR refers to the percentage earnings of a user that provides his/her tokens to borrowers as loans.
APY
Annual Percentage Yield or APY is the rate of return of a user by taking into account compound interest. APR does not consider compounding.
Arbitrage
The trading of a cryptocurrency across different exchanges to benefit from the price spread.
Arbitrageur
A crypto trader that looks for arbitrage opportunities.
ATH
All-Time-High or ATH refers to highest value of all time of a crypto metric such as Bitcoin price and hash rate.
aTokens
The interest bearing tokens used in AAVE that are minted upon deposit and burned when redeemed.
Audit
The process of evaluating that a crypto project is technically legitimate including the assessment of smart contract functionalities.
B
Balancer
An AMM DeFi protocol that allows users to create or add liquidity to trading pools and earn trading fees.
Beacon Chain
The consensus layer that will be the backbone of Ethereum 2.0 upon the shift to proof-of-stake. It will coordinate the network of shards and stakers.
Bear Market
A prolonged decline of cryptocurrency prices of at least 20% from recent highs.
Beta Code
Mid-stage version of codes and algorithms that are to be developed with the aim to bridge a technological gap. At this moment, some functionalities are live on a testing phase.
Bitcoin
The first cryptocurrency developed in 2009 with the aim to act as an instant, decentralized means of payment.
Bitcoin Maximalist
A person that believes Bitcoin will survive as the main cryptocurrency in the future.
Black Swan
An unexpected event in the market, usually referring to a price crash.
Blockchain
An immutable, decentralized ledger that acts as a public record of all transactions within a cryptocurrency network.
Blue Chip
Cryptocurrencies with high market capitalization which are therefore considered less risky and more stable.
Bonding Curve
A mathematical formula that sets the relationship between the price and supply of a cryptocurrency.
Bull Market
A prolonged rise of cryptocurrency prices of at least 20% which occurs after two declines of 20% each.
C
CeFi
Centralized Finance – referring to conventional financial mechanisms
CEX
A centralized exchange for example Binance, Coinbase, Crypto.com
Censorship Resistant
The technical ability of a cryptocurrency or a blockchain that does not allow a party to alter or modify its transactions.
Coin
A term used to refer to a cryptocurrency. Coins mostly refer to cryptocurrencies used as a medium of exchange like Bitcoin.
Coinbase Transaction
The first transaction in each block.
Cold Wallet
A cryptocurrency wallet that stores a user’s private key offline and cannot be compromised since it is not connected to the Internet. Also referred to as a “hardware wallet”.
Collateral
The use of digital assets on crypto-backed loans as a commitment. Similar to a house used as collateral for a mortgage loan.
Collateral Ratio
The ratio of the crypto loan amount to the value of the collateral.
Composability
The degree of interoperability between blockchains and decentralized applications.
Compound
An algorithmic, autonomous interest rate protocol built for developers, used to unlock a plethora of financial applications.
Consensus Mechanisms
Mechanisms (ex: Proof-of-Work, Proof-of-Stake) that achieve the necessary type of agreements within distributed networks or systems. Ideally, these mechanisms must enable reliability and fault-tolerance within blockchain networks.
Contract Address
The address created when a contract is deployed on the blockchain. It is often required by wallet services to add a token in a user’s portfolio.
Cross Chain
The interoperability between blockchain networks that allows the transfer of value.
Cryptocurrency
A digital currency secured by cryptography to keep the transactions safe from counterfeit.
Crypto Twitter
An online active community on Twitter that engages in discussions regarding cryptocurrencies and blockchain technology.
cTokens
The unit of account that users own to interact with the Compound Protocol. When users supply value to a lending pool, they are issued the corresponding balance in cTokens.
Curve
A decentralized exchange built on Ethereum that facilitates stablecoin trading.
D
DAI
A stablecoin built on Ethereum with the aim maintain a value pegged to $1. Backed by collateral on the Maker platform.
DAO
Decentralized Autonomous Organization or DAO refers to an autonomous software running on the blockchain that is self-manageable. Smart contracts define the rules and governance of a DAO.
Dapp
Decentralized Application or dapp refers to a blockchain application that runs through a smart contract and a frontend user interface. A dapp is not controlled by a central server.
DeFi
Decentralized Finance or DeFi refers to the financial mechanisms that are based on distributed, decentralized networks like blockchains.
DeFi Pulse
A site that includes the latest rankings, metrics and analytics of DeFi protocols.
Deflationary Token
A token that decreases its market supply through time.
Delegated Proof-of-Stake (DPoS)
A consensus algorithm that allows users to vote for the next block validator by spending an amount of tokens. Therefore, this is a situation of token holders electing delegates, rather than creating blocks themselves.
Delegation
The reward of tokens to another user for participating in a staking mechanism on Delegated Proof-of-Stake (DPoS) blockchain protocols.
Derivative
DeFi Derivatives replicate practices of financial derivatives and provides more efficient tools than conventional centralized systems. Synthetic assets represent the primary example of DeFi Derivatives. They use smart contracts to represent on-chain and off-chain assets via blockchain tokens.
DEX
A decentralized exchange for example Uniswap, PancakeSwap.
Discord
An interactive platform where members join channels to discuss their topics of interest.
dYdX
A DeFi Derivatives exchange that offers perpetual trading. It allows decentralized spot and margin trading as well as lending and borrowing. dYdX relies on an off-chain matching mechanism with order books.
E
EIP-1559
An Ethereum Improvement Proposal that aims to increase the mining speed of Ethereum’s native currency – Ether – and incentivise tis use.
Ether
The native currency of the Ethereum network.
Ethereum
An open-source, decentralized blockchain network with smart contract functionality. It enables the creation of immutable dapps where users can interact.
Ethereum Virtual Machine (EVM)
A mechanism that determines state changes of the Ethereum network upon the creation of new blocks. The machine determines transitions with every set of programs it runs according to certain fixed rules.
Etherscan
An online Ethereum blockchain explorer.
ERC-20
A standard used for creating and issuing smart contracts on the Ethereum blockchain.
ERC-721
A standard used for building non-fungible and unique tokens on the Ethereum blockchain.
F
Fair Launch
A cryptocurrency that is entirely developed and governed by the community and everyone can participate without privileges for early investors such as token allocation and pre-mining.
Fiat Money
Government-issued currencies that are not backed by a physical commodity.
Flash Loan
It is a crypto loan that must be borrowed and repaid within the same blockchain transaction. Either all the steps of the blockchain transaction will be executed or none of them will occur. It introduces the concept of uncollateralized lending.
FOMO
Fear of Missing out refers to the sense that other people are benefiting from an opportunity such as investing in a specific cryptocurrency.
Forced Liquidation
When a crypto investor cannot fill the margin requirements of a leveraged position, therefore sells digital asset to create liquidity.
Fragmentation
When information is not adequately passed between exchanges and leads to differences in pricing of cryptocurrencies and lack of liquidity in the market.
G
Game Theory
The study of mathematical models to understand the strategic decision making incentives within a network.
Gas Fee
The fee required to conduct an Ethereum transaction. Paid out as rewards to miners as a compensation and incentive mechanism for the process and validation of transactions.
Gas Limit
The maximum amount of Gas that a user is willing to pay for conducting an action or confirming a transaction.
Governance Token
Tokens that grant voting and management power to their owners.
Gwei
A denomination of Ether.
H
HODL
A cryptocurrency investing strategy where users buy cryptocurrencies and do not sell them for a long period of time.
Hot Wallet
A wallet that is connected to the internet.
I
Impermanent Loss
The difference on wealth between holding a crypto token in comparison to providing liquidity for the crypto token.
Inflationary Token
A token that increases its market supply through time.
Initial Coin Offering (ICO)
An unregulated crowdfunding method for new crypto projects.
Institutional Investor
A company that invests money on behalf of its clients and members. Examples include insurance companies and mutual funds.
Interoperability
The degree to which blockchains can operate in sync and exchange information.
K
KYC
Know Your Customer or KYC process refers to the process that a financial entity follows to ensure that all the necessary identity and background checks of a client are adequate, before using their service.
L
Layer-1
Solutions that can improve the base protocol of a blockchain in terms of scalability.
Layer-2
A third party integration that can improve the scalability of a blockchain network.
Legos
Technological applications that enable several decentralized ecosystems to be integrated and used for the same cause. For example the emergence of one new protocol with multiple functions such as staking, lending and borrowing digital assets.
Lending Aggregator
Programmable smart contracts that look for the best lending opportunities for stakers/lenders.
Lending Provider
A user that lends cryptocurrencies to DeFi protocols and anticipates returns in the form of rewards and fees.
Leverage
The use of borrowed funds to invest in cryptocurrency assets.
Liquidation
The selling of cryptocurrencies for other digital assets. Forced liquidation refers to automatic selling in order to close leveraged positions.
Liquidity
The ability of a cryptocurrency to be easily converted into another cryptocurrency or fiat money.
Liquidity Mining
When a user lends cryptocurrencies to a DeFi platform that looks raise capital. The lender anticipates to receive in return rewards in the form of interest payments and trading fees. Also known as Yield Farming.
Liquidity Pool
A pool of cryptocurrencies locked in a smart contract. The locked funds are used to enable trading between the assets of the pool via the use of AMMs.
Liquidity Pool Tokens
The tokens provided to the Liquidity Provider to represent their stake in a Liquidity Pool. Liquidity Pool Tokens. The Liquidity Provider can move these Liquidity Pool tokens among various DeFi protocols to maximize returns via Yield Farming.
Liquidity Provider
The user that supplies liquidity, in the form of cryptocurrencies locked in smart contracts, to Liquidity pools.
M
Mainnet
The real blockchain network where cryptocurrencies carry monetary value.
Maker DAO
A primary DeFi platform for lending and borrowing cryptocurrencies.
Margin
A strategy of using third party funds to open trading positions.
Margin Call
Occurs when the value of a user’s digital assets within a portfolio, falls below the margin level. Liquidation usually occurs after a margin call.
Market Capitalization
The total value of all coins that are currently in circulation. Also known as Marketcap. It is calculated by multiplying the price of a cryptocurrency by the current supply mined.
Metamask
A decentralized cryptocurrency wallet that allows users to interact with several blockchains. It is available as a browser extension and a mobile application. Users can buy, store, send, swap tokens and interact with other dapps.
Miner Extractable Value (MEV)
The value of profits that miners can make if they decide to reorder, insert or exclude specific blockchain transactions.
Mining Pool
A pool of cryptocurrency miners that gather their computational power in order to increase their probabilities to mine a block.
Multisignature Wallet
Wallets that require two or more users to sign transactions with their private keys in order to allow execution.
MyEtherWallet (MEW)
An open-source, client-side interface for generating Ethereum wallets and interacting with the Ethereum blockchain.
N
Node
A computer that supports a blockchain network by validating and broadcasting transactions.
Non-Fungible Token (NFT)
A blockchain token that is not interchangeable. Each NFT can differ from another NFT in terms of monetary value and metadata.
O
Off-chain
The processing of transactions outside the main blockchain. Useful for lower fees and faster settlement times.
Off-ramp
A gateway to convert cryptocurrencies to fiat money.
On-chain
The processing of transactions on the main blockchain.
Oracle
An API bridge that sends real world data to the blockchain in order to trigger smart contracts. For example, sending information about weather conditions to a smart contract in order to automatically compensate farmers for potential losses on their fields.
Over-collateralization
The provision of collateral that carries a greater value than the original loan. Used in Flash Loans.
P
Peer-to-Peer (P2P)
The direct exchange of cryptocurrencies between users without the involvement of a third party.
Permissioned Blockchain
A blockchain network where users need to be granted access in order to participate and see history of transactions. Can come into various access tiers.
Permissionless Blockchain
An open blockchain network where any user can access transaction history and participate by trading cryptocurrencies as well as validating and mining transactions.
Plasma
A framework that allows the creation of “child” chains to the main Ethereum chain and apply Optimistic Rollups to settle disputes. Each Plasma chain can be customized to be suitable for different scalable use cases.
Price Oracles
An oracle that fees the main chain with information regarding prices of assets such as cryptocurrencies and fiat currencies.
Primitives
Cryptographic algorithms such as hash functions and asymmetric encryption that structure the building blocks of a DeFi protocol.
Private Key
A random number that is cryptographically generated and used to obtain control and spend cryptocurrencies from a wallet.
Proof-of-Stake
A consensus mechanism that relies on the amount of tokens held by nodes rather than computational power, in order to determine who will validate the new block. The more tokens a node stakes, the more the chances of a node being the validator for the next block.
Proof-of-Work
The consensus mechanism behind Bitcoin. Miners compete with each other in order to solve a complex mathematical problem by committing computational resources. The miner that solves this puzzle first, will be eligible to mine the next block of the chain.
Protocol
The set of rules that govern the consensus mechanism and structure of a blockchain.
Public Key
A cryptographically generated number that is public to the network and allows users to receive cryptocurrencies in their wallets.
Pump & Dump
A malicious investment strategy, where users inflate the price of a cryptocurrency via publishing misleading information and then massively sell their coins which leads to a sharp price decline.
R
Rebalance
Trading cryptocurrencies in order to achieve the desired level of asset and risk exposure.
Rebase Token
A token that automatically adjusts its supply according to price fluctuations.
Retail Investor
An individual crypto trader.
Return on Investment (ROI)
A metric to evaluate the performance of one or more cryptocurrencies. Measured by calculating the difference between the price that a cryptocurrency was bought at, and the selling price.
Rug Pull
Occurs when project creators withdraw their Liquidity Pool tokens from a decentralized exchange pair. This action drives the token’s price close to $0.
S
Scalability
The ability of a blockchain network to handle large amount of transactions within a limited time.
Seed Phrase
A 12 or 24 series of words that acts as a backup to restore the content of cryptocurrency wallets. Usually when a cryptocurrency wallet is generated, it is associated with a Seed Phrase, which the user must keep in a safe place.
Shards
Small “pieces” of a blockchain with each one of them carrying its own transactions. Sharding is a scalability solution on Ethereum by splitting the load of the network and facilitating faster transactions.
Sidechain
A separate blockchain running in parallel to the main chain with its own consensus mechanism to achieve greater scalability. It is tied to the main chain via a 2-way peg.
Slippage
A situation where a trader executes a transaction with different price terms than intended. A common issue in DEXs with low liquidity pairs.
Smart Contract
Self-executing contracts which are based on code and according to the direct agreement between the associated parties.
Spread
The difference between the buy and sell prices of a cryptocurrency.
Stablecoin
A cryptocurrency that derives its value from another underlying asset such as another cryptocurrency, a fiat currency or a commodity.
Stake
The process of verifying blockchain transactions used in Proof-of-Stake. It involves committing cryptocurrencies for a certain period of time.
Synthetic Assets
The use of smart contracts to represent on-chain and off-chain assets via blockchain tokens. A blockchain transaction facilitates this relationship between the asset and the token. This transaction is reflected by tokenization.
T
Testnet
A version of a blockchain that is used for testing purposes, where cryptocurrencies do not hold a monetary value.
Tether
A stablecoin pegged to the value of 1$.
Throughput
A metric of how many actions, mostly referring to transactions, can be completed within a given timeframe.
Token
A cryptocurrency that represents an asset.
Token Burn
The removal of cryptocurrencies from the supply by sending them to an unspendable address.
Tokenomics
The economics that affect the demand and supply of a cryptocurrency.
Token Rewards
Rewards given to stakers or other eligible users.
TradFi
Traditional Finance
Transaction Fees
Payable to miners by users, as an incentive to include their transactions on the following block(s).
Transparency
The degree to which blockchain data are available to the public.
Trustless
The fact that blockchain transactions can be executed P2P without the need to rely on a third party.
Turing Complete
A code that can execute any task when fed with the correct instructions.
TVL
Total Value Locked. The total value of all staked assets.
U
UI
The user interface where a human can interact with the application.
Underlying Asset
An asset that determines the price of another asset. For example the US dollar for Tether.
UniSwap
A decentralized protocol that facilitates automated trading between Ethereum based tokens.
UX
User Experience – refers to the personal experience of a user when accessing the tools of an application.
V
Volatility
The fluctuation on the price of a cryptocurrency over time.
Voting Rights
The rights to vote for specific decisions in a blockchain project, which are included on Governance Tokens
W
Wallet
A digital wallet where users can manage, store and trade cryptocurrencies.
Web 3.0
The evolvement of the internet towards decentralization, powered by decentralized applications and blockchain technology.
Whale
Cryptocurrency users that hold a big amount of the coin’s supply.
Y
Yield
Earnings deriving rom yield farming activities such as staking.
Yield Aggregator
The use of different DeFi protocols to maximize yield returns.
Yield Farming
See Liquidity Mining.
Z
Zero-knowledge Proofs
A verification method where one party proves to another party that a statement is true without revealing any more information. Adopted in privacy coins such as Zcash.
Zero-knowledge Rollups
Smart contracts that process transactions off-chain and bundle them into a single transaction for scalability purposes.
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