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DeFi Dictionary

Updated: Dec 27, 2021

The follow is a list of terms and definitions that are commonly seen in the DeFi space. This list is live and will grow as the industry does.


Airdrop - An airdrop, in the cryptocurrency business, is a marketing stunt that involves sending coins or tokens to wallet addresses in order to promote awareness of a new virtual currency. Small amounts of the new virtual currency are sent to the wallets of active members of the blockchain community for free or in return for a small service, such as retweeting a post sent by the company issuing the currency.

AMM (Automated Market MaAn automated market maker (AMM) is a type of decentralized exchange (DEX) protocol that relies on a mathematical formula to price assets. Instead of using an order book like a traditional exchange, assets are priced according to a pricing algorithm.

APR stands for Annual Percentage Rate, which is the percentage of interest an investor or depositor will earn over a year. For example, if you invested $1000 at an APR of 10%, you would profit $100 at the end of the year (1000 x 0.10). APY stands for **Annual Parentage Yield. **It is similar to APR, except that it includes the compounding of interest.

More details of the differences are on the page

Bitcoin () is a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries.[8] Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain.

A blockchain is a growing list of records, called blocks, that are linked together using cryptography

It's a governance token. Compound being a fully decentralized system (or at least on the way towards it), has a decentralized governance mechanism in place. The same system that was copied and used also in the SushiSwap governance. More on Compound Governance can be found on their Medium article Steps towards complete decentralization.

Defi (Decentralized Finance)

is a blockchain-based form of finance that does not rely on central financial intermediaries such as brokerages, exchanges, or banks to offer traditional financial instruments, and instead utilizes smart contracts on blockchains, the most common being Ethereum.

A decentralized autonomous organization (DAO), sometimes called a decentralized autonomous corporation (DAC),[a] is an organization represented by rules encoded as a computer program that is transparent, controlled by the organization members and not influenced by a central government

One of the most significant Ethereum tokens is known as ERC-20. ERC-20 has emerged as the technical standard; it is used for all smart contracts on the Ethereum blockchain for token implementation and provides a list of rules that all Ethereum-based tokens must follow.

ERC20 has a set of 6 mandatory and 3 optional guidelines to follow in the creation of a token and the 3 optional ones include Name of the token, Symbol of the token and number of decimals in it. The mandatory are the Total Supply, Balance of the token, 2 Transfer options (normal from the pool of liquidity in the token or between users) and 2 approval mechanism (approval where you have enough or allowance which checks if a user has enough tokens).

Users can utilise something like The Token Factory to create their own tokens and according to Etherscan, there are 466k ERC20 tokens available.

Ethereum is a decentralized, open-sourceblockchain with smart contract functionality. Ether (ETH or Ξ) is the native cryptocurrency of the platform. Amongst cryptocurrencies, Ether is second only to Bitcoin in market capitalization

Refers to blockchains that are built to work on Ethereum. Ethereum Virtual Machine (EVM) is a computation engine which acts like a decentralized computer that has millions of executable projects. A list of networks which provide this are here on Chainlist.

ICO (Initial Coin Offering)

also known as an initial currency offering is a type of funding using cryptocurrencies. It is often a form of crowdfunding, although a private ICO which does not seek public investment is also possible.

Per Binance "Impermanent loss happens when the price of your tokens changes compared to when you deposited them in the pool. The larger the change is, the bigger the loss." Stablecoins have lower risk of impernanent loss as they trade within a tight range typically. For liquidity providers, this is counteracted by trading fees, especially if a token has a lot of trading that's done on it. Good explanation provided in this link of a user suffering from impermanent loss from .depositing their tokens into the liquidity pool rather than just holding onto it.

Liquidity mining, also called yield farming, is a network participation strategy that allows you to provide liquidity (capital) to a liquidity pool on a Decentralized Exchange (DEX). In return, you receive a reward from the specific liquidity pool to which you provided liquidity.

LPs - Liquidity Pools - A liquidity pool is basically funds thrown together in a big digital pile and are one of the foundational technologies behind the current DeFi ecosystem. They are an essential part of automated market makers (AMM), borrow-lend protocols, yield farming, synthetic assets, on-chain insurance, blockchain gaming – the list goes on.

The Maker Protocol, also known as the Multi-Collateral Dai (MCD) system, allows users to generate Dai by leveraging collateral assets approved by “Maker Governance.” Maker Governance is the community organized and operated process of managing the various aspects of the Maker Protocol.

NFTs have been all the rage recently and whether its digital artwork or other items which need proof of ownership, they are continuing to make headlines. NFTs are a smart contract which effectively gives users digital bragging rights on a product but the original creator can still create copies of this and more. NFTs are often used to sell digital artwork, concert tickets, domain names, in-game items, real estate and more.

Oracles - From CoinTelegraph “Oracles are third-party services that allow smart contracts within blockchains to receive external data from outside of their ecosystem.”

There are also different types of oracles from inbound (sending information from the outside to the smart contracts) or outbound (from the smart contracts to external sources). Decentralised oracles are better than centralised as there is less vulnerability when risk is spread. Some DAOs are designed to give more rewards for oracles that are accurate and penalise those that are inaccurate.

Perpetual Pools - New primitive from Tracer where they propose a simple derivative infrastructure to create leveraged tokens, whereby long and short users have changing claims on a pool of collateral.

Sharding is a database partitioning technique used by blockchain companies with the purpose of scalability, enabling them to process more transactions per second.

A smart contract is a self-executing contract with the terms of the agreement between buyer and seller being directly written into lines of code. The code and the agreements contained therein exist across a distributed, decentralized blockchain network.

Staking - this invovles having investors in a token offering to have their tokens locked up in the protocol and in exchange for doing so, receiving rewards for this. Decentralised applications typically would use a proof of work model to verify transactioons which then has moved to proof of stake and in this case, it's those staked tokens that become part of that process. The rewards are earned as those tokens are being put to work. Drawbacks to this include vesting periods during which you cannot move or transact on your crypto whilst it is being staked.

The term crypto token refers to a special virtual currency token or how cryptocurrencies are denominated.

Tokenomics - per CoinMarketCap "Tokenomics is the topic of understanding the supply and demand characteristics of cryptocurrency." This definition goes straight to their article where you'll see why supply and demand and understanding how the digital currrency will be used is important for any token/protocol you're assessing.

Total Value Locked (TVL) - per CoinMarketCap "Тotal value locked represents the number of assets that are currently being staked in a specific protocol". It is calculated by multiplying the value of all tokens in criculation by the current market price. This can be specific to an application or be looked at for an overall platform or market.

This was a protocol created to remove the hassle of having to go through multiple exchanges to swap tokens. Doing so pre-UniSwap meant a lot of legwork to swap certain tokens and additive fees but UniSwap came up with a way to do this all in one go. Variations of UniSwap have been created and the most famous was SushiSwap which performed a Vampire Attack to grab liquidity from UniSwap.

Per Finematics, vampire attack is a way to get liquidity from one platform to another via incentivisations for users. Once there's enough liquidity on the new protocol, the vampire attack migrates staked LP tokens to the new platfrom and can thus use their AMM (automated market maker) so that they can then also take trading volume and users (not just liquidity) from the initial platform.

Yield Farming - Different ways to earn money off the tokens you buy. This includes lending and borrowing, leveraged lending, staking and more. Further info can be found in the link or in this blog post on our site “What is Yield Farming”.


These definitions come from places such as

  • CoinBase

  • CoinMarketCap

  • Investopedia

  • Wikipedia

  • Binance Academy

  • MakerDAO

  • MatrixSwap

  • Solidity Developer

  • TrustWallet

  • Whiteboard Crypto



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