Glossary
Welcome to the DeFi Glossary! πΎπ
Here, you'll find quick and straightforward explanations of terms you'll often come across in the world of decentralized finance. Our goal is to make these concepts clear right off the bat. Plus, we've included extra reputable resources for each term, just in case you're itching to dive deeper (the first one is usually a YouTube videoπ).
Everything is sorted alphabetically to make searching easy.
Can't find a term you're curious about? Drop us a note via this Google form, and we'll get it on here pronto.
Hope youβll find this resource valuable.
Catch you on-chain,
The SoC teamπΎ
A β’ B β’ C β’ D β’ E β’ F β’ G β’ H β’ I β’ J β’ K β’ L β’ M β’ N β’ O β’ P β’ Q β’ R β’ S β’ T β’ U β’ V β’ W β’ X β’ Y β’ Z
A
Airdrop β A distribution of free tokens or coins to multiple wallet addresses, often used as a promotional or reward mechanism.
All-In β Investing all available capital or resources into a single investment or trade.
Ape-In β Slang in the crypto community for investing heavily and impulsively into a cryptocurrency without thorough research.
APR (Annual Percentage Rate) β The yearly interest rate you earn or pay on an investment or loan, showcasing the actual yearly cost or earnings, without compounding within the year.
APY (Annual Percentage Yield) β Reflects the real rate of return on an investment in a year, considering the effect of compounding interest, unlike APR which does not.
Audited β In the context of crypto, refers to a thorough review of a project's code or financials by an independent party to ensure security and transparency.
B
Bear market β A period of time in financial markets when the price of an asset or security falls or is expected to fall, encouraging selling.
Blockchain β A distributed digital ledger that securely records transactions across many computers, ensuring that records cannot be altered retroactively without altering all subsequent blocks.
Blockchain Explorer β A tool or website that allows users to view details of blocks, transactions, and addresses on a blockchain network.
Bounty β A reward offered for completing specific tasks or solving problems, commonly used in software development and bug hunting.
Bridge β Technology that connects two blockchains, allowing the transfer of assets or data between them.
Bug β An error or flaw in a projectβs code that causes unexpected or incorrect results or an exploit.
Bull market β A period of time in financial markets when the price of an asset or security rises or is expected to rise, encouraging buying.
Buy the Dip β A strategy where investors purchase assets after a decline in price, anticipating a rebound.
C
CEX (Centralized Exchange) β A platform such as Binance or Coinbase, where users can buy, sell, and trade cryptocurrencies under the oversight of a central authority, offering ease of use, high liquidity, and advanced trading features but with less privacy and control over funds.
Circulating Supply β The number of cryptocurrency coins or tokens that are publicly available and circulating in the market.
Cross-Chain β Refers to interactions between different blockchain networks, enabling the exchange of information or assets.
Cryptocurrency (Crypto) β Digital currencies that use cryptography for security and operate on a blockchain, enabling secure, peer-to-peer transactions.
Cold wallet β A digital wallet that stores cryptocurrencies offline, providing enhanced security against online hacking attempts. Ideal for long-term storage, it's less convenient for quick transactions compared to hot wallets.
D
DAO (Decentralized Autonomous Organization) β An organization represented by rules encoded as a transparent computer program, controlled by the organization members, and not influenced by a central government.
DeFi (Decentralized Finance) β Financial services, such as lending, borrowing, and trading, built on blockchain technology and that operate without centralized financial intermediaries.
DEX (Decentralized Exchange) β A peer-to-peer marketplace that connects cryptocurrency buyers and sellers without a central authority, using smart contracts to facilitate transactions.
Diluted β In finance, refers to the reduction in earnings per share or ownership percentage due to the issuance of additional shares or tokens.
DPoS (Delegated Proof of Stake) β A consensus mechanism where stakers delegate their stake to validators, also known as delegates, to secure the network and validate transactions. This system aims for efficiency and reduced energy use, with chosen validators responsible for maintaining network integrity.
Derivatives β Financial contracts whose value is derived from an underlying asset, index, or interest rate, used for speculation or hedging.
E
ERC-20 β A standard for creating and issuing smart contract-based fungible tokens on the Ethereum blockchain.
ERC-721 β ERC-721 tokens differ from ERC-20 as they are non-fungible tokens (NFT). This means that each token is unique and as a result, not interchangeable.Β
ERC-1155 β A standard that combines ERC-20 and ERC-721 functionalities. It allows for the creation of both fungible and non-fungible tokens within a single smart contract, reducing complexity and allowing for greater efficiency.
EVM (Ethereum Virtual Machine) β The runtime environment for smart contracts on Ethereum, enabling the execution of code in a decentralized manner across the network.
Exploit β A malicious attack utilizing software vulnerabilities to gain unauthorized access or cause harm.
F
FOMO (Fear Of Missing Out) β The anxiety of potentially missing out on a profitable opportunity in the market, often leading to impulsive investment decisions.
FUD (Fear, Uncertainty, and Doubt) β A strategy to influence perception by spreading negative, misleading, or false information, often causing prices to drop in crypto markets.
Fully Diluted Market Cap β The theoretical market value of a cryptocurrency if all planned coins were in circulation, calculated by multiplying the total max supply by the current price.
G
Gas Fees β Transaction fees on a blockchain network, primarily associated with Ethereum, paid to compensate for the computing energy required to process and validate transactions on the blockchain.
H
Hash β A fixed-size alphanumeric string generated from data input, crucial for blockchain integrity and security.
Hot wallet β A digital wallet connected to the internet, allowing easy access for frequent transactions. While convenient for daily use, its internet connectivity makes it more susceptible to online security threats compared to offline cold wallets.
I
ICYM (In Case You Missed It) β A term often used on social media platforms to highlight important information or updates that may have been overlooked.
Impermanent loss β A temporary loss faced by liquidity providers in decentralized finance due to price divergence between assets in a liquidity pool, which can become permanent if assets are withdrawn during price disparity.
J
K
Know your customer (KYC) β Process that exchanges and other financial institutions use to gather identifying data and contact information from current and potential customers to prevent fraud, money laundering, and other illicit activity.
L
L1 (Layer 1) β The base layer of a blockchain network, fundamental to its architecture and operation.
L2 (Layer 2) β Secondary frameworks or solutions built atop an L1 blockchain to improve scalability and transaction speed.
LFG (Let's F*cking Go) β A motivational expression used to express excitement or readiness to proceed, often in the context of rallying community support in crypto.
Liquidity Pool β A collection of funds locked in a smart contract that provides liquidity for trading pairs on decentralized exchanges, enabling users to trade tokens without needing a traditional buyer-seller match.
Liquidity providing β The act of depositing assets into a liquidity pool on a decentralized exchange to facilitate trading, earning providers transaction fees as a reward, but with potential risks like impermanent loss.
LP token (Liquidity Provider Token) β A token received by liquidity providers as proof of their contribution to a liquidity pool, often used to reclaim deposited assets and a share of transaction fees.
Liquid staking β A process relevant for Proof of Stake (PoS) blockchains, where users stake their cryptocurrency to support network security and consensus but receive a liquid token in return, enabling continued asset utilization while staked.
LRT (Liquid re-staking token) β Differently from LSTs, the staked assets backing LRTs are also used to secure (and validate) other networks, which are borrowing security from the main network on which the LRT is minted.
LST (Liquid staking token) β A token received in exchange for staking assets in a PoS blockchain, representing the staked assets plus any accrued rewards, allowing holders to remain liquid and participate in other DeFi activities.
M
Market Cap β The total value of a cryptocurrency, calculated by multiplying the current price by the total number of coins in circulation.
MEV (Miner Extractable Value) β The profit miners or validators can earn by reordering, inserting, or censoring transactions within blockchain blocks, beyond standard block rewards and transaction fees.
N
NFT (Non-Fungible Token) β A type of cryptographic token on a blockchain that represents a unique asset or good, such as digital art, collectibles, or real estate. Unlike cryptocurrencies, NFTs are not interchangeable.
O
Optimistic Rollups β Protocols that increase transaction output by bundling multiple transactions into batches, which are processed off-chain. After that, the transaction data is recorded on the main chain with data compression techniques that help lower costs and increase speed. Arbitrum is an example.
Options β Financial derivatives that give the buyer the right, but not the obligation, to buy or sell an asset at a predetermined price within a specific time frame.
Oracles β Services that provide smart contracts with external information, crucial for executing contracts based on real-world data.
P
Perpetuals β A type of derivative in cryptocurrency markets that does not have an expiry date, allowing positions to be held indefinitely.
Phishing β A cyber attack that uses disguised emails or messages to trick individuals into revealing personal information or credentials.
POS (Proof of Stake) β A consensus mechanism where validators are chosen to confirm transactions based on the amount of cryptocurrency they hold and are willing to "stake", promoting energy efficiency and security.
POW (Proof of Work) β A consensus mechanism requiring participants to solve complex mathematical puzzles to validate transactions and create new blocks, foundational to Bitcoin's security but noted for its high energy consumption.
Priced-In β Refers to the idea that market prices already reflect all known information and expectations.
Private Key β A secure, confidential cryptographic key used to access and manage one's cryptocurrency assets.
Public Key β A cryptographic key that can be shared publicly, used in conjunction with a private key for secure communication or transactions.
Q
R
Referral Program β A marketing strategy where existing users are incentivized to refer new users to a service or platform, often rewarded with bonuses or discounts.
Rollup β A Layer 2 solution that aggregates multiple transactions into a single one to reduce fees and increase throughput on the blockchain.
RWA (Real World Assets) β Assets from the physical world, like real estate, stocks, bonds, or commodities, tokenized and integrated into decentralized finance, enabling traditional asset exposure within the DeFi ecosystem.
S
SAFU (Funds Are Safu) β A term popularized in the crypto community meaning that user funds are secure or protected, often used reassuringly.
Seed Phrase β A series of words generated by a cryptocurrency wallet that gives access to the assets stored in the wallet, crucial for recovery purposes.
Sell the News β The practice of selling an asset once anticipated news is released, based on the principle that the market moves on rumors and sells on news.
Smart Contract β Self-executing contracts with the terms written into lines of code, which automatically enforce and execute the terms of a contract when predetermined conditions are met.
Staking β Participating in a network's operations by locking cryptocurrencies as a way to verify transactions and support the network, often earning rewards in return.
Stablecoin β A type of cryptocurrency designed to maintain a stable value, often pegged to a fiat currency or commodity.
Swap β The exchange of one cryptocurrency for another without the need for a traditional exchange.
T
TL;DR (Too Long; Didnβt Read) β A summary phrase used to provide a brief overview of a longer text, often found in online articles, forums, and discussions to convey essential points concisely.
Token β A digital asset issued on a blockchain, often used to represent assets like governance rights, stablecoins, securities, loyalty points, or even other cryptocurrencies.
Source 1 Source 2
Tokenomics β The study of the economics of cryptocurrencies or tokens, including factors like supply, distribution methods, and utility, that influence their value and function within an ecosystem.
Total Max Supply β The maximum number of coins or tokens that will ever exist for a cryptocurrency.
To the Moon β A phrase used in the crypto community to express optimism about a cryptocurrency's potential to significantly increase in value.
TPS β Transactions per second.
U
V
Validators β Participants in a PoS (Proof of Stake) blockchain network responsible for confirming transactions and creating new blocks by staking their own cryptocurrency as a form of security and integrity assurance.
veToken Model β A tokenomics framework where users lock up governance tokens for a period to receive veTokens, which grant voting power and potential yield enhancements, encouraging long-term participation and stability in DeFi protocols.
Volume β The total amount of a cryptocurrency traded within a specific timeframe, indicating market activity and liquidity.
W
Wallet β A digital tool that allows users to store, send, and receive cryptocurrencies and tokens. Wallets can be βhotβ or βcoldβ.
Web 3.0 β The next phase of the internet, characterized by decentralized networks, blockchain technologies, and a greater emphasis on user privacy, ownership, and interoperability.
White-Hat Hacker β An ethical computer security expert who penetrates systems to identify and fix security vulnerabilities.
X
Y
Yield β The earnings generated from an investment over a period, often expressed as a percentage, common in DeFi through interest, dividends, or token rewards from lending, staking, or liquidity providing.
Yield Bearing Asset β An asset that directly integrates yield, generating income over time without the need to claim rewards, common in DeFi where cryptocurrencies or tokens earn returns through mechanisms like staking, lending, or liquidity provision.
Yield Farming β The practice of staking or lending crypto assets in order to generate high returns or rewards in the form of additional cryptocurrency.
YOLO (You Only Live Once) β Taking a significant risk with the understanding that there's just one chance to make or lose, often used to justify speculative investments.
Z
ZK (Zero-Knowledge) β A cryptographic principle where one party can prove to another that they know a value, without revealing any information about that value.
ZK (Zero-Knowledge) Rollups β Protocols that bundle transactions into batches to be executed off the main chain. For every batch, a zk-rollup operator will submit a summary of the required changes once the transactions in the batch have been executed. ZkSync is an example.