A Comprehensive Glossary of Decentralized Finance (DeFi) Terms

In the ever-changing world of financial technology, the term that has captivated investors, technologists, and innovators is Decentralized Finance, or DeFi.

Through blockchain technology and smart contracts, DeFi is reshaping traditional finance into an open, decentralized landscape. With the DeFi ecosystem's growth, a new vocabulary emerges.

Whether you're new to concepts like decentralized lending, yield farming, and liquidity pools, or an industry veteran keeping up with the latest trends, our comprehensive glossary serves as your guide. Embark on a journey through the DeFi terminology, where we clarify the fundamental terms driving this financial revolution.

A

AMPL:

AMPL stands for "Ampleforth," which is a cryptocurrency project in the decentralized finance (DeFi) sector. It introduces a novel approach to achieving stability by using a mechanism called "rebasing."

Aave:

Aave is a decentralized lending protocol that operates on the Ethereum blockchain. It enables users to lend, borrow, and earn interest on a variety of cryptocurrencies without intermediaries.

Automated Market Maker (AMM):

A system that uses algorithms to create liquidity pools for trading without relying on traditional order books.

Automated Yield Farming:

Automated Yield Farming involves the use of smart contracts to automatically allocate and manage cryptocurrency funds across different DeFi protocols, aiming to maximize returns.

ATH (All-Time High):

The highest price ever reached by a cryptocurrency.

Address:

A unique identifier representing a destination for cryptocurrency transactions.

Airdrop:

The distribution of free tokens to holders of a specific cryptocurrency.

Altcoin:

Any cryptocurrency other than Bitcoin. Atomic Swap: A trustless exchange of one cryptocurrency for another directly between users.

B

Balancer:

The balancer is a decentralized automated market maker (AMM) protocol that allows users to create and manage liquidity pools with multiple tokens.

Bear Market:

A market characterized by declining prices and pessimism.

Bitcoin:

The first and most well-known cryptocurrency, often referred to as digital gold.

Block Reward:

The reward is given to miners for validating transactions and adding a new block to the blockchain.

Blockchain:

A distributed and immutable digital ledger that records transactions across multiple computers.

Bull Market:

A market characterized by rising prices and optimism.

C

Celsius Network:

Celsius Network is a cryptocurrency lending and borrowing platform that offers users the ability to earn interest on their crypto holdings and take out crypto-backed loans

Centralized Exchange:

A platform where users trade cryptocurrencies through a centralized entity.

Chainlink:

Chainlink is a decentralized oracle network that connects smart contracts on blockchain platforms to real-world data, APIs, and external systems. It acts as a bridge between blockchain-based smart contracts and off-chain data sources, enabling smart contracts to interact with and respond to real-world events and information.

Chainlink Oracle:

Chainlink Oracle is a decentralized network of nodes that provide real-world data to smart contracts on blockchain platforms. These oracles facilitate smart contracts' ability to interact with external data sources, such as market prices, weather conditions, and more.

Coin

A coin is a type of cryptocurrency that operates as a standalone digital currency on its own blockchain. Coins like Bitcoin (BTC) and Litecoin (LTC) have their own independent blockchains and do not rely on other platforms. They can be used for transactions and as stores of value.

Coin Join:

A privacy-enhancing technique that combines multiple transactions to obfuscate origins and destinations.

Cold Storage:

Storing cryptocurrency offline to enhance security.

Collateralized Debt Position (CDP):

A CDP is a smart contract on a blockchain, often associated with platforms like MakerDAO, where users can lock up cryptocurrency as collateral to generate stablecoins or other assets.

Compound:

Compound is a decentralized finance (DeFi) protocol built on the Ethereum blockchain that allows users to earn interest or borrow various cryptocurrencies by supplying collateral.

Compound Governance Token (COMP):

COMP is the native utility token of the Compound protocol, a decentralized lending and borrowing platform. It enables users to propose and vote on changes to the protocol's rules and parameters,

Cross-Chain:

Interoperability between different blockchain networks, allows assets to move seamlessly between them.

Crypto Arbitrage:

Profiting from price differences of a cryptocurrency on different exchanges.

Crypto Derivatives:

Financial contracts whose value is derived from an underlying cryptocurrency.

Crypto Fundraising (DeFi Fundraising):

Crypto Margin Trading

Crypto Margin Trading:

Trading with borrowed funds to amplify potential profits or losses.

Crypto Options:

Financial derivatives that grant the holder the right, but not the obligation, to buy or sell cryptocurrencies at a predetermined price and date, providing flexibility in hedging and speculation.

Cryptocurrency ETFs (DeFi ETFs):

These are investment funds that track the performance of multiple cryptocurrencies or decentralized finance (DeFi) tokens, offering a way for investors to gain exposure to a diversified portfolio of digital assets.

Cryptocurrency:

Digital or virtual currency that uses cryptography for security and operates on decentralized networks.

Currency:

A medium of exchange widely accepted in transactions for goods, services, or settlement of debts.

Currency Peg:

A fixed exchange rate system where one currency is linked to another, typically a stablecoin, to maintain a specific value.

Curve Finance:

Curve Finance is a decentralized exchange (DEX) designed for stablecoin swapping, optimizing low-slippage, and low-fees trades.

D

DAI - coin:

DAI is a decentralized stablecoin on the Ethereum blockchain that aims to maintain a 1:1 peg with the US dollar through algorithmic mechanisms and collateral.

DEX Aggregator:

A service that finds and offers users the best prices for cryptocurrency trades across multiple decentralized exchanges (DEXs).

Defi (Decentralized Finance):

A movement that aims to create open, permissionless, and decentralized financial services using blockchain technology.

DeFi is a blockchain-based financial system that offers open and decentralized access to a wide range of financial services, including lending, borrowing, trading, and more, without traditional intermediaries like banks.

Debt:

Debt is an obligation or financial liability that arises when one party borrows money or resources from another and commits to repayment, often with interest, at a later date.

Decentralization:

Decentralization is the distribution of control, authority, or decision-making away from a single central entity, often to a network of participants.

Decentralized Autonomous Organization (DAO):

A DAO 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.

Decentralized Borrowing:

The practice of obtaining loans or credit within a decentralized finance (DeFi) ecosystem without the need for traditional financial intermediaries like banks.

Decentralized Derivatives:

Financial contracts or instruments whose value is derived from an underlying cryptocurrency or asset, are traded on decentralized platforms without the need for traditional intermediaries.

Decentralized Exchange (DEX):

A decentralized platform that allows users to trade cryptocurrencies directly with each other without the need for a central authority or intermediary.

Decentralized Finance (DeFi):

DeFi refers to a blockchain-based financial ecosystem that offers open and permissionless access to a wide range of financial services and products without the need for traditional intermediaries like banks.

Decentralized Identity (DID):

A self-sovereign identity system that allows individuals to control their own identity data.

Decentralized Lending:

Decentralized lending refers to the practice of lending and borrowing digital assets directly between users without the need for traditional financial intermediaries, often facilitated by smart contracts on blockchain platforms.

Decentralized Stablecoins:

Cryptocurrencies are designed to maintain a stable value without relying on a centralized authority or asset backing, often through algorithmic mechanisms or collateralization.

Dogecoin:

A cryptocurrency initially created as a joke, featuring the Shiba Inu dog from the "Doge" meme.

Double Spending:

The act of using the same cryptocurrency more than once, which is prevented by blockchain technology.

E

Equity:

Equity represents ownership in a company, typically in the form of shares, and signifies a stake in the company's assets and profits.

Escrow:

A mechanism where a third party holds funds until certain conditions are met.

Ether:

Ether is the native cryptocurrency of the Ethereum blockchain, used for transactions, smart contract execution, and as a store of value.

Ethereum:

A blockchain platform that enables the creation of smart contracts and decentralized applications.

Exchange:

A platform where users can trade one cryptocurrency for another or for fiat currency.

F

FOMO (Fear of Missing Out):

The feeling of anxiety that one might miss out on potential profits.

FUD (Fear, Uncertainty, Doubt):

Negative or false information spreads to create fear and uncertainty in the market.

Fiat Currency:

Traditional government-issued currency, like the US Dollar or Euro.

Flash Loans:

Flash loans are uncollateralized, instant loans that must be borrowed and repaid within the same transaction block on a blockchain.

Flash Minting:

Flash minting is a DeFi mechanism that allows users to temporarily mint and borrow tokens from a smart contract in a single transaction without collateral, provided the tokens are returned within the same transaction.

Flash Swaps:

Flash swaps are a type of DeFi transaction that enables users to borrow tokens on a temporary basis without collateral, provided they are returned within the same transaction.

Flashbots:

Flashbots is a research and development organization focused on mitigating issues related to arbitrage, MEV (Miner/Maximal Extractable Value), and front-running in blockchain systems, particularly Ethereum.

Fork:

A change to the protocol of a blockchain results in two separate chains with different rules.

Fungible token:

A digital asset or cryptocurrency that is interchangeable with identical tokens and has equal value, like traditional currencies.

G

Gas:

In the context of blockchain, "gas" refers to the unit of measurement for the computational work required to process transactions and smart contracts; users pay gas fees to incentivize miners or validators to include their transactions in the blockchain.

Gas Fees:

Payments are made to miners or validators for processing transactions on a blockchain network.

Genesis Block:

The first block in a blockchain is also known as Block 0.

Governance:

The process and mechanisms by which decisions are made and rules are established within a decentralized network or organization, often involving token holders who participate in decision-making.

Governance Token:

A cryptocurrency that grants holders the right to participate in decision-making processes regarding the development and direction of a decentralized network or protocol.

H

HODL (HODLer/HODling):

A misspelled word for "hold," is often used in the context of holding onto cryptocurrencies during market volatility.

Halving:

An event in some cryptocurrencies (like Bitcoin) where the block reward for miners is cut in half, reducing the rate of new supply issuance.

Hard Fork:

A change to the blockchain protocol that is not backward-compatible, resulting in two separate chains.

Hard Wallet:

A physical device used to securely store cryptocurrency keys offline.

Hash Function:

A mathematical algorithm that converts input data into a fixed-size string of characters, used for data integrity and security.

Hot Wallet:

A wallet that is connected to the internet and used for frequent transactions.

I

ICO (Initial Coin Offering):

A fundraising method where new tokens are sold to investors in exchange for established cryptocurrencies.

Impermanent Loss:

The temporary loss experienced by liquidity providers in a decentralized exchange when the price of their deposited assets diverges from the initial ratio.

Impermax:

Impermax is a decentralized finance (DeFi) protocol that enhances leverage in liquidity provision on automated market maker (AMM) platforms.

Inflation:

Inflation is the rate at which the general price level of goods and services rises, eroding purchasing power.

Initial DeFi Offering (IDO):

An initial token sale is conducted on a decentralized finance (DeFi) platform, typically providing early access to new tokens and projects in the DeFi ecosystem.

Initial Exchange Offering (IEO):

A token sale conducted on a cryptocurrency exchange's platform.

Insurance Pool:

An arrangement where participants contribute funds to provide insurance coverage against specific risks, often used in decentralized finance (DeFi) to protect against smart contract vulnerabilities or other potential losses.

Intangible:

Something that lacks a physical presence and cannot be touched, such as intellectual property or emotions.

Interoperability:

The ability of different blockchain networks to communicate and share data seamlessly.

J

JOMO (Joy Of Missing Out):

The feeling of relief or contentment when you avoid participating in a speculative or risky investment.

JPM Coin:

A digital currency developed by JPMorgan Chase for internal use and the settlement of transactions.

K

Keeper:

In decentralized finance (DeFi), a keeper is an automated agent or bot that performs tasks such as liquidation, arbitrage, or maintenance on behalf of a DeFi protocol, often for financial incentives.

L

Layer 2 Scaling Solutions:

Layer 2 scaling solutions are secondary protocols built on top of existing blockchains like Ethereum to improve transaction speed and reduce fees.

Liquidity Bootstrapping Pool (LBP):

An automated token sale mechanism that aims to gradually release tokens and discover their market price by adjusting the token's price based on demand and supply within the pool.

Liquidity Locking:

The practice of locking up cryptocurrency assets in a smart contract to provide liquidity for decentralized exchanges or platforms, often to earn rewards.

Liquidity Mining:

Liquidity mining is a DeFi incentive mechanism where users earn rewards for providing liquidity to decentralized exchanges and lending platforms.

Liquidity Provider (LP):

An individual or entity that supplies assets to a liquidity pool on decentralized exchanges or DeFi platforms, earning fees and rewards in return.

Liquidity:

The ease with which an asset can be bought or sold without causing significant price movement.

Litecoin:

A cryptocurrency created as a "lighter" version of Bitcoin.

M

MakerDAO:

MakerDAO is a decentralized autonomous organization responsible for governing the stablecoin Dai and its decentralized lending platform, Maker.

Market Cap:

The total value of a cryptocurrency is calculated by multiplying its current price by its total circulating supply.

Mining:

The process of validating transactions and adding them to a blockchain through computational work.

Mint:

In the context of cryptocurrency and tokens, "mint" refers to the process of creating new tokens, often in DeFi platforms, by locking up collateral or following specific protocols.

Minting:

Minting refers to the process of creating new tokens or coins on a blockchain, often as a reward for various actions or as part of a cryptocurrency's issuance.

Mortgage:

A loan secured by real estate is typically used for purchasing a home, where the property serves as collateral for the loan.

Multi-Signature (Multisig) Wallet:

A type of cryptocurrency wallet that requires multiple private keys to authorize transactions, enhancing security and control.

N

Nexus Mutual:

Nexus Mutual is a decentralized insurance platform on the Ethereum blockchain that provides coverage for smart contract risks.

Node:

A computer connected to a blockchain network maintains a copy of the blockchain's data and participates in transaction validation.

Non-Fungible Tokens (NFTs):

Unique digital tokens that represent ownership of a specific item or piece of content.

O

Open Finance:

A concept where financial services and systems are accessible to anyone without the need for traditional intermediaries, typically achieved through blockchain technology.

Oracles:

Services that provide external data to smart contracts, enabling them to interact with the real world.

Over-Collateralization:

Over-collateralization is a DeFi practice where users are required to deposit more assets as collateral than the value of the assets they are borrowing, reducing the risk of default.

P

PancakeSwap:

PancakeSwap is a decentralized exchange (DEX) and automated market maker (AMM) protocol built on the Binance Smart Chain, offering users the ability to swap, farm, and stake cryptocurrencies.

Peer-to-Peer (P2P):

Direct interaction between two parties without intermediaries.

Permissionless:

A system or network that allows anyone to participate without requiring approval or authorization.

Perpetual Contracts:

Perpetual contracts are a type of derivative in cryptocurrency trading that have no expiration date, allowing traders to speculate on the future price of assets without holding the underlying asset.

Price Oracle:

A decentralized data source that provides real-time price information for assets in blockchain applications, often used for DeFi platforms to determine asset values.

Privacy Coin:

A cryptocurrency designed to enhance user privacy and anonymity.

Private Key:

A secret cryptographic key that allows access to a cryptocurrency wallet.

Proof of Stake (PoS):

A consensus mechanism where validators are chosen to create new blocks based on the amount of cryptocurrency they hold as collateral.

Proof of Work (PoW):

A consensus mechanism where miners compete to solve complex mathematical problems to validate transactions.

Public Key:

A cryptographic key that is visible to others and used to receive encrypted messages.

Public Ledger:

A transparent record of all transactions on a blockchain that is accessible to all participants.

Pump and Dump:

Manipulative practices where the price of a cryptocurrency is artificially inflated (pumped) and then rapidly sold off (dumped).

Q

QR Code:

A Quick Response Code is a two-dimensional barcode that stores information, often used for easy cryptocurrency wallet address sharing.

R

Rebase:

A process that adjusts the supply of a cryptocurrency to maintain its price stability, is often used in elastic supply tokens.

Reserves:

Reserves refer to the assets held by an entity, such as a bank or protocol, to ensure liquidity, and stability, or to back the value of tokens.

Ripple (XRP):

A cryptocurrency and platform designed for fast and low-cost cross-border transactions.

S

Satoshi:

The smallest unit of Bitcoin is named after its creator Satoshi Nakamoto.

Security Token:

A token that represents ownership in a real-world asset, subject to regulations.

Serum:

Serum is a decentralized exchange (DEX) and DeFi project built on the Solana blockchain, aiming to provide high-speed, low-cost trading and financial services.

Smart Contracts:

Self-executing contracts with the terms of the agreement directly written into code.

Soft Fork:

A change to the blockchain protocol that is backward-compatible with previous versions.

Soft Wallet:

A software-based wallet that is connected to the internet, available as apps or desktop programs.

Stablecoin Peg:

Linking the value of a stablecoin to a specific asset, often a fiat currency.

Stablecoin:

A cryptocurrency is designed to have a stable value, often pegged to a fiat currency or other assets.

Staking:

Staking is the process of holding and locking up a cryptocurrency in a wallet to support the operations of a blockchain network, earn rewards, and secure the network.

SushiSwap:

SushiSwap is a decentralized exchange (DEX) and automated market maker (AMM) on Ethereum, known for its yield farming and token governance features.

Synthetix:

Synthetix is a decentralized finance (DeFi) protocol that enables the creation of synthetic assets (synths) representing real-world assets like cryptocurrencies, stocks, and commodities on the Ethereum blockchain.

T

Tangible:

Capable of being touched or physically perceived; real and concrete.

Token:

A unit of value issued by a project on a blockchain, often representing ownership or access rights.

Token Swaps:

Token swaps refer to the exchange of one cryptocurrency for another, often without the need for a centralized intermediary, using decentralized protocols or platforms.

Tokenization:

The process of representing real-world assets or rights as digital tokens on a blockchain.

Tokenomics:

The economic model and structure of a cryptocurrency or token.

Trade:

A transaction involving the buying or selling of assets, often in exchange for another asset or currency.

Transaction:

A record of an exchange or interaction on the blockchain, typically involving the transfer of cryptocurrency or data.

U

USDC:

USDC is a stablecoin pegged to the US dollar, used for trading and transactions in the cryptocurrency space.

Under-Collateralization:

When the value of the collateral provided in a loan or DeFi position is less than the borrowed amount, it creates a risk of default.

Uniswap:

Uniswap is a decentralized exchange (DEX) that allows users to swap various cryptocurrencies directly from their wallets without the need for traditional intermediaries.

Uniswap V2/V3:

Uniswap V2 and V3 are different versions of the Uniswap decentralized exchange protocol, with V3 introducing features like concentrated liquidity and multiple fee tiers for liquidity providers.

Utility Token:

A token that provides access to specific features or services within a project's ecosystem.

V

Venus:

Venus is a DeFi protocol built on the Binance Smart Chain (BSC) that allows users to lend, borrow, and earn interest on various cryptocurrencies.

Volatile:

Refers to the rapid and unpredictable price fluctuations of an asset, such as a cryptocurrency, within a short period.

W

Wallet Recovery Phrase (Seed Phrase):

A series of words used to recover or restore a cryptocurrency wallet.

Wallet:

A digital tool used to store, send, and receive cryptocurrencies.

Whale:

An individual or entity that holds a significant amount of cryptocurrency.

Wrapped Bitcoin (WBTC):

WBTC is an Ethereum-based token that represents Bitcoin (BTC) on the Ethereum blockchain, enabling BTC to be used in decentralized applications and DeFi platforms.

Wrapped Tokens:

Tokens representing other assets on a different blockchain.

X

XRP:

A cryptocurrency often associated with Ripple and used for cross-border payments.

XLM (Stellar Lumens):

The native cryptocurrency of the Stellar blockchain, designed for cross-border transactions and as a digital payment solution.

XMR (Monero):

A privacy-focused cryptocurrency that offers enhanced anonymity for its users.

XVG (Verge):

A privacy-focused cryptocurrency that emphasizes anonymity and security in transactions.

XBT (Bitcoin):

An alternative symbol for Bitcoin, often used in financial contexts.

Y

Yearn Finance:

Yearn Finance is a decentralized finance (DeFi) platform that automates yield farming strategies to optimize returns for users.

Yield Aggregator:

Platforms that automatically allocate funds to different yield farming strategies to maximize returns.

Yield Compression:

The reduction of yields in DeFi as more participants enter the space.

Yield Curve:

A graphical representation of the relationship between yield and maturity.

Yield Farming:

The practice of earning rewards by providing liquidity or staking cryptocurrencies on DeFi platforms.

Yield Optimization:

Yield optimization refers to strategies and techniques used in decentralized finance (DeFi) to maximize returns on cryptocurrency holdings by seeking out the most profitable opportunities within the DeFi ecosystem.

Yield Strategies:

Various techniques and approaches to optimizing returns in DeFi protocols.

Yield Token:

Tokens that represent ownership in a yield-generating DeFi protocol.

Z

Zero-Knowledge Proof:

A cryptographic technique that allows one party to prove to another party that a statement is true without revealing any specific details about the statement itself. This is often used in privacy-focused cryptocurrencies.

Zk-SNARKs (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge):

A specific type of zero-knowledge proof used in some cryptocurrencies like Zcash to enhance privacy by allowing transactions to be verified without revealing transaction details.