DeFi Cheat Sheet – Vocab for Dummies

The crypto world evolves quickly, and what’s current today could become outdated tomorrow. As new terms and trends emerge weekly, a DeFi Dictionary is your best resource. Here’s our cheat sheet to assist newbies in deciphering crypto lingo and jargon.

DeFi Dictionary from “A” to “Z”

A

• Aave: Aave is an open-source, non-custodial lending protocol that facilitates the creation of money markets within the decentralized finance (DeFi) space. Users have the ability to both earn interest on their deposited assets and borrow assets as needed. Aave issues Liquidity Tokens to depositors, which represent equivalent derivative deposits in corresponding assets. For instance, a user can deposit DAI and receive aDAI, a USD-based crypto derivative. aDAI effectively represents the value of the underlying DAI asset and incorporates interest gains from allowing DAI to be borrowed. These Liquidity Tokens can then be employed for further strategies, potentially amplifying gains.

• Alpha Code: Alpha code refers to early-stage prototype computer code, programs, and algorithms designed to address specific problems or introduce new digital goods or services. Alpha software is in its initial prototype phase, intended for limited testing. It may lack certain expected functionality, planned features, and security measures.

• Audit: An audit is a comprehensive review of a concept, system, process, company, or product, either conducted internally or independently. It involves a thorough examination of the structure, strengths, weaknesses, and vulnerabilities of the subject being audited. Audits can be informal or formal and are a crucial tool for identifying weaknesses and addressing issues to enhance the audited entity.

• APY (Annual Percentage Yield): Annual Percentage Yield (APY) is a time-based measurement of the Return On Investment (ROI) for an asset. It signifies the total return expected from an investment over the course of a year. For instance, if $100 is invested with a 2% APY, it would yield $102 after one year, assuming no compounding of earned interest. The Monthly ROI in this scenario would be 0.16%, assuming a consistent APY rate.

• Accumulation Phase: Institutional investors enter the accumulation phase by acquiring undervalued cryptocurrencies over the mid-term. To avoid disrupting prices, they execute smaller orders, completing their purchases over several months. The accumulation phase typically manifests as sideways price movements, occurring after market crashes and preceding rallies.

• Admin Keys: Admin keys, ironically in the realm of decentralized applications, represent a form of centralization. They grant developers access to any balance and the ability to modify rules on a blockchain or platform. Although they are justified for security purposes, admin keys expose users to exit scams and cyber-attacks. The most secure protocols operate without admin keys.

• Aggregator: Aggregators, akin to search engines, compile and link data from various DeFi dApps. They provide a comprehensive snapshot of the crypto space, making them valuable for competitive analysis. DEX aggregators, such as 1inch, and NFT aggregators, like NFTrade, are common examples.

• Airdrop: A crypto airdrop serves as an awareness marketing campaign where founders send new tokens to select user addresses. Participation typically involves signing up on a website, joining a whitelist, or holding another token. Airdrops are effective because users feel no immediate pressure to sell free tokens, and tokens with existing trading volume often attract more buyers.

• Arbitrage: Arbitrage entails the practice of trading a cryptocurrency or crypto derivative to exploit price differentials between two separate markets or exchanges offering the same asset or product. This strategy is employed to generate greater profits by capitalizing on market inefficiencies and price variations.

• Automated Market Maker: An Automated Market Maker (AMM) is a decentralized asset trading pool that allows participants to buy or sell cryptocurrencies. AMMs operate in a non-custodial and permissionless manner. They commonly utilize market-making formulas such as constant product, constant mean, or constant sum. One of the most renowned AMMs is Uniswap, which employs the constant product market-making formula.

B

• BEP-20: BEP-20 stands as the token standard within the Binance Chain ecosystem, encompassing all coins created in this environment. It facilitates the swapping of numerous BEP-20 tokens and empowers users to engage with decentralized Binance applications. Think of it as the Binance Chain’s equivalent to Ethereum’s ERC-20 standard.

• Bid-Ask Spread: In the context of limit orders, the bid-ask spread represents the distinction between your buying price and another user’s selling price. Broader centralized and decentralized exchanges typically feature narrow bid-ask spreads due to the active presence of multiple traders placing both types of orders. The specific bid-ask spread varies across platforms based on factors like liquidity and demand.

• Black Swan Event: A black swan event denotes an unexpected, highly impactful, adverse development that directly influences asset prices. These events can take various forms, including the commencement of a conflict, alterations in monetary policies, large-scale cyberattacks, the collapse of a stablecoin, or real estate market crashes. As these events are external and unpredictable, they often present intriguing buying opportunities for value investors.

• Block Reward: Block rewards serve as cryptocurrency incentives bestowed upon users who contribute to transaction validation and blockchain security. The magnitude of block rewards hinges on factors such as token supply, total contributions, and consensus models. In proof-of-work networks, they manifest as mining rewards, while in proof-of-stake systems, they are awarded as staking rewards.

• Blockchain: A public blockchain is an open and permissionless ledger system that organizes transaction records into cryptographically linked blocks. Prominent examples of public blockchains include Bitcoin and Ethereum, offering transparency and accessibility to users worldwide.

• Bug Exploit: Bug exploits encompass vulnerabilities within smart contracts that enable attackers to illicitly access and withdraw funds. Depending on the gravity of the exploit, hackers might deplete all tokens and cause sustained price depreciation. To prevent such occurrences, platforms implement security updates, conduct audits, and offer bug bounties as part of their security measures.

• Burn (Tokens): Burning tokens involves their removal from circulation to achieve deflationary objectives. In cases where tokens cannot be physically destroyed, a smart contract is employed to transfer them to an inaccessible “burn” wallet address. This practice is vital for ensuring the sustainability of tokens with unlimited or flexible token supplies by reducing their overall quantity in circulation.

C

• Confirmation: Multiple validators create their distinct blockchain versions and collectively decide which one holds the official status. Confirmations signify that numerous validators have incorporated your transaction into their respective chains. When your transaction garners a sufficient number of confirmations, it attains the “confirmed” status, signifying its inclusion on the official and immutable blockchain.

• Consensus Mechanism: Consensus mechanisms encompass the rules and protocols employed to authenticate cryptocurrency transactions and determine who should be responsible for validation. While various blockchains utilize different consensus models, commonly used ones are proof-of-work (based on computing power) and proof-of-stake (based on token holdings). An ideal consensus mechanism should align incentives for validators to safeguard the network, avert centralization, enhance efficiency, and reduce energy consumption.

• Cryptocurrency (or Crypto): Cryptocurrency, or simply “crypto,” refers to a fungible token whose ownership and transaction records are securely maintained on a public blockchain. Fungible tokens are akin to traditional currency notes (where the specific notes received are of no significance as long as the quantity is accurate). In contrast, non-fungible tokens (NFTs) are unique and distinguishable digital assets.

D

• DAO: A DAO, or Decentralized Autonomous Organization, is a self-governing and autonomous entity that operates on blockchain technology. Examples of DAOs include the Bitcoin and Ethereum networks, where the rules and decisions are encoded in smart contracts and executed through consensus mechanisms, allowing for decentralized governance.

• dApp: Decentralized applications (dApps) are platforms that harness blockchain services, typically of a financial nature, through smart contracts. To engage with a dApp, one must link a decentralized wallet to the appropriate network, often Ethereum by default. Following this, users select an action within the app interface (such as staking, borrowing, or buying), cover network fees, and finalize their transaction.

• Decentralized: Decentralized blockchains distribute control among users in a manner that prevents any single entity from exercising dominance. Due to the absence of central authority, decentralized platforms are often unregulated, autonomous, accessible worldwide, and operate on trustless principles. Decentralized networks achieve consensus through fault-tolerant protocols and maintain immutable ledgers.

• Degen: “Degen” is linked to high-risk investment, speculative behavior, emotional market analysis, and gambling. Degen traders are willing to risk substantial sums in pursuit of the one coin or NFT that could lead to significant wealth. Their focus often involves buying meme coins, micro-cap tokens, or profile-picture NFTs, often driven by the belief that others will follow suit.

• DeFi/CeFi (Decentralized Finance/Centralized Finance): DeFi, or decentralized finance, refers to financial services and applications built on blockchain technology. In contrast, CeFi, or centralized finance, encompasses traditional financial institutions and services that operate with central control and oversight.

• DEX/CEX: A DEX, or decentralized exchange, is a trading platform that operates using smart contracts and allows users to trade cryptocurrencies directly from their wallets. Uniswap is a well-known example of a DEX. On the other hand, a CEX, or centralized exchange, functions with a centralized authority that manages user accounts and order matching. Coinbase is a prominent example of a CEX.

• Diamond Hands: “Diamond hands” describe individuals who rarely, if ever, sell their assets, regardless of market pressures and price fluctuations. These investors perceive their holdings as akin to precious and durable assets, like diamonds or gold, with the aim of accruing wealth, or at the very least, safeguarding their investments from the impacts of inflation and market volatility. Diamond hands stand in contrast to “paper hands,” individuals who are quick to sell their assets when confronted with challenges.

E

• Ethereum: Ethereum, launched in July 2015, represents a significant advancement in the cryptocurrency landscape. While Bitcoin is the original cryptocurrency, Ethereum offers a substantially higher level of complexity and functionality. This is made possible through the incorporation of smart contracts and a Turing complete programming language, enabling developers to create a diverse range of decentralized applications (dApps) on its blockchain. One of Ethereum’s notable contributions to the crypto ecosystem is the ERC-20 protocol, which has paved the way for a multitude of cryptocurrency coins to be built on top of the Ethereum network. Examples of these tokens, each governed by its own set of rules, include LINK, CRV, and YFI, among others. Ethereum’s versatility has made it a pivotal platform for innovation and development within the blockchain space.

• ERC-20: ERC-20 stands as the prevailing token standard within the Ethereum ecosystem. Virtually any application developed on Ethereum that incorporates utility tokens adheres to the ERC-20 standard. Ethereum’s status as the largest blockchain for decentralized applications enables users to conveniently exchange a wide array of ERC-20 tokens on decentralized exchanges.

• Gwei: A “Gwei” is a unit of measurement for gas fees associated with transactions on the Ethereum network or other networks that utilize ERC-20 tokens. It is used to determine the cost of executing operations on blockchain networks, particularly within the Ethereum ecosystem.

F

• Fair Launch: The concept of a fair launch entails a developer’s decision to refrain from seeking external investments and not reserving a portion of a coin or token’s supply for themselves or other parties. This approach is intended to be more equitable for early investors, as their share of ownership or equity in the coin or token remains undiluted by pre-investors or the project’s founders and development teams.

• Fair Launch Coin or Token: A fair launch coin or token is distinguished by a launch process that prioritizes fairness to the general public. This means that there is no allocation for a founder, foundation, development team, venture capitalist, or early investor to privately claim a portion of the coin’s supply before it becomes available for public purchase. Notable as one of the earliest fair launch tokens is YFI, which Developer Andre Cronje introduced in 2020.

• Fan Token: Fan tokens are utilized by popular sports teams to establish membership-based business models. Purchasing tokens associated with your favorite team can grant you access to exclusive privileges such as game tickets, discounts, rewards, voting rights, and other VIP benefits. The dynamics of fan tokens can resemble betting, as their prices fluctuate based on the team’s performance and success.

• Fiat: Fiat money is currency issued by a government and is not backed by a physical commodity like gold or silver; instead, it derives its value from the government that has issued it. To purchase cryptocurrency with fiat currency, individuals often need to exchange their fiat at centralized exchanges (CEXs) or employ local methods like Bitcoin ATMs.

• Financial Primitive: A financial primitive refers to a fundamental building block in the world of cryptocurrency-based finance. These building blocks are designed to efficiently and reliably perform specific financial functions or tasks. Financial primitives can be combined to create more complex smart contracts, and these smart contracts can further be stacked to implement sophisticated financial trading strategies. They serve as the foundational elements for the development of decentralized financial services and applications.

• Flash Loan: A flash loan is an uncollateralized, short-term loan issued within a blockchain network, and it must be repaid within the same block in which it is issued. Flash loans are distinctive for their requirement of being settled within the same block, often used for various DeFi operations and arbitrage opportunities.

• Flippening: The “Flippening” concept comes into play as Bitcoin’s dominance in the cryptocurrency market diminishes while Ethereum’s influence rises. It refers to the hypothetical scenario in which Ethereum’s market capitalization surpasses that of Bitcoin. This transition marks a significant shift away from coin prices being predominantly determined by Bitcoin’s performance.

• Fork: A fork denotes a modified version of an existing blockchain, typically created by different teams or developers apart from the original founders. Forked chains may introduce variations in consensus models, network costs, rules, and application ecosystems. Notably, the new forked version does not accept transactions from the older version of the blockchain, requiring users to update to the latest iteration to participate.

• Futures: In the realm of futures contracts, traders enter into agreements to exchange assets on a specific future date at prices determined at the beginning of the contract. Longer contract durations offer greater price flexibility and the potential for leveraging, making futures akin to a form of cryptocurrency speculation or betting. At the contract’s conclusion, traders must execute the buy or sell order, whether resulting in a profit or loss. Contracts without this mandatory execution are referred to as options.

G

• Gas Fees: Gas fees represent the nominal charges associated with the execution of autonomous programs, commonly referred to as smart contracts, within blockchain networks. Gas fees are a fundamental component of all decentralized applications that involve cryptocurrency or NFT services. These fees are unique to blockchains supporting smart contracts, each with distinct pricing structures and transaction processing speeds.

• Governance: Governance pertains to the framework and consensus model employed by a blockchain community to facilitate decision-making processes. Developers can propose enhancements, and nodes within the network have the opportunity to cast their votes either in favor or against these proposals. In the event of widespread approval, the proposed improvements are integrated into scheduled code updates. This system helps maintain the blockchain’s health and development.

H

• Hash Rate: In proof-of-work blockchains like Bitcoin, the hash rate quantifies the cumulative computational power employed to process transactions and secure the network. A higher hash rate is indicative of enhanced network security but can also be less energy-efficient. A “hash” signifies the one-way encryption of block data into a fixed-length alphanumeric code.

• HODL: “HODL,” derived from the term “Hold On for Dear Life,” embodies a straightforward investment strategy known for its historical long-term success. HODL suggests that, irrespective of the purchase price, holding onto an asset for an extended period will more often than not yield profitable outcomes. While HODL is a reliable approach for major projects, it carries increased risk when applied to smaller ventures that may not persist over time.

I

• IDO (Initial DEX Offering): An Initial DEX Offering represents a blockchain project’s launch of its token on decentralized exchanges (DEXs). In the case of an Ethereum-based token, you can acquire it from any Ethereum exchange using the custom contract address. IDOs provide an opportunity for early investment since many tokens take months to be listed on regulated exchanges, if they are listed at all.

• Interoperable: Blockchains inherently lack compatibility with one another. Interoperable protocols, often referred to as cross-chain solutions, enable different blockchain networks to communicate and leverage the infrastructure of other networks. This capability allows developers to import programs and build applications without the need to start from scratch.

• Impermanent Loss: In the context of Automated Market Makers (AMMs), liquidity providers (LPs) contribute their assets to provide liquidity to market participants. AMM pools employ a bonding curve, often based on a constant function market maker formula. These pools continuously adjust asset prices in response to trading activities by participants to ensure that LPs can withdraw the same amount of assets they initially deposited. The term “impermanent” is used because if asset prices return to the level at the time of withdrawal, the loss is eliminated.

• Institutional Investor: An institutional investor is a substantial organization, such as a bank, pension fund, labor union, or insurance company, that engages in significant investments on the stock exchange and financial markets. In the realms of both centralized finance (CeFi) and decentralized finance (DeFi), traditional institutional investors have found a more accessible entry point into the world of cryptocurrencies, seeking higher yields despite the associated higher risks. Additionally, a new category of virtual mutual funds, known as Cryptocurrency Institutional Investors (CIIs), has emerged.

• Insurance Primitive: Coined by YFI Developer Andre Cronje, an “insurance primitive” refers to a tokenized form of insurance, typically represented as yInsure-type tokens. These tokens enable investors to offer insurance for various base assets. Investors in yInsure provide liquidity that is used to execute crypto-insurance smart contracts. In return, they aim to provide insurance services and profit from this participation. The design of this system permits insurance coverage for a wide range of assets, including both base assets like DAI and composite assets such as aDAI or yDAI.

K

• KYC (& AML): KYC, which stands for Know Your Customer, and AML, which stands for Anti-Money Laundering, are protocols established by regulated entities and mandated by government authorities. These procedures are in place to confirm the legitimacy of an individual’s identity and to prevent unlawful financial activities, particularly money laundering. The KYC and AML process entails the provision of personal identification information, proof of address, and the completion of screening tests.

L

• Launchpad: Launchpads are platforms designed to help users discover and participate in upcoming projects in the cryptocurrency and blockchain space. These launchpads cover a wide range of projects, including cryptocurrencies, DeFi protocols, blockchain games, and NFT collections. Some launchpads issue utility tokens, which serve to restrict participation in pre-sales and other project events.

• Layer: In the context of blockchain infrastructure, a layer refers to different levels within the technology stack. The foundational layers are typically built on Internet technology, while the outermost layers encompass applications. Most cryptocurrencies and blockchains are categorized as Layer 1.

• Leverage: Leverage allows users to amplify the impact of interest rates by borrowing cryptocurrency. This process is akin to compound interest, but it comes with an important distinction: higher yields reduce the margin of error, which, in turn, increases the risk of liquidation and potential loss of principal. Leverage is a tool employed by traders to offset trading fees and capitalize on even minor price disparities.

• Liquid Staking: Certain DeFi decentralized applications (dApps) offer a service known as liquid staking to enhance the circulation of tokens. Liquid staking enables users to stake their assets while receiving tokens of equal value that can be utilized on other DeFi platforms. While it is possible to cash out, these tokens are required for unstaking at a later time.

• Liquidity Mining: Liquidity mining involves the tokenization of liquidity pools. In addition to earning interest or fees, liquidity providers receive Liquidity Provider (LP) Tokens. These LP tokens grant lenders the ability to redeem liquidity funds at any time, transfer ownership of the pool, or stake them to earn even more yield. The term “mining” is used because most LP tokens are not initially in circulation, they have a fixed token supply, and they are often deflationary.

• Liquidity Pool: Liquidity pools are essential components of decentralized exchanges (DEXs) and are used for facilitating token swaps. These pools consist of two tokens provided by lenders, which traders utilize to exchange one token for another. Liquidity providers receive fee rewards in proportion to their total contribution to the pool. Unlike traditional lending, they have the flexibility to withdraw their assets at any time.

M

• Market Cap: Market capitalization, often referred to as market cap, represents the total market value of a cryptocurrency token. It is calculated by multiplying the current price of the token by the total number of tokens in circulation. Larger market cap coins tend to exhibit more price stability, while micro-cap coins are generally more volatile.

• Market Maker: A market maker is an algorithm utilized by exchanges to efficiently execute trading orders. Market makers match traders with sellers near their desired buying price, enabling quick and fair transactions. When exchanges face a shortage of liquidity, they rely on liquidity pools and automated market makers (AMMs) to fulfill orders.

• MetaMask: MetaMask is a widely used software cryptocurrency wallet available for both mobile and desktop platforms. It provides users with the capability to store, send, and receive Ethereum and coins or tokens that are compatible with the ERC-20 standard. MetaMask is a versatile and user-friendly wallet that allows individuals to interact with the Ethereum blockchain and access decentralized applications (dApps) seamlessly.

• Metaverse: The metaverse encompasses a collection of technologies, including blockchain, designed to enhance the interactivity, connectivity, decentralization, and user-centric nature of the Internet. It encompasses various elements such as DeFi applications, virtual and augmented reality (VR & AR), artificial intelligence, the semantic web, and the tokenization of digital assets (NFTs).

• Mint: Minting an NFT involves creating a non-fungible token and making it available for sale in the market. The minting process typically involves selecting an NFT marketplace, creating a listing for your NFT, and publishing it. There is usually a small initialization fee, after which you can mint numerous NFTs for free and set their sale prices.

• Multisig: Multi-signature (multisig) platforms enable multiple users or devices to collectively manage a wallet’s balance based on predefined policies. For example, a wallet with a multisig of five users might require approval from three users to execute transactions and the unanimous agreement of all five users to add new users. While all users have administrative rights, actions are executed only when there is a sufficient level of agreement, and no user rejects the proposed action. This system adds an extra layer of security and control to wallet management.

N

• NFT (Non-Fungible Token): Non-fungible tokens (NFTs) are a type of digital asset represented by unique contract addresses. NFTs are distinctive in that each token is one-of-a-kind, adhering to the ERC-721 standard in the Ethereum network. They are commonly associated with collectibles and have real value within the cryptocurrency space, particularly for digital assets. NFTs can represent various forms of media, such as artwork, music, virtual real estate, and more. Each NFT is specific to a single blockchain, which means that each blockchain network effectively functions as another NFT marketplace.

• Node: A node refers to any computer or device that actively participates in a blockchain network. When an individual creates a cryptocurrency wallet and uses it for transactions, their device becomes a node within the network. Types of nodes: including full nodes (which maintain copies of the entire blockchain), and validator nodes (which play role in securing and validating transactions on the network).

• Not Your Keys, Not Your Coins “Not Your Keys, Not Your Coins” is a fundamental principle in the crypto world. It emphasizes the critical importance of having control over your wallet’s private keys. If you don’t have access to your private keys, you can’t guarantee the security of your cryptocurrency holdings. This principle serves as a reminder of the risks associated with using custodial wallets provided by third-party exchanges, which may not provide you with control over your private keys.

O

• Off-Ramp (and On-Ramp): Crypto on-ramps and off-ramps refer to the payment methods that facilitate the seamless conversion between cryptocurrencies and fiat currencies. On-ramps are used to purchase cryptocurrencies using fiat currency, while off-ramps are employed to exchange cryptocurrencies back into fiat and make withdrawals. These on and off-ramps are essential components for users to transition between the crypto and traditional financial systems.

• Off-Chain (and On-Chain): Blockchains operate primarily with on-chain data, which is data that is verified and processed directly within the blockchain through validators and consensus mechanisms. On-chain data is integral to the blockchain’s integrity and trustlessness. Off-chain data, on the other hand, refers to external variables and information that exist outside of the blockchain and cannot be independently verified by the network. This may include data related to real-world events or conditions, such as weather, temperature, sports match results, or even data from other blockchains.

• Oracle: An oracle is a data feed that supplies information, such as the current market prices of assets, to users and other services. The key characteristic of an oracle is to provide data with a high level of confidence, ensuring that the source and details of the data are both timely and accurate, and that the data hasn’t been tampered with. Data sources for oracles can be singular or decentralized, and they may be geographically dispersed from one another. An example of a well-known oracle protocol is Chainlink (LINK)

P

• P2E (Play-to-Earn): P2E, which stands for “play-to-earn,” is a gaming model that allows players to earn tangible rewards with real-world value. These rewards often include non-fungible tokens (NFTs) and utility tokens, which can be traded, sold, or used in various ways outside of the game environment. In P2E games, players are incentivized to invest their time and effort in the game to accumulate these valuable assets.

• Protocol: A protocol refers to a well-defined set of rules and specifications. These protocols lay out the framework for how specific technologies or systems should operate. They encompass definitions, standards, constraints, and potential provisions that govern the behavior and interactions within a given system or network. Examples of technology protocols include TCP/IP, which is fundamental for internet communication, and ERC-20, a widely used standard for creating Ethereum-based tokens.

• Pump (and Dump): A “pump” refers to a temporary and artificial price surge that is orchestrated by large investors. This strategy is often carried out in secrecy and typically involves an illiquid token, hidden from the public until the opportune moment. When the large investors reveal this token, a pump-and-dump community is formed, consisting of retail investors hoping to make a quick profit. As hundreds of buyers flock to buy the token, its price experiences a sharp spike.

R

• ROI (Return On Investment): ROI stands for “Return On Investment” and represents the gains or losses realized on an investment. It is a measure of the profitability of an investment relative to its initial cost. For instance, if an investment doubles in value, it yields a 100% ROI, signifying a 100% gain. Conversely, if the entire investment is lost, it results in a 100% loss, indicating a -100% ROI.

• Rugpull: A “rugpull” is a deceptive practice within the crypto space that capitalizes on initial public enthusiasm. Typically associated with projects that have no genuine intention of creating lasting and valuable products, rugpulls are executed by unscrupulous teams. These teams aim to attract participants through presales and initial coin offerings, presenting the project as promising and lucrative, even if little to no work has been completed.

S

• Seed Phrase: A seed phrase, also known as a recovery phrase, consists of 12 to 24 words randomly selected from a predefined list of 2048 words. This seed phrase serves as a critical component for securing a cryptocurrency wallet. It is used to recover access to the wallet and, more importantly, to all the private keys associated with it. If a user ever loses access to their wallet, they can regain control by inputting this seed phrase on another device.

• Smart Contract: A “smart contract” is a self-executing digital contract that operates on a blockchain. These contracts are coded in languages that are considered Turing complete, meaning they can perform a wide range of digital tasks and processes, given sufficient computational resources and time. For instance, Ethereum uses programming languages like Solidity and Vyper for creating smart contracts.

• Spread: In the context of exchanges or markets, the “spread” refers to the price difference between potential buy and sell offers for a specific asset. It represents the disagreement in price between buyers and sellers. A wide spread indicates a substantial price difference between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept. A narrow spread implies a closer alignment of buy and sell prices and is generally favorable for traders, as it reduces the potential for slippage.

• Stablecoin: A “stablecoin” is a type of digital cryptocurrency that is designed to maintain a stable value, often pegged to a traditional fiat currency, such as the US Dollar. While the theoretical goal is to keep the stablecoin’s price steady, in practice, there may be slight variations. Stablecoins serve as a means of providing stability in the often volatile world of cryptocurrencies.

• Stake: The act of “staking” in the cryptocurrency context involves depositing a cryptocurrency coin or token into a yield farming project or a protocol. This can be achieved through various methods, including both centralized finance (CeFi) and decentralized finance (DeFi) platforms.

• Staking: “Staking” is the process of depositing a cryptocurrency in a yield farming project or staking program to earn additional cryptocurrency or rewards. This can be done through both CeFi and DeFi staking offerings. Staking involves locking up assets to participate in the network’s activities and potentially receive a share of the rewards. The choice between CeFi and DeFi staking depends on an investor’s risk tolerance, expected returns, and other factors.

T

• Tokenization: Tokenization involves transforming real-world and digital assets into blockchain-based formats, such as utility tokens and non-fungible tokens (NFTs). This process enables the trading of assets that were previously non-transferable and allows for the fractionalization of traditionally illiquid assets. For instance, internet service providers can implement pay-as-you-go models where customers purchase utility tokens to access varying bandwidth levels.

• Tokenomics: Tokenomics encompasses the principles governing how a project manages the supply and demand of its tokens. It encompasses the rules and mechanisms for creating, removing, or distributing tokens among users, founders, and associated programs. Tokenomics, in conjunction with utility, provides insights into the projected market value and price trends of these tokens.

• TVL (Total Value Locked): TVL, or Total Value Locked, serves as a metric that quantifies the scope of DeFi (Decentralized Finance) activity within a particular blockchain network or a specific application.

W

• Wallet: A wallet is a piece of software or hardware designed for storing various cryptocurrencies securely. Wallets can be categorized as either cold wallets, which are used for long-term storage and security, or hot wallets, which are more vulnerable due to their accessibility and are typically used for active or semi-active transactions. Hot wallets serve as a means to withdraw or deposit funds.

• Whale: A “whale” refers to an individual who holds a substantial quantity of cryptocurrency or multiple cryptocurrencies.

• Whitepaper: A whitepaper is a comprehensive document associated with each cryptocurrency and blockchain project. It serves to outline the project’s product-market fit, technical details, competitive analysis, and overarching purpose. Much like a traditional business plan, a whitepaper provides analysts and investors with an in-depth source of technical information essential for research

• Web3: Web3 is a concept that envisions a decentralized internet built upon blockchain technology and governed by token-based economic systems. It represents a shift towards a more open and user-centric web, diverging from the centralized models that currently dominate the internet landscape.

Y

• Yield farming: Yield farming refers to the practice of manually or automatically lending or arbitraging digital assets to generate a return on investment (ROI). It allows individuals to earn additional income by lending or depositing digital assets in centralized finance (CeFi) or decentralized finance (DeFi) platforms. DeFi options often provide higher yields compared to CeFi due to factors like the ability to make rapid changes, lower overhead costs, and minimal regulatory expenses.

Modern DeFi is indeed brimming with a plethora of new and esoteric terms, which can create barriers for newcomers looking to participate in the conversation. How many of these terms are familiar to you, and how many were already in your vocabulary?

While the sheer volume of terms may seem overwhelming, rest assured that you don’t have to be well-versed in every single one. Once you grasp the fundamentals of blockchain technology, you’ll find it easier to comprehend even the most intricate concepts.