Defi Glossary: The Ultimate Guide to Financial Terms

Defi glossary

Do you feel like you’re constantly playing catch-up when it comes to financial terms in web3 or web4 ? Don’t worry, you’re not alone. The world defi is full of jargon that can be difficult to understand. But don’t sweat it – we’ve got you covered! In this glossary, we’ll define some of the most common financial terms so that you can become a financial whiz in no time!

DeFi glossary

DeFi is an important language for interaction in DeFi communities. This short glossary of terminology will help you to learn DeFi in a new way. A. B. C. D. E. F. G. H. I. K. M. N. O. R. S. T. U V Q. S. I. T. V. X Z.

 

Aave

Aave is an open-source protocol that creates money markets by enabling users to earn interest on deposits and also borrow assets. A Liquidity Token – which represents the value of one’s underlying asset deposit in any given asset (e+i), ensures stability for all participants.”

 

Alpha Code

The Alpha Code is an early-stage prototype of computer programs that are meant to solve problems and/or provide new digital goods or services. The code comes with the expectation it’s still at a very preliminary stage, which means there could be missing features or security risks in many parts – but this also makes them perfect for testing out your ideas!

Audit

A comprehensive audit includes a thoughtful and in-depth look at the structure, strengths, weaknesses as well as vulnerabilities of something. This allows auditors to find issues that may have been overlooked previously so they can be remediated or mitigated when necessary

APY

APY is a measure of how much money you’ll make off your investment. For example, if $100 was invested at 2% APY for one year and there were no compounding interest earned on that original amount until then- when it would be worth around 102 cents back after accounting for all additions throughout the course of play–then our monthly return would come out to just under three pennies!

ArbitrageIn

DeFi, automated yield farming is a way for investors to make money by arbitraging between different crypto markets. This means that they will take advantage of the price difference between two exchanges or assets – often within one day!

Automated Market Maker

The idea of an automated market maker is to take the emotion out, and just let you trade. It will always have your best interest at heart; there’s no need for custody because it operates on behalf (and arbitrage) with other traders like yourself all over ethereum or bitcoin’s networks – making markets wherever needed!

Balancer

The concept behind Balancer pools is to make it easier for investors who want low-cost diversification without hiring expensive portfolio managers or dealing with all of their red tape. By using an automated market maker, you can take advantage of non- equal weighting in your fund (e.g., 80/20 vs 50/50) as well single sided liquidity from LPs on either side – something not available through other means!

Bear Market

A bear market is a period marked by negative investor sentiment about an asset or class of assets. The length can range from weeks to months, and sometimes even years depending on how deep the sell-off goes in that time frame!

Beta Code

The beta code is an early stage prototype computer program that’s meant to solve problems or provide digital goods and services. The expectation with this type of software isn’t always 100% completion, but rather more like 70%-80%. This means there may still be limitations on what you can do in your app until it gets fixed up during later stages when everything has been tested out by others who will also provide feedback for improvements within the developer community as well!.

Blockchain

A blockchain database contains an unchangeable record of all transactions since its inception. It can be used to trace ownership, observe monetary flows and provide transparency for anything that has ever been traded or transferred using this cryptocurrency system.

Bull market

A bull market is periods where investors feel good about an asset or class of assets. These can last for weeks, months and even years! There are also times when people may be excessively enthusiastic in their purchases which leads to bubbles – like the one we saw recently with Bitcoin (BTC).

CeFi

Centralized Finance. The term CeFi refers to businesses that deal with cryptocurrencies and are usually found in some form of centralized exchange, organization or country where they must follow all applicable laws which includes rules for both debit/credit card transactions as well any other regulations set by local governments.

CEX

The Centralized Exchange is a business that has to follow all the applicable laws and rules in each country, state or region they operate. There are significant overhead costs for running such as Corporate leaders rent electricity etc., but it also comes with some great benefits!

Coin

A form of digital currency that can be used for payments and storage. The market price represents the value of ownership at any given moment in time, which may include shares or governance over various things such as coins/tokens within projects like companies & defi protocols.

Collateralization

The borrowing of funds to seek additional business activities such as yield farming. Collateraling can amplify gains or losses, and is thus considered riskier than not having any collateral on hand with which you’re working .

Composability

The measure of a product’s usability and ability to work with other products. If it has high composability, then this means that the protocol can be easily put together in different ways depending on your needs or desires for what you’re doing at any given time – like building blocks!

Compound

A collaborative effort that benefits both types of investors, Compound is a platform for developers to unlock access new financial applications.

Compound Interest

Compound interest is one of the most powerful and generous forces in existence. It allows greater rates on investments, which can then be automatically reinvested back into your original deposit with accrual or annual distribution periods based off what they choose for you – either hourly/weekly etc…interest isn’t just free; it’s Automatic!

 

Cryptocurrency

Cryptocurrency is a type of digital currency that uses encryption to protect the transactions and functions like cash. There are many different cryptocurrencies in circulation and processes are below:

  • Minting
  • Release
  • Reward
  • Distribution
  • Governance
  • Ability to make future changes

Curve

Curve is a crypto currency that makes it possible for traders to trade between different cryptocurrencies and assets such as USD, DAI or TUSD with low slippage. One advantage of providing liquidity in similar currencies like these listed above (i e USDC)is the opportunity mitigate loss from IL if you are an LP – which means your capital may not be at risk when trading on curves finance smart contract!

dApp

A dApp is a new kind of application that runs on blockchain technology. Advantages include being decentralized and therefore immune to outages or censorship, as well as allowing for innovative solutions in finance (backed by real-world assets) like price Oracles which provide information from external sources into cryptocurrency wallets without having any third party interference whatsoever .

DAO

A DAO, or Distributed Autonomous Organization can be thought of as an organization with rules encoded into it’s code that are transparent and member-driven. This type if entity has less regulatory oversight than traditional corporate structures because its financial transaction record isn’t maintained by any one person but instead through consensus algorithms based on what everyone else agrees upon in the network which makes them more difficult to regulate effectively!

Decentralized Finance

Decentralized finance is the next big thing in financial systems. It’s not quite Bitcoin, but it shares many similarities with crypto currency and other cryptocurrencies!

Decentralized Exchange

A decentralized exchange is an innovative way for traders to buy and sell cryptocurrency without the need of a third-party service like Coinbase. It allows users more control over their private keys, which means that they can trade on any platform with no worries about getting hacked or losing funds because there’s nothing stored online – everything happens offline!

 

DeFi

DeFi, or Decentralized Finance, is at its root a set of Smart Contracts running independently on blockchains such as the Ethereum network. Smart Contracts may or may not interact with other smart contracts and even other blockchains.

The goal of DeFi is to enhance the profitability of investors in DeFi through automated smart contracts seeking to maximize yields for invested funds. DeFi is marked by rapid innovative progression and testing of new ideas and concepts.

DeFi space often involves high risk investing sometimes involving smart contracts that have not been audited or even thoroughly reviewed (a review is not as comprehensive as an audit, but may also be included as part of an audit). Due to this and other reasons, DeFi is conventionally considered to be riskier than CeFi or traditional investing.

Delegation

Delegation is a clever way to utilize another person’s deposit as collateral for borrowing money.

Delegated Fund DAO

As an experiment in providing seed capital for new projects, the Delegated Fund DAO was created. It has access to liquidity pool and governance tokens under its control that are meant as incentives towards innovation from builders or designers who have previous experience with crypto-building but want a fresh approach on how they can be procured enough funds so their ideas may flourish without having any allocation taken away by investors before it’s Fair Launch date arrives!

Derivative

Derivatives are an investment instrument or tool that’s based on one thing: underlying assets (or currencies). They can be used to hedge positions, speculate about the directional movement of those base items’ prices — maybe you’re bullish while others think it will go down–or give leverage to holdings by taking advantage any fluctuations in value between two related products like stocks and bonds.

DEX

DEXs are a game changer in the cryptocurrency world. They allow users to trade directly with each other without having any middlemen such as banks or government entities getting involved, which provides them some major advantages over CEXes because they don’t have side costs associated with being regulated by law enforcement agencies etcetera . The biggest draw of course comes from how much leaner and profitable these decentralized or centralized cryptocurrency exchanges can be when compared side-by splashy marketing campaigns; one might say there’s no better time than now!

Ethereum

Ethereum is a blockchain that allows for more complexity than bitcoin with its smart contracts and Turing complete programming language. It’s based off the ERC-20 protocol which has many different cryptocurrencies built onto it including LINK, CRV & YFI– each having their own set rules!

ERC-20

A cryptocurrency protocol based on the Ethereum blockchain. An ERC-20 coin, by definition uses this protocol to communicate with other nodes in order for it be able process transactions and execute smart contracts.

Fair Launch

Fair Launch, in essence, is a more fair way for early investors to get their slice of the pie. Pre-investors and founders/founding teams are not able to dilute or encumber your equity by taking it off you before launching.

Fair Launch Coin or Token

Fair Launch Coin is a new type of cryptocurrency that was designed to be more accessible and affordable for everyday people. It has no founder, foundation or development team; instead its founders are developer André Cronje (founder) who also happens provide technical assistance when needed through his company Yfi Inc., plus community members from around the world passionate about making finance truly fair once again!

Fiat

Investopedia defines fiat as “a government-issued currency that is not backed by a physical commodity,” which means it can be exchanging earned money for cryptocurrency at any crypto exchange platform.

Financial Primitive

Financial Primitive is a cryptocurrency-based financial building block. It can be combined with other Financial primitive items to create smart contracts and trade on Forex or commodities markets more efficiently than before!

Flash Loan

The world of cryptocurrency has given us a whole new way to loan money and invest in assets. A flash loan is like an instant payment, where you don’t have interest fees or any other costs associated with traditional loans because it’s only available during the duration block time period your transaction resides on blockchain!

FOMO

FOMO is a very common feeling among investors. The fear that you will be left out if it seems like everyone else has gotten ahead of the game, while your portfolio isn’t doing as well or making profits at all compared to newer investments and options available on markets today- this could lead someone into panic mode because they feel unsure what step should come next in order for them not being left behind by society’s trends!

Forced Liquidation

In the context of cryptocurrencies, forced liquidation happens when an investor or trader cannot fulfill their margin requirements for leveraged positions. The concept applies to both futures trading as well as on-margin transactions with cryptocurrency investment strategy ”

Gas Fees

The gas fee is the unit cost for incentivizing miners to support blockchain transactions. In Ethereum, this goes by one name: gwei (geometric). Withdrawals or transfers from CEXs will incur a higher priced gas fees than those going into them as well; however it varies depending on how many people are using that network at any given time – meaning there’s more demand when things get busy!

Governance

Governance refers to the control and use of a Governance coin, token, and/or project through various measures to grow the ecosystem or product and to maximize gains for governance token holders.

Governance Token

A governance token is a type of cryptocurrency that can be used to govern the operations and direction for projects within certain communities. These tokens often have other benefits available only via holding them, such as discounts on services from companies who support your Constitutional rights or influences over legislation in government bodies if you’re living outside their borders!

Gwei

Gwei is the unit of measurement for gas fees on transactions within Ethereum or ERC 20 coin networks.

HODL

The Term HODL was coined in the early days of cryptocurrency, when investors would not sell their coins even during volatile periods because they believed there long term promise.

 

HODLer

A person that holds onto their investments, also known as HODLers.

Impermanent Loss

When you provide liquidity in an automated market maker, your asset values are constantly changing to ensure that LPs can withdraw exactly what they deposited. However there’s always some risk of not getting paid back because the markets are unpredictable! This phenomenon is called “impermanent loss.”

Institutional Investor

Institutional investors have always been known for their ability to find yield wherever it lies. In recent years, this means that they can now enter the crypto market with ease and security thanks in no small part due CeFi & DeFi platforms – or Definition of Collective Investment onto Digital Assets Platforms

A new type of virtual institution has taken shape: A DAO-based decentralized investment fund designed specifically around cryptocurrency trading strategies. These funds are not subject either legal entity status but rather operate under smart contracts controlled by governance tokens which allow them access tools such as hedging.

Insurance Primitive

In the world of finance, there are many different types and forms insurance can take. One form that has recently come about as an alternative to traditional Insurance is called yInsure by YFI Developer Andre Cronje which allows you (the investor) to purchase tokens representing your own personal crypto-insurance policies with any base asset like Ethereum or Bitcoin; however it also offers more than just commodity investments – You could invest inDAI itself!

Lending Aggregator

Lending Aggregator is a program or set of smart contracts that automatically seeks the best lending rates for depositors loaning coins, and returning them with an interest rate.

Lending Provider

The Lending Provider is a person or group who provides cryptocurrency capital in exchange for rewards and fees gained by lending out coins. Loans are provided to traders, investors, decentralized exchanges so they can take advantage of arbitrage opportunities as well business moves within the CeFi (Crypto Finance) space!

Leverage

Leverage is the use of multipliers on decentralized exchanges or markets that allow leveraged trading, such as providing 1 BTC deposit for an investment power ten times greater than what was given. There are risks involved with this approach; if one does not profit from their trade in spite its high potential return then they may also suffer greatly due to losing all funds put down when things go south during volatile periods where there isn’t enough reserve fund set-up by either party (investor/trader).

Liquidity

Liquidity is the measure of how much available circulating supply there will be for an asset, and also what activity takes place in exchange economies or networks. If a currency has low liquidity then it’s difficult to trade because nobody wants your money when you can’t afford any losses either way!

Liquidity Mining

Liquidity mining is a new form of cryptocurrency that supports work and transactions on blockchain without expensive application or hardware-specific equipment required by older forms. In return for their service, liquidity providers are rewarded with crypto tokens which they can use to support the growth of other users in need; this reward system helps keep network healthy while also providing interested parties an opportunity at making some cash!

Liquidity Pools

Liquidity pools are essential for any financial network because they provide liquidity to currencies and Smart Contracts. In return, there will be rewards given out by the pool which can include crypto-currencies or tokens on a crypto exchange like Binance; this makes it possible that you could earn some extra money just by providing your services as an arbitrageur ( person who takes advantage of price differences).

Liquidity Providers

In the realm of cryptocurrency and DeFi space, this refers to investors who deposit an asset in order gain access (or “ROI”) on their investment.assed one or more digital assets into decentralized Liquidity Pools (LPs) for use as capital when trading across decentralized exchanges or networks – providing liquidity that can’t be found anywhere else!

Liquidity Token

Liquidity tokens are a type of cryptocurrency that can be exchanged for other cryptocurrencies or fiat currencies. These smart contract-based assets have been implemented through the use, and appreciation in value over time due to it being backed by an original deposits from investors who want their money back should they choose not do anything else with them except hold onto these pieces o’ digital real estate while hoping someone asks too much when buying up all available supplies at once!

Maker

Maker is a financial ecosystem that uses the $1 stable coin called DAI. With no volatility, this digital asset provides stability in times of high market uncertainty and gives people an opportunity for investing without having their investments go up or down based on how investors feel about cryptocurrencies at any given moment .

 

MakerDAO CDP

The MakerDAO describes it as:

The MakerDAO Collateralized Debt Position (CDP) is a smart contract which runs on the Ethereum blockchain. It’s an important part of how we create and hold onto sai in exchange for collateral, so that you can get your loan back when it’s time!

Margin

Margin loans are very risky because you need collateral to secure the loan, and if your investment goes down in value then all those invested on margin could lose everything.

Margin Call

When a trader cannot meet debt obligations on leveraged trade positions, they may be subject to Liquidation Events. This happens when market conditions change rapidly and there is high volatility in these markets – all with no warning whatsoever!

Marketcap

Market capitalization is a measure of the total funds invested in any company or project. It can be calculated by multiplying an asset’s unit price with number coins and adding them all up together as well!

MetaMask

With MetaMask you can store, transmit or receive Ethereum and ERC-20 compatible coins or tokens on your phone.

Mining Pool

Mining pools are the way to go if you want your miner(s) contribute towards Bitcoin mining. They offer an incentive for smaller miners and also provide more security than solo-mining does!

Multisig Wallet

Multiple signature wallets allow transactions to happen when at least six out of nine people sign off on it. These community-based projects often require multiple signatures before executing any agreement or action, which can be implemented with 6os9 wallet systems for DAOs and DeFi initiatives.

Oracle

Data oracles are a way to get accurate information from sources that may not be accessible at all times. There’s no need for middlemen, because direct connections between buyer and seller ensures efficiency in this industry-changing technology!

Pool

When people deposit money into a pool, that’s called “depositing.” The fund becomes an assets and can then be lent out to other users through various means.

Primitive

A simple way to create something new.

Protocol

Even in high technology, a protocol can be an important part of communication. For example there’s TCP/IP and ERC-20 which are both sets of developed rules for networking with computers or smartphones respectively!

Rebalance

Re-balancing is the act of making changes to a portfolio or pool of funds for various reasons. It’s often used when there are high levels in market volatility and you want your investments protected against it by taking profits before they get too expensive, reducing risks on invested capital rather than watching everything melt down at once!

Retail Investor

Cryptocurrencies are becoming more popular with each passing day, but it’s not just professionals who have taken notice. The cryptocurrency market also contains an impressive number of retail investors; people that buy bitcoin at full price instead of benefitting from volume discounts and other perks typically reserved only for whales or pre-IPO stakeholders!

ROI

Investors use the term ROI to measure how profitable an investment is. For example, doubling your money would give you a 100% gain in this case while losing everything could result in only (-)100%.

Slippage

When an order is made, the difference in price between buyer and seller expectations results in slippage. This can be 1-3% or even more for coins with limited liquidity; leading to final sale prices that are either higher than requested transaction amounts (a good thing) OR lower based on how much there was originally supposed to have been traded at first place!

Smart Contracts

A digital contract that is programmed in a language which can be considered Turing complete, meaning with enough processing power and time; the proper programming should enable any task or process to happen. Ethereum’s smart contracts are also 41% derived from Solidity and Vypress respectively – two of many possible languages used for these types of agreements on blockchains like ethereum blockchain network.

Spread

The difference in price between a potential buy and sell offer of an asset is called the spread. A wide spread can lead to higher slippage, which means that traders may have trouble buying or selling at exactly what they want because there’s been too much demand on either side.

Stablecoin

A stablecoin, such as DAI or Tether is often seen by investors who want to diversify their investment portfolios into crypto without taking any risks with gains—and it’s also an attractive option if you’re looking for something safe.

What makes these coins so great? The fact that they have low volatility rates compared other cryptocurrencies means stability will always be there too!

Stake

Stakers hope to gain interest on their deposits into these yield farming projects and offerings. CeFi is considered safer for several reasons – including strict rules, permitting, and regulations; however it tends not give much high rewards while being accompanied with higher risks earlier in the project’s lifecycle (when testing begins).

Staking

Staking is a great way to earn more tokens in the form of cryptocurrency. The process involves securely depositing your funds with an airline that offers stakers programs, which will allow you access and benefits as longs they continue on their path towards success!

Testnet

Testnets are essential to the success of any project. They allow developers and entrepreneurs alike an opportunity for testing their ideas without risking too much money or time on something that may not work as planned, giving them valuable feedback which can lead towards making improvements before launching into production mode with full force!

Token

These liquidity tokens could then be used in innovative new strategies elsewhere via delegated funds to amplify gains with little risk. An investor could choose this action so that further investment opportunities may arise for them at different points during the day, week or year – depending on what best suits their needs!

Turing Complete

The concept of a Turing complete programming language was named after the inventor, Alan Turin. This type can do nearly anything that another one might ask it to with enough time and processing power- even if you don’t know how or what’s going on inside!

TVL

The total value locked up in a smart contract or set of contracts that may be deployed at one or more exchanges. The dollar figure represents all coins stored on your platform, protocol etc., and is used as an indicator for investor deposits; it shows how much risk you are willing to take when investing with them.

Volatility

You can see how new technology companies and projects in the early stages of growth have very high volatility when their prices change. But as time goes on, this type tends to calm down because there’s more stability with market caps increasing over years/months instead .

Wallet

Cryptocurrency wallets come in many different forms, from software to hardware. A good wallet will hold your coins long-term and provide peace of mind when trading on decentralized exchanges or using fiat currency with cryptocurrencies for payments (such as buying goods online).

 

Yearn Finance

The yEarn Finance suite of tools and products is an interconnected financial ecosystem, running on various smart contracts. The community-controlled system can be accessed using the YFI token for governance purposes.

YFI

The governance token for the yEarn Finance ecosystem and suite of tools. YFI holders can submit, discuss vote upon various proposals to make operational or governance changes that will affect them in some way (such as new features). This was one approach we took when designing our platform; it’s something many people didn’t expect but ended up liking!

Yield Farming

Yield Farming is the practice of getting a return on your investments by lending or arbitrageing digital assets. This can be done through either manual operations, like turning CeFi into DeFi and vice versa; or automatic processes that make rapid changes in one direction (for example going from +10% to -5%).

YIP

Under current governance rules, a quorum of 20% (or more) deposited tokens is required to vote on any given proposal. Proposals must receive 50%+1 yes votes before passing–and this democratic decision making process ensures that holders have input into how their funds will be used!

yInsure

The inventorship behind the new type of tokenized insurance was revealed this week by YFI Developer André Cronje. He introduced what he calls “yInsure tokens,” which are liquidity providers for various types or monetary aggregates that provide financial services in exchange with crypto-assets being insured against hacks and toneries on their respective networks–from DAI all way down to individual accounts held at Coinbase!

yLiquidate

A new way to liquidate your Aave tokens with zero capital. The system is currently being developed in a testnet and we can’t wait until it’s finished!

ySwap

The Single-sided Automated Market Maker (AMM) is an early production model that’s still undergoing changes and improvements.

yToken

A cryptocurrency market made up primarily of investors who want to invest in blockchain but don’t know how or where they can get started with it. y Tokens are used as an investment opportunity, via Yearn Finance products like lending and insurance liquidity (yInsure). There’s also a separate product called ” automated optimized yield farming” which lets you trade between different crypto currencies based on their relative values rather than just investing all your money into one coin .

yVault

The yVault smart contract is considered more complex than the Yearn counterpart because it allows for greater customization.

Zapper

In order to make the process of entering and exiting DeFi easier, Zapper was created. This tool simplifies transactions by batching them together or “zapping” into products that require an entry point within its interface – saving time for investors who might have been spending hours on each transaction before! Its design also enables users with granular insight as they track their investments along different defi protocols’ paths in one place–allowing more informed decisions about what moves next based off previous performance estimates (or lack thereof).

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