Impermanent Loss
Impermanent loss is a temporary reduction in the value of assets deposited by liquidity providers into a decentralized exchange's liquidity pool, occurring when the prices of those assets change relative to each other.
DeFi Glossary
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CeFi (Centralized Finance)
CeFi (Centralized Finance) refers to cryptocurrency financial services managed by centralized entities. Unlike DeFi, where transactions occur via smart contracts, CeFi platforms require users to trust a third party for asset custody, lending, borrowing, and trading. Examples include Binance, Coinbase, and Nexo.
Composability
Composability refers to the ability of DeFi protocols to seamlessly integrate and interact with each other like "money legos." This enables developers and users to build complex financial applications by combining different DeFi services.
Cross-Chain Swaps
Cross-chain swaps enable the transfer of assets between different blockchain networks without relying on a centralized intermediary. These swaps use smart contracts and interoperability protocols to ensure trustless transactions between chains.
10K Wallet
A 10K wallet refers to a cryptocurrency wallet holding at least 10,000 units of a specific digital asset, such as Bitcoin (BTC), Ethereum (ETH), or stablecoins like USDT. This term is often used in blockchain analytics to track large holders, assess market movements, and gauge investor sentiment.
24-Word Seed Phrase
A 24-word seed phrase (also known as a mnemonic phrase or recovery phrase) is a set of 24 randomly generated words that serve as a master key to access and recover a cryptocurrency wallet. This phrase is crucial for non-custodial wallets, allowing users to regain access to their funds if they lose their device or private key.
51% Attack
A 51% attack occurs when a single entity or a coordinated group gains control of more than 50% of a blockchain network’s mining or staking power. This allows them to manipulate transactions, double-spend coins, and disrupt the network’s normal operations.
A
Airdrop
An airdrop is the free distribution of cryptocurrency tokens to users’ wallets, typically as part of a marketing campaign, community reward program, or governance token launch. Blockchain projects often use airdrops to drive adoption, decentralize token ownership, and incentivize participation.
AMM (Automated Market Maker)
An Automated Market Maker (AMM) is a type of decentralized exchange (DEX) mechanism that allows users to trade digital assets without relying on a traditional order book. Instead of matching buyers and sellers, AMMs use liquidity pools and mathematical formulas to determine asset prices.
APR (Annual Percentage Rate)
Annual Percentage Rate (APR) is the yearly interest rate earned on an investment or paid on a loan, expressed as a percentage. In DeFi, APR represents the fixed or variable return on staked assets, liquidity provision, or lending, excluding the effects of compounding.
APY (Annual Percentage Yield)
Annual Percentage Yield (APY) is the real rate of return on an investment, accounting for the effects of compounding interest over time. In DeFi, APY represents the annualized yield from staking, lending, or liquidity providing, assuming interest is regularly reinvested.
Arbitrage
Arbitrage is a trading strategy that exploits price differences of the same asset across different markets or platforms to generate risk-free profits. In DeFi, arbitrage traders take advantage of price discrepancies between decentralized exchanges (DEXs) and centralized exchanges (CEXs), liquidity pools, or blockchain networks.
Assets Under Management (AUM)
Assets Under Management (AUM) refers to the total market value of assets that a financial institution, investment firm, or DeFi protocol manages on behalf of clients or investors. In the DeFi space, AUM represents the total value of user funds locked or managed within a platform, such as lending protocols, yield farms, or investment DAOs.
Atomic Swap
An atomic swap is a smart contract-based exchange that allows users to trade cryptocurrencies directly across different blockchains without intermediaries or centralized exchanges (CEXs). Atomic swaps use hashed time-locked contracts (HTLCs) to ensure that both parties either complete the trade simultaneously or it is canceled automatically.
B
Blockchain Oracles
A blockchain oracle is a third-party service that provides real-world data to smart contracts, enabling them to interact with external information sources such as price feeds, weather data, sports results, or APIs. Oracles are essential for DeFi, NFTs, and smart contract automation, as blockchains cannot access off-chain data on their own.
Bonding Curve
A bonding curve is a mathematical formula that determines the price of a token based on its supply. Used in automated market makers (AMMs), token issuance models, and NFT sales, bonding curves ensure that token prices increase or decrease dynamically as supply changes.
Borrowing & Lending
Borrowing and lending in DeFi refers to the process of lending digital assets to earn interest (lending) or borrowing assets by providing collateral (borrowing). Unlike traditional finance, DeFi lending platforms operate without intermediaries, relying on smart contracts to facilitate loans and manage collateral.
Bridges
A blockchain bridge is a protocol that enables the transfer of assets, data, or smart contract instructions between different blockchain networks. Bridges are crucial for cross-chain interoperability, allowing users to move tokens between ecosystems like Ethereum, BNB Chain, Polygon, and Solana.
Burning (Token Burn)
Token burning is the permanent removal of cryptocurrency tokens from circulation, reducing the total supply. This process is used to increase scarcity, stabilize prices, or implement deflationary mechanisms in blockchain ecosystems. Token burns are executed by sending tokens to an irretrievable address (burn address), rendering them unusable.
C
CEX (Centralized Exchange)
A centralized exchange (CEX) is a cryptocurrency exchange managed by a company that holds user funds and facilitates trading through an internal order book. Examples include Binance, Coinbase, and Kraken.
Collateralization Ratio
The collateralization ratio is the proportion of collateral required to back a loan in DeFi lending protocols. It represents the percentage of collateral relative to the borrowed amount, ensuring loan security and reducing the risk of liquidation.
Crypto Staking
Crypto staking is the process of locking up cryptocurrency assets to support blockchain network security and earn rewards. Staking is commonly used in Proof-of-Stake (PoS) and related consensus mechanisms.
D
DAO (Decentralized Autonomous Organization)
A Decentralized Autonomous Organization (DAO) is a community-led organization governed by smart contracts and token holders. DAOs operate without centralized leadership, enabling decentralized decision-making and resource allocation.
DApp (Decentralized Application)
A decentralized application (DApp) is an application that runs on a blockchain or peer-to-peer network without a central authority. DApps leverage smart contracts to facilitate trustless operations and decentralized governance.
Derivative
A derivative is a financial contract whose value is derived from an underlying asset, such as cryptocurrencies, stocks, commodities, or interest rates. Derivatives are widely used for hedging, speculation, and risk management.
DEX (Decentralized Exchange)
A decentralized exchange (DEX) is a platform that facilitates peer-to-peer trading of cryptocurrencies without a central authority. DEXs operate through smart contracts and decentralized liquidity pools, allowing users to trade assets without intermediaries.
Dusting Attack
A dusting attack is a technique where attackers send small amounts of cryptocurrency, known as “dust,” to multiple wallets to track and de-anonymize their owners.
E
ERC-20
ERC-20 is a widely used token standard on the Ethereum blockchain for fungible tokens. It defines a set of rules that enable seamless interaction between tokens and Ethereum-based applications.
ERC-721
ERC-721 is a token standard on the Ethereum blockchain designed for non-fungible tokens (NFTs), enabling unique digital assets such as collectibles, art, and virtual real estate.
Ethereum 2.0 (Eth2)
Ethereum 2.0 (Eth2) is a major upgrade to the Ethereum network that introduces Proof-of-Stake (PoS) consensus and scalability improvements to enhance security, efficiency, and transaction throughput.
EVM (Ethereum Virtual Machine)
The Ethereum Virtual Machine (EVM) is the decentralized computation layer of Ethereum that executes smart contracts and manages the state of the Ethereum blockchain.
F
Farming (Yield Farming)
Yield farming is the process of earning rewards by providing liquidity to decentralized finance (DeFi) platforms. Users supply crypto assets to liquidity pools in exchange for yield, often in the form of interest, fees, or governance tokens.
Fiat On-Ramp
A fiat on-ramp is a service that allows users to buy cryptocurrencies using traditional (fiat) currencies like USD, EUR, or GBP. It provides a gateway for new users to enter the crypto ecosystem by converting fiat money into digital assets.
Flash Loan
A flash loan is a type of DeFi loan that must be borrowed and repaid within a single transaction. It allows users to access capital without collateral, provided the borrowed amount is repaid before the transaction is completed.
Fork
A fork is a split in a blockchain's code that creates a new version of the network. This can occur due to protocol upgrades, governance decisions, or community disagreements, resulting in two separate chains.
Front-Running
Front-running is the practice of placing a transaction ahead of another to gain an advantage, often exploited by Maximal Extractable Value (MEV) bots on blockchain networks.
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Gas Fees
Gas fees are transaction fees paid to miners or validators on a blockchain to process and validate transactions. These fees compensate network participants for the computational resources required to execute transactions and smart contracts.
Genesis Block
The Genesis Block is the very first block of a blockchain network, marking the beginning of the chain’s transaction history. It is also known as Block 0 or Block 1, depending on the blockchain protocol. Unlike subsequent blocks, the Genesis Block is uniquely coded into the blockchain’s software and does not reference a previous block.
Governance Token
A governance token is a cryptocurrency that grants holders voting power in a decentralized finance (DeFi) protocol. These tokens enable users to influence key decisions, including protocol upgrades, fee structures, and treasury allocations.
Gwei
Gwei is a unit of Ethereum's gas price measurement, representing one-billionth of an Ether (ETH). It is commonly used to denominate transaction fees on the Ethereum network.
H
Hard Cap
A hard cap refers to the maximum supply of a cryptocurrency or token that can ever exist. It is a fixed limit set by a project's protocol, ensuring that no additional tokens can be created beyond this predefined amount.
Hashrate
Hashrate refers to the computational power used to mine or validate transactions on a blockchain network. It is measured in hashes per second (H/s) and represents the number of cryptographic calculations a miner or validator can perform in a given time.
HODL
HODL is a term used in the cryptocurrency community meaning to hold onto crypto assets rather than selling them, regardless of market fluctuations.
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Impermanent Loss
Impermanent loss is a temporary reduction in the value of assets deposited by liquidity providers into a decentralized exchange's liquidity pool, occurring when the prices of those assets change relative to each other.
Initial DEX Offering (IDO)
An Initial DEX Offering (IDO) is a fundraising method where new cryptocurrency tokens are launched and sold directly on a decentralized exchange (DEX), allowing projects to raise capital in a decentralized manner.
Interoperability
Interoperability refers to the ability of different blockchain networks to communicate, share data, and exchange assets seamlessly.
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