Glossary
Annual Percentage Yield (APY)
APY is the annual percentage yield, and it means your annual compounded return from an investment. Your compounded return includes interest generated from the initial deposit plus the interest earned on that interest.
Audit
An audit is either an internal or independent comprehensive review of a concept, system, process, company, or product. A comprehensive audit includes a thoughtful and in-depth look at the structure, strengths, weaknesses, and vulnerabilities of the thing or process being audited.
Audits may be either informal or formal audits and are meant to be a tool to find and analyze weaknesses, so that issues and problems discovered during an audit may be remediated, mitigated, or corrected.
Blockchain
An immutable permanent public record or ledger of all transactions since the beginning of a cryptocurrency coin or token.
Coin
A form of digital currency primarily used for payments or storage of wealth. Encryption algorithms secure coins. The coin's market price represents the value of the ownership of a divisible unit of the coin or token (another name for a coin, but a type of coin with greater functionality) at a given moment in time. This coin or token can represent a share of the ownership and/or governance of a coin, token, protocol, company, or project and all of the benefits that this may entail.
Collateralization
The borrowing of a deposit asset or assets to seek further business activities such as Yield Farming. Collateralization can amplify gains or losses, and is thus, considered riskier than not borrowing funds.
Composability
The measure of the usability and ability of the product to be used as a building block (or "money lego") in the construction of other products or domains. A protocol that is simple, powerful, and that functions well with other protocols would be considered to have high composability.
Compound Interest
Once called the eighth wonder of the world by Einstein, compound interest allows greater interest rates and returns on investments by allowing interest gained to be automatically reinvested back in with the original deposits and accrued interest. This reinvestment period is based on the planned distribution of this interest which may be hourly, weekly, monthly, or an annual interest distribution.
With compound interest, the greatest gains are often seen over a certain period in time, with a notably sharp rise in the value of investments seen at longer periods. In general, the longer a deposit benefits from compound interest, the much greater the overall gains when compared to gains made from simple interest.
Cryptocurrency
A form of digital currency protected by encryption algorithms and represented as a digital coin or token. Cryptocurrency coins are programmed to systems and networks for:
Minting
Release
Reward
Distribution
Governance
Ability to make future changes
These digital coins or tokens include a ledger or blockchain record of all transactions that occur on their respective networks.
DAO (Decentralized Autonomous Organization)
A Decentralized Autonomous Organization (DAO) is the governing body of a decentralized protocol or project, and all the token holders of the protocol can participate in the decision-making process of the DAO, and all the decisions are available on the blockchain for the public to see.
dApp
DApps are decentralized applications built on a decentralized peer-to-peer network supported by distributed blockchain ledgers. Smart contracts stored on a blockchain enable DApps to process data through distributed networks and execute transactions. DApps have no central authority or a single point of ownership, and once a developer has released a DApp’s codebase, others can build on top of it.
DApps are always accessible and don’t have a single point of failure. DApps can be developed to create a wide range of applications, including decentralized finance, web browsing, gaming, social media, crypto wallets, etc.
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 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.
Ethereum
Bitcoin is the original cryptocurrency but Ethereum, which launched in July 2015, allows for much more complexity through the use of smart contracts and a Turing complete programming language.
Thanks to the ERC-20 protocol, Ethereum has many cryptocurrency coins such as LINK, CRV and YFI built on top of Ethereum, each with their own set of rules.
ERC-20
A cryptocurrency protocol based on the Ethereum blockchain. An ERC-20 coin, by definition, uses this protocol.
ERC-721
ERC-721 is a free, open standard that describes how to build non-fungible or unique tokens on the Ethereum blockchain. While most tokens are fungible (every token is the same as every other token), ERC-721 tokens are all unique.
Gas Fees
Gas fees are the fees charged for facilitating a transaction on a blockchain network. These fees, paid in a blockchain’s native currency, are designed to compensate miners in exchange for the computational power they use to verify the transaction.
Gas fees on a blockchain network are not fixed and can change depending on various factors such as demand and supply, transaction throughput per second, etc.
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 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.
gwei
A unit of measurement of gas fees for transactions on the Ethereum network or ERC-20 coin networks.
Leverage
The use of multipliers on exchanges or markets that allow leveraged trading, such that providing 1 BTC deposit on such an exchange could provide the investment power of 10 to 100 BTC if used at 10x to 100x leverage.
Leveraged trades can amplify gains greatly. However, should the trade be unprofitable, it can also amplify losses greatly. The downside of this risky approach is that the entire deposit, 1 BTC in this example, could be lost in a liquidation event where a margin call on this leveraged trade could result in the entire deposit being lost during times of massive volatility and insufficient reserve funds for the investor, trader, or CII.
Liquidity Pools
A liquidity pool is a collection of crypto tokens secured under a smart contract on the DeFi platform. With smart contracts, anyone can deposit their tokens into the liquidity pool to provide liquidity on the platform and receive rewards in the form of trading fees or native tokens in return. Users who lock up their assets in liquidity pools are called liquidity providers.
Liquidity Providers
Users who lock up their crypto assets into liquidity pools for the agreed-upon time to help with the decentralization of trading are called liquidity providers. In return, the liquidity providers are rewarded with fees generated by trades on that platform, new tokens, etc.
Mainnet
A mainnet is an independent, completely developed blockchain running its own network with its own technology and protocol that makes it possible to send and receive digital currencies. In contrast, testnets run on top of other popular networks and are used to troubleshoot and experiment with any new features on a blockchain. Most blockchain networks first roll out their testnets to catch any issues and test the blockchain before they launch the Mainnet.
Multisig Wallet
A multiple signature wallet is a cryptocurrency wallet that controls access and changes to one or more Smart Contracts. Community governed projects like a DAO often require multiple signers to approve a transaction before it will be executed. For community-based efforts, Multisig wallets for DAOs and DeFi projects are often implemented as 6 of 9 wallets, where 6 of 9 community wallet signers must agree to sign a transaction before a Smart Contract can be implemented.
Pool
A smart contract containing shared amounts of assets provided by depositors. Pools are either used in Automated Market Makers (AMMs)for optimized trading purposes, lending aggregation (yPool), or in shared yield farming strategies (yVaults), among other things.
Protocol
DeFi protocols are programs or codes written on the blockchain and used for designing DApps. These protocols are represented by DApps that provide access to peer-to-peer financial services. DeFi protocols are autonomous programs designed to address setbacks in the traditional finance industry.
ROI
Return On Investment. The gains or losses on an investment. For example, doubling your investment in an asset would be a 100% gain, or 100% ROI. Losing all of your investment would be a 100% loss, or -100% ROI.
Smart Contracts
Smart contracts are self-executing contracts representing the terms and conditions of the buyer-seller agreement inscribed directly into lines of code. The code and agreement operate on the blockchain and control the contract’s automatic execution once predetermined requirements are met. Smart contracts ensure that transactions, such as DeFi lending, borrowing, etc., are trackable and irreversible and happen in a trustless manner, without any intermediary’s involvement or time loss.
Stablecoins
Stablecoins are cryptocurrencies, the value of which is pegged to another currency, such as fiat currency, commodity, or financial instrument. The most popular stablecoins pegged to the US Dollar are USDT, USDC, DAI, etc.
Testnet
A testing network for a new coin, project, or product, or for potential improvements to an existing product or offering. Testnets are used to test the viability and vulnerability of new ideas, concepts, code, and processes prior to moving on to a production network or networks of some sort.
Token
A type of coin, except with much greater functionality. Tokens can also be used as a method of payment like coins, but unlike coins, they can excel at other use cases such as the democratic governance of a protocol or system, or as a means to use underlying coins to make liquidity tokens from these coin deposits.
These liquidity tokens could then be used in innovative new strategies elsewhere via delegated funds to amplify gains with little risk to the underlying asset the liquidity token is based upon. An investor could choose this action so that further gains to their assets may be made by using the automated actions of intelligent Smart Contracts to optimize gains.
Token's Contract Address
A token’s contract address is the address location of the token contract or the location of a smart contract that manages the balance of all token holders.
TVL
Total Value Locked (TVL) is the total value of all the crypto assets staked in the smart contracts of a DeFi platform. It indicates the funds available on various DeFi platforms for transactional, borrowing, and lending purposes. TVL has emerged as a key metric for gauging interest in the crypto industry and has been developed primarily to assess decentralized protocols and the DeFi system as a whole. A higher TVL suggests that a DeFi platform is healthy and in high demand.
Volatility
In investing, a measure of how rapid changes are seen to the price of an asset or market. Newer early-stage technology companies and projects in the explosive growth stage tend to see very high volatility in the price of their assets in their early days. Should the company or project behind the volatile asset see their venture survive over time, this volatility tends to be much reduced as the company's market cap grows and matures.
Wallet
A software or hardware cryptocurrency wallet that can hold a variety of coins.
Wallets may also be considered a cold wallet - meant to be used for long term storage of crypto coins for security purposes or a hot wallet, which is considered more at risk than a cold wallet due to its inaccessibility (usually offline). A hot wallet is meant to be used for active or semi-active transactions in and out of that wallet, as well as a place to withdraw or add funds.
Wallet Address
A wallet address is a randomly generated set of numbers and letters that you use for sending and receiving transactions. An address can be generated within seconds for free without needing an intermediary. You can freely share your public address with others to enable them to send digital assets to your address.
Wallet addresses are created using hashing algorithms, which adds an extra layer of encryption for enhanced security. Public and private keys are needed to access a wallet address.
Yield Farming
Yield farming is the process of lending or staking your cryptocurrency tokens in DeFi protocols in return for interest or other rewards. In yield farming, crypto holders deposit their funds to liquidity pools to provide liquidity to other users. Yield farmers measure their returns in terms of annual percentage yields (APY).
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