I built this glossary because DeFi jargon is easy to repeat and harder to understand when your money is on the line. Look up a term, check the example and risks, then follow the links into the analysis. For a reading path rather than a dictionary, start with the guides.
Missing a term or spotted a mistake? Tell me.
Foundations every reader should know
- DeFi Financial services executed through blockchain smart contracts
- AMM Decentralized exchange using mathematical formulas for pricing instead of order books
- Liquidity Pool Contract-held assets used for swaps or lending
- Impermanent Loss LP underperformance versus holding as relative token prices change
- Wallet Tool for storing private keys and managing cryptocurrency
A
Annualized return including compounding, assuming a constant rate
Decentralized exchange using mathematical formulas for pricing instead of order books
Annualized simple rate without compounding
Automatic reinvestment of interest, fees or token rewards
Free distribution of tokens to wallet addresses
Profiting from price differences of identical assets across markets
Security review of smart contract code to identify vulnerabilities
Protocol-controlled market operations using reserves or issued assets
B
Protocol enabling asset transfers between different blockchains
Collection of transactions bundled together on a blockchain
Obtaining crypto loans by providing collateral to smart contracts
Difference between highest buy price and lowest sell price
Reward program for finding and reporting security vulnerabilities
Arbitrage strategy exploiting price differences between spot and futures markets
Token rewards paid to voters for directing gauge emissions to specific pools
One hundredth of one percentage point, written as bps
Marketplace where voters are paid to direct governance votes
Rule linking token issuance or redemption prices to supply
C
Method for blockchain networks to agree on transaction validity
Asset pledged to secure debt and exposed to seizure
Number of tokens publicly available and actively trading
AMM liquidity allocated to a bounded price range
Company-operated exchange controlling user funds with order books
Mathematical formula (x*y=k) used by AMMs for automatic pricing
Borrowing low-yield assets to invest in higher-yield ones for interest differential profit
How effectively a protocol uses deposited capital to generate results
The ability for DeFi protocols to seamlessly integrate and build upon each other
Smart contract where collateral is deposited to mint or borrow stablecoins
Interest earned on principal plus previously earned interest
D
Organization coordinating decisions through governance rules
Financial services executed through blockchain smart contracts
Service that finds the best prices across multiple DEXs for trades
Regular fixed-dollar purchases regardless of price to reduce volatility impact
Exchange operating without central authority using smart contracts
Strategy that eliminates directional price risk through balanced long/short positions
Financial contracts deriving value from underlying assets
Assigning voting power to another party to vote on your behalf
Application running on blockchain rather than centralized servers
When a stablecoin or pegged asset loses its intended price peg
E
Proof-of-stake blockchain executing programmable smart contracts
Standard for creating fungible tokens on Ethereum
Standard for creating non-fungible tokens on Ethereum
Founders disappearing with investor money after fundraising
Attack exploiting smart contract vulnerabilities to steal funds or cause damage
The rate and schedule at which new tokens are created and distributed
F
Uncollateralized loan repaid within the same transaction
Executing ahead of another transaction by paying higher gas fees
Attack using flash loans to manipulate protocols for profit
Periodic payment between perpetual futures traders to maintain price alignment
Self-reinforcing cycle where protocol components amplify each other's growth
Temporary token issuance returned and burned in one transaction
G
Token granting defined voting or delegation rights
Fee paid to execute transactions on Ethereum blockchain
Strategy placing staggered buy and sell orders across a range
Malicious actors gaining voting control to pass harmful proposals
Voting mechanism that directs token emissions to specific liquidity pools
H
Malicious contract that traps user funds with hidden withdrawal restrictions
Threshold-adjusted collateral value divided by debt value
I
LP underperformance versus holding as relative token prices change
Percentage cost to borrow or return earned from lending capital
L
Earning token rewards by providing liquidity to DeFi protocols
Contract-held assets used for swaps or lending
Scaling system deriving settlement security from its layer 1
Supplying assets to borrowers through contracts for interest
Debt value divided by collateral value
Repayment and seizure of collateral after a loan breaches its threshold
Tokens representing a user's share in a liquidity pool
Order to trade at a specific price or better
Entity that supplies assets to facilitate trading and earn fees
Combining liquidity from multiple sources for better trading execution
Using borrowed funds to amplify trading position size and potential returns
Custom liquidity distribution patterns that automatically adjust with price movements
Chain reaction of liquidations where each one triggers further price drops and more liquidations
Staking tokens while receiving a liquid derivative usable in DeFi
How easily an asset can be traded or redeemed without large price impact
Supplying assets to a protocol or venue to earn fees, interest, or incentives
Reward multiplier for liquidity providers who meet protocol conditions
M
Value extracted through transaction inclusion, exclusion or ordering
Wallet requiring multiple signatures to authorize transactions
Waiting area for unconfirmed blockchain transactions
Total value of a cryptocurrency (price × circulating supply)
Maximum number of tokens that can ever exist
Market's ability to handle large orders without significant price impact
Order to trade immediately at current market price
Trading with borrowed funds using collateral to control larger positions
Popular browser wallet for interacting with Ethereum and DeFi
Protocol facilitating decentralized lending and borrowing of crypto assets
Participant that provides buy and sell liquidity to a market
Using one protocol's position to influence another protocol's governance
O
System making external information usable by smart contracts
Real-time list of buy and sell orders organized by price levels
Contracts giving the right to buy/sell assets at specific prices before expiration
Locking more collateral value than the amount borrowed as a safety buffer
Attack that exploits manipulated or faulty oracle data
P
How much a trade moves the market price of an asset
Deceptive attacks to steal private keys or trick users into malicious transactions
Oracle supplying asset prices for collateral and settlement
Derivative contracts that track asset prices without expiration dates
Formal suggestion submitted to DAO community for voting on protocol changes
Secret cryptographic key that controls your cryptocurrency
Liquidity owned by the protocol's treasury rather than rented from external LPs
Target price relationship an asset is designed to maintain
Open access without needing approval from a central gatekeeper
Consensus mechanism where validators stake assets to secure a blockchain
Module exchanging a stablecoin and accepted backing at a fixed rate
Curve module adjusting crvUSD pool liquidity to support its peg
R
Token with elastic supply that adjusts to maintain price stability
Scam where developers abandon project and steal investor funds
Finding optimal trading paths across multiple liquidity sources
Layer 2 scaling solution that executes transactions off-chain while posting data to Layer 1
Using already-staked assets to secure additional protocols for extra yield
Assets held to back a token, obligation, or redemption promise
Off-chain assets represented, financed, or used as collateral on-chain
Exchanging a token for its underlying asset or collateral
S
Self-executing code that automatically enforces contract terms on blockchain
Token targeting a reference value through backing and incentives
Difference between a quoted trade outcome and execution
Locking tokens to earn rewards by supporting network or protocol operations
Derivative token tracking a reference price without owning the underlying
MEV attack that surrounds victim's trade with buy/sell orders
Automatic sell order triggered when price falls to set level
Penalty where staked tokens are destroyed for validator misbehavior
Direct exchange of one cryptocurrency for another
Recording token holdings at specific block height for fair governance voting
Series of words that can restore access to your cryptocurrency wallet
Profit from issuing stablecoins that cost less to create than their face value
Pool of deposits used to absorb liquidations and stabilize a protocol
Staked backstop capital that can cover protocol shortfalls
T
Permanent removal of tokens from circulation
Economic design and mechanics of a cryptocurrency token
Total number of tokens that currently exist
Price averaged over time rather than a single spot observation
Automatic sell order triggered when price rises to target level
Delay mechanism between proposal approval and execution for community review
Pool of funds controlled by DAO for development and ecosystem growth
Total amount of assets deposited and locked in DeFi protocols
On-chain token or product representing exposure to Treasury securities
System design that reduces reliance on trusted intermediaries
Charges paid to execute trades on a trading venue or protocol
V
Network participants who validate transactions in Proof of Stake systems
Pooled strategy issuing shares in managed assets
Gradual release of tokens over time according to a schedule
Total amount of an asset traded in a given period
Locking tokens for extended periods to gain enhanced voting power and rewards
Tokenomics model combining vote-escrow locking with (3,3) cooperative game theory
NFT representing a vote-escrowed token position, making locked positions tradeable
Amount of influence a participant has in governance votes
W
Token representing another cryptocurrency on a different blockchain
List of approved addresses for early access to token events
Ethical hacker who finds vulnerabilities to improve security
Tool for storing private keys and managing cryptocurrency