Glossary

Automated Market Maker

An Automated Market Maker (AMM) is a decentralized asset trading pool that enables market participants to buy or sell cryptocurrencies. AMMs are non-custodial and permissionless in nature. Most AMMs utilize either a constant product, constant mean, or constant sum market-making formula; however, the most common is a constant product market maker, most notably Uniswap.

Bitcoin

Bitcoin is a cryptocurrency that was created in January 2009. It follows the ideas set out in a whitepaper by the pseudonymous Satoshi Nakamoto. It is commonly abbreviated as 'BTC'.

Blockchain

A blockchain is a distributed ledger system that forms the basis of cryptocurrencies. It is a sequence of blocks, or units of digital information, stored consecutively in a public database.

Consensus

Consensus, as in a consensus mechanism, is a fault-tolerant mechanism that is used in blockchains to achieve the necessary agreement on a single data value or state of the network among distributed agents.

Crypto

Crypto is the commonly used shortened version of 'cryptocurrencies', i.e. currencies built on top of decentralised, cryptographically protected blockchain protocols.

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

Ethereum is a decentralized, open-source blockchain with smart contract functionality. Ether (ETH) is the native cryptocurrency of the platform. It is the second-largest cryptocurrency by market capitalization, after Bitcoin.

ERC-20

A cryptocurrency protocol based on the Ethereum blockchain. An ERC-20 coin, by definition, uses this protocol.

Fiat

Fiat money is a government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it. One is usually required to exchange fiat at a CEX or through local means such as Bitcoin ATMs to be able to purchase cryptocurrency with fiat currency.

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 token is used to govern the operations and influence the direction of a coin, token, and/or project controlled by the Governance Token. Holding these tokens are often profitable through direct price appreciation of popular governance tokens, but may come with other benefits that are only available to governance token holders and voters. Examples of governance tokens are MKR and YFI.

Liquidity

A measure of how much available circulating supply there is of an asset or currency, and the activity of that asset or currency in an exchange, economy, or network. A currency with low supply and/or circulation is said to be illiquid.

Liquidity Mining

An energy-efficient form of cryptocurrency mining that supports work and transactions on a blockchain usually without expensive application or hardware-specific equipment required by older forms of cryptocurrency mining. Rewards are given to liquidity providers to incentivise liquidity mining, in addition to growing and supporting a blockchain's user base.

Liquidity Pool

An LP, or Liquidity Pool, is a pool of deposited funds meant to provide liquidity to a currency, network, or Smart Contract. Liquidity is considered the lifeblood of any physical or digital currency, exchange, or financial network, so there will be designed rewards or incentives given to those who provide liquidity to LPs.

Liquidity Providers

In DeFi, this refers to investors who deposit an asset to provide liquidity on an exchange or network to gain a return on their investment. Investors deposit one or more of their digital assets into decentralised Liquidity Pools (LPs) to provide liquid capital to exchanges and smart contracts. Liquidity Providers often provide two or more types of assets, in which Impermanent Loss is sometimes seen.

Liquidity Token

Implemented via Smart Contracts, a liquidity token is given to a depositor in exchange for that investor's deposit to be used for other purposes such as yield farming. Examples of liquidity tokens include aDAI, yCRV, and yYFI. A liquidity token can be exchanged to receive the originally deposited tokens.

Non-custodial

Non-custodial usually refers to a kind of wallet or exchange where the private keys are held directly by the user, and not delegated to the platform, thereby granting the user total privacy and ownership of their assets.

Node

A node is the most basic unit and critical part of a blockchain, storing its data and allowing all communication to pass through it. It can be run by any personal computing device or server. Nodes are interconnected, and hence, can readily pass data amongst each other. It is essential for them to be always up-to-date in order to function properly.

On-ramp

On-ramp is the process of onboarding a user onto a cryptocurrency platform, by allowing them to convert fiat funds into cryptocurrencies, and then storing them in a wallet.

Protocol

A protocol is a set of rules that define interactions on a network, usually involving consensus, transaction validation and network participation on a blockchain.

Smart Contract

A digital contract that is programmed in a language that is considered Turing complete, meaning that with enough processing power and time, a properly programmed Smart Contract should be able to use its code base and logical algorithms to perform almost any digital task or process.

Staking

The act of staking a cryptocurrency deposit to yield-farm additional tokens via CeFi or DeFi staking offerings, programs, or projects.

Stablecoin

A stablecoin is a cryptocurrency whose value is pegged to a stable real-world asset, usually a fiat currency such as the US Dollar. Stablecoins are attractive to investors because they can be used as a safe harbour for cryptocurrency funds in times of downward volatility, also known as a bear market, whether this downward trend is temporary or prolonged in duration.

Wallet

A cryptocurrency wallet is a secure digital wallet used to store, send, and receive digital currency. It may be one of two types: cold wallet or hot wallet.

Yield Farming

The manual or automatic lending or arbitrage of digital assets to provide a ROI for depositing digital assets in CeFi or DeFi. Yield Farming can provide an additional income stream over and above any potential increase in the value of an underlying asset. For several reasons - including the ability to make rapid changes, much lower overhead costs, and no regulatory costs - DeFi tends to provide much higher yields when compared to CeFi options.