New to DeFi? *Start Here* Glossary of DeFi Terminology as Well
Level 1 - NGMI to DeGen Island for Sure
DeFi Overview Will Update as Questions Come In
Introduction to Defi (LINK): How all functions done by banks are being replaced by code.
How to Use DeFi in a Simple Example (LINK): Understanding the evolution from Banks turning into digital banks ($COIN) and eventually into DeCentralized lending pools.
Understanding the Big Picture Opportunity and Risks (LINK): Walk through of why people are interested in DeFi and the risks involved with DeFi
DeFi Valuation Terminology (LINK)
Market Cap / TVL - Total Market cap of crypto asset divided by the Total Value Locked
FD / TVL - The Fully Diluted Market Cap divided by the Total Value Locked
Discounted Cash Flow - Valuation methodology where you take the future earnings and discount them by a specific rate. For example. If you make $100 US Token per year for two years the value of your Company should not be $200 but $100 + $100/Discount Rate = <$200. Since inflation is positive, the $100 earned next year is not worth $100 in today’s terms.
Aggregator - Pulls the best prices and rates from different DEX's and Protocols so that you don't have to manually check the DeFi-landscape.
Airdrop – Free distribution of a cryptoasset.
Annual Percentage Return (APR) = Annual Rate for earning or borrowing money, no compounding. Example 1% interest each month would be 1%x12 = 12%
Annual Percentage Yield (APY) = Takes into account compounding. The same 1% monthly rate would be 12.68% because it compounds: ((1.01^12)-1) = 12.68%. Therefore if someone quotes an APR rate of X% you have to see if it compounds or not to see the true cost.
Automated Market Maker (AMM) – Protocol that uses a pricing algorithm to determine prices
Coin - Cryptocurrency with its own Blockchain
CeDeFi – Centralized Decentralized Finance. Combining traditional centralized financial services with decentralized applications
Bridge = Allows you to move assets from one place to another. A “Bridge Loan” would be something that gives you money before you do something else - usually in near future.
Burn – Sending crypto to an unusable account thereby reducing the total token supply
Buyback – Purchasing crypto in the open market
Decentralization – Decision making authority is spread over a distributed network. Generally rule requires that no entity/group controls over 50% of the voting power.
Decentralized Applications (DApps) – Your iPhone has iOS which would be the base layer (protocol). Each application on the phone would be a decentralized application.
Decentralized Autonomous Organizations (DAO) – Organizations governed by code
Decentralized Exchange (DEX) – Peer-to-peer cryptoasset exchange with no middlemen
DeGen Island - A fun goal for everyone to board Noah’s Ark and make it to DeGen island which is a play on the Tax Structure in Puerto Rico in the USA (most of our readers) and also Singapore. If new islands with good tax laws pop up they will also be considered “DeGen Island”
Dilution – Reduction in value of your holdings due to issuance of additional tokens. This would be similar to a public company suddenly issuing 100% more shares to the stock exchange.
Distributed Network – A network with software and data spread out across more than one computer
Dump – Large sell-off of cryptoasset holdings in a short period of time
ERC-20 – Tokens used solely on Ethereum
Ethereum Improvement Proposal (EIP) – Standards put forward for improving Ethereum
Exploit – A successful hack or other form of attack on a crypto protocol
Flash loans – Type of uncollateralized lending used in DeFi
Flippening – Ethereum’s market cap surpasses Bitcoin’s. Or. A coin passing another coin in terms of total market capitalization.
Fork – Create an alternate version of a blockchain that splits at a particular point in time. “Fight, Flight or Fork”
Fully Diluted Market Cap: Similar to market cap but assumes *all* tokens are issued. For example Market cap of Bitcoin would be ~18.6M units times price but the *fully diluted* market cap would be 21M units times price
Fungible – When a coin or token can be replaced by any other identical coin or token
Gas – Measure of computing effort on Ethereum
Governance – Overseeing decision making for a crypto project
Gwei – Denomination for gas fees on Ethereum. 1 ETH = 1 billion gwei
Impermanent Loss – The loss of value of assets in a liquidity pair compared to the value if assets were held without providing liquidity
Know Your Customer (KYC): This refers to rules/regulations that require you to disclose your personal information to join
Liquidity Mining– Providing liquidity to a DEX
Liquidity Pool – Assets kept to allow the trading of pairs on a DEX
Liquidity Provider(LP) – Users who add to a DEX liquidity pool with their own tokens
LP Tokens – Tokens issued to liquidity providers that represent the assets they have provided to the pool
Market Cap: Total value of a coin/token which takes Coin/Token price multiplied by total coins/tokens outstanding. Ex $10 x 1,000 = $10,000 market cap
Mint – Creation of new tokens
On-Ramp – A way to convert fiat into crypto
Permissionless - Anyone can join/leave regardless of location, no KYC
Treasury – A protocol’s financial holdings
TPS = Transactions per Second
Smart Contract – Automatically executing contracts with terms written into code
Smart Contract Risk – The risk that a smart contract is hacked
Stablecoin – Category of cryptocurrencies where the price is pegged to a reserve asset (commonly fiat, USD in particular).
Staking – Pledging your assets to a crypto protocol to earn rewards and benefits
Proof of Stake (PoS) – Blockchain consensus mechanism where creator of the next block is chosen based on quantity of staked coins
Proof of Work (PoW) – Blockchain consensus mechanism that uses computationally rigorous puzzles to validate transactions
Rehypothecation - Where an individual borrows money using collateral and uses *the recently borrowed money as collateral* to borrow money (again) from a different source. Essentially, levering up aggressively.
Rug Pull – Scam where developers pull money from a project and abandon it
Token - Crypto currency built on a blockchain *Coin* such as Ethereum. As an example - Basic Attention Token
Total Value Locked(TVL) – Value of assets currently staked
Trading Volume – Coins that have been exchanged during a specified period of time
Trustless – No centralized authority
US Token - The United States Dollar $
VWAP - Volume Weighted Average Price
YTD – Year to Date