DeFi has many terms that can be new to people that start to invest in it. In this UpBots Academy article we have listed the most popular DeFi terms that everybody needs to get used to.
Automated Market Maker (AMM)
A decentralized asset trading pool that enables market participants to buy or sell cryptocurrencies.
dApp stands for decentralized application and is the foundation of everything in DeFi. A dApp is an application that runs essentially by itself, with no middlemen that allows users to transfer funds.
A DEX is a decentralized exchange and is autonomous and run by algorithms and smart contracts.
A type of loan that is only possible in the world of cryptocurrencies. A Flash Loan is a type of loan where the asset is loaned out only for the duration of the length of time it takes to complete one transaction block on the blockchain. As long as the loan is paid back before the next transaction block begins there is no interest fee incurred by the borrower.
Gas fees are the charges that Ethereum “miners” receive to process transactions on the blockchain. The Ethereum blockchain requires Ethereum gas to run. All transactions on the Ethereum network cost a certain amount of gas, depending on the current gas demand and the size and speed of the contract being executed. If you do not use enough gas while making a transaction, the transaction will not be forwarded to the other party. They are levied in the native token ETH, usually broken down into tiny increments called Gwei.
Governance and Governance Tokens
Governance refers to determining, maintaining, adapting and enforcing the rules of a blockchain ecosystem, or DAO. It specifically refers to control and use of a Governance token that carries the right to take part in governance processes.
An impermanent loss is when a liquidity provider (LP) loses value in their crypto assets on an AMM. The dollar value of the assets they withdraw would be lower than if they had not provided liquidity and just held the assets. This is known as impermanent loss.
Non-Fungible Token (NFT), in its shortest definition, is a unique digital asset. It can represent one of many unique digital assets, from collector items to virtual fashion, from virtual game content to digital properties.
Smart contracts are computer programs that are executed when certain conditions are met and ensure reliability between anonymous parties. Smart contracts are irreversible and allow transactions between parties to be executed according to conditions.
A stablecoin is a new type of cryptocurrency, usually pegged to another fiat currency or valuable asset. These coins can be pegged to fiat currencies such as the US dollar, other cryptocurrencies, precious metals, or a combination of the three. One of the most well-known stablecoins is Tether (USDT), which was created with its value envisioned to be equivalent to the US dollar.
TVL(Total Value Locked)
TVL stands for total value locked, which in the DeFi world means the amount of money that a single DEX dApp or the entire ecosystem is holding inside it. It is also called total locked value (TLV). TVL is often used as a measure of success in DeFi, but it doesn’t always tell the full story.
Liquidity measures the circulating supply and how much trading activity there is in an exchange, economy, or network. A currency with low supply and/or circulation is said to be illiquid.
A Liquidity Pool (LP) is a pool of deposited funds meant to provide liquidity to a currency, network, or Smart Contract. There are usually designed rewards or incentives given to those who provide liquidity to LPs. See also Liquidity Mining.
A popular mobile or desktop software cryptocurrency wallet that can hold, transmit or receive Ethereum and ERC-20 compatible coins or tokens.
A trusted feed of data, such as the current market prices of an asset or assets, that provides confidence to users that the data are timely, accurate, and untampered.