Key Terms

If this is your first time ever on a DeFi platform, there may be some confusing jargon. Let's break it down here. We will update this page should there be more questions related to certain terms.

1. Collateral

Collateral in one cryptocurrency or token in order to borrow in a different cryptocurrency or token, what does this mean. This is like putting your house up as collateral for a loan with a bank. Typically, you will have to provide a larger percentage of a cryptocurrency or token as collateral for a DeFi loan, like $100 of ETH as collateral for $70 of DAI. This helps to support stability in the system.

2. DAO

A DAO is a decentralized autonomous organization. In short, it’s a company that doesn’t have any human managers or staff. Everything is fully automated and based on “open-source” computer programming code that can be viewed and used by anyone. As it’s run on the blockchain, just like DeFi, a DAO is also immutable and censorship-resistant.

3. dApp

dApp stands for decentralized application and is the foundation of everything DeFi. Just like a DAO, a dApp is an application that runs essentially by itself, with no managers or middlemen, allowing users to transfer funds between themselves.

4. DEX/CEX

A DEX is a decentralized exchange and a CEX is a centralized exchange and you can buy and sell cryptocurrencies and tokens on both. Just like the difference between DeFi and CeFi , a DEX is autonomous and run by algorithms and smart contracts, while a CEX is run by a company with human management. CEXs can be cheaper than DEXs, but users don’t get any say in how they are run as they do with some DEXs.

5. Ethereum

Ethereum is perhaps the most important blockchain after Bitcoin and is the home of DeFi. As mentioned above, it acts as a library for most of the dApps in the DeFi world and is the architecture by which it is all currently made possible. Ethereum is often confused with Ether (ETH), which is its native currency but is different from the Ethereum blockchain itself.

6. Gas fees

Gas fees are the charges that Ethereum “miners” receive to process transactions on the blockchain.

7. Liquidity mining (aka yield farming)

Liquidity mining (or yield farming) is a key feature of DeFi that allows people to deposit (or “stake”) one cryptocurrency or token on a DEX or dApp for rewards. We reward users with CORK which can be used to continue staking or buy lotteries from Winery.

8. Liquidity pools

Liquidity pools are a feature of DEXs that allow people to trade amongst each other without any middlemen. Smart contracts govern how they work, and keep the pools balanced between different cryptocurrency and token trading pairs or groups.

9. Smart contract

Without the smart contract, DeFi couldn’t exist. The code written in a smart contract is what decides exactly how dApps and other blockchain protocols work. Unlike traditional contracts, once they are written and launched, they can’t be changed.

10. Tokenomics

Tokenomics describes the key functions of and projections for a newly issued token. This might include how many tokens will be issued, how they will be distributed, and what powers they will have. Especially in the presale stage, these will be the go-to documents for investors and early buyers to rely on when making their decision.

11. Tokens

Often confused with cryptocurrencies like Bitcoin and Ether, tokens are more like company shares on a stock market. Trading them might make profits, but they aren’t a currency. The most common tokens are ERC-20 tokens, which run on Ethereum and make up the bulk of DeFi. Some give holders the right to vote on how the issuing DAO, DEX, or dApp is run and are also known as “governance” tokens.

12. TVL/TLV

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 grew from a value of USD $662 million in January 2020 to over $11 billion by November 2020. TVL is often used as a measure of success in DeFi, but it doesn’t always tell the full story

13. NFTs

Non-fungible tokens (NFTs) are a big innovation in the token world. Unlike other tokens on Ethereum, NFTs are completely unique and not interchangeable with other tokens. As such, they are used to buying and selling unique art and collectibles, with interesting test cases in more complex financial products. They come in two different versions: the original and individually unique ERC 721 token, and ERC 1155, which is a hybrid version used in gaming.

14. Pump and dump

The term “pump and dump” refers to buyers piling into a cryptocurrency or token to inflate its price and then selling it all at once, which causes the price to crash. It’s a pretty common occurrence in new token listings, where hype and private pre-sales will cause an initial spike in the price before it crashes. As not everyone is able to get out at the same time, this leaves many unlucky buyers nursing big losses.

15. Stablecoins

A central pillar of DeFi is the stablecoin, which is a token that reflects a “fiat”, or traditional currency. There are two types: an algorithmic stablecoin that doesn’t need to be backed (or collateralized) 1:1 by traditional fiat currency, and centralized stablecoins that do. Examples include DAI for the former and Tether (USDT) and USDC for the latter. Stablecoins account for most transactions in DeFi since users do not have to worry about price volatility.