Glossary of Terms

DeFi/Decentralized finance is the separate direction of blockchain technologies that contains financial tools such as exchanges, lending protocols, peer-2-peer marketplaces, and more. They are built on a distributed decentralized ledger called blockchain using smart contracts.

Smart contracts - these are the self-executing computer algorithms that a stored in a blockchain. To interact with smart contracts and receive or provide to them some information or action user needs to call them through transactions that are straight predefined by initial contract rules. In other words, they are programs that define the rules governing transactions. For example, custom tokens on the blockchain are smart contracts, and the decentralized exchange works because of smart contracts and so on. Often smart contracts are compared to a vending machine programmed to give away the goods when receiving the correct amount of money. This is a similar concept.

DEX/Decentralized exchange is a blockchain application created to exchange crypto assets without third parties. DEXs made on smart contracts, which allows them to automate the swap process. Putting simply, DEX vs centralized exchange is like drinks vending machine vs a local shop. Vending machine was programmed to get out the drink after receiving money. At the same time, in a shop, you must communicate with a salesperson (even when the CEX is modern and automated, all your transactions should go through the broker).

AMM/Automated Market Maker is a method of asset exchange that implies creating liquidity pools with two or more coins. It allows automating trades by calling a pool's smart contract by a user, unlike the traditional way on centralized exchanges that require broker participation.

Lending protocol allows taking overcollateralized loans with crypto collateral. This is one of the most favorite degen's tools, with the help of which they can make a lot of money (with a proper approach, of course).

Swap - an exchange of one asset for another. In our daily speech, we use the swap word to describe the assets exchanges on DEX or through the wallet interface (which still goes through the DEX smart contracts) without an intermediary or broker.

Liquidity. The encyclopedia tells us that this is the ability of an asset to be converted into ready cash without affecting its market price. In the DeFi space, this is strongly related to the amount of asset in the pool. And higher liquidity allows for completing more significant deals without a severe price impact. Saying about pools with plenty on provided asset amount, we usually use the "high liquidity" expression.

Pool or Liquidity pool. Inside the blockchain topic, it means a smart contract that contains some amount of tokens used for exchanges, rewards, fees, buyback, or any other activities. It's simpler to think about it as a bank (jar) with something. This is some kind of space where some amount of tokens for a particular purpose are stored. Please pay attention: smart contract developers initially predefined any actions that may be performed with some pool.

LP token (Liquidity pool token) - these are tokens that are given to liquidity providers. They show the share of liquidity provider from the whole available liquidity. The method of LP calculation usually differs from one pool to another. The simple concept of LP tokens is like a number that is given out in the locker room and which can be exchanged on your jacket when you require it (at the same time, no one will rummage through your pockets).

Staking - providing and locking your assets on some farm or program contract for rewards. It's like a bank deposit that needs to be locked on bank treasure in exchange for some income. But unlike the bank, you don't delegate your money to suspicious fellas on VIP cars. On a blockchain, you can check the whole history of your assets and know about their using.

Farming or yield farming. The investing program implies providing assets to DeFi protocols to receive some income. Usually, farming means providing liquidity in pools, and further locking received LPs in farms for rewards in protocols' tokens.

Lock/time lock is a period before the expiration of which some actions won't be possible. For example, a farm with 30 days lock means that after your assets were provided into it, you won't be able to withdraw them (without extra charge or at all) until this time passes. Pregnancy is some kind of 180 days lock period. And if you withdraw the baby earlier, they will receive much fewer chances to stay alive and healthy.

APR - Annual Percentage Rate.

APY - Annual Percentage Yield (with smart percent).

Stablecoins - cryptocurrencies pegged to fiat currencies (dollar, euro, etc.) in terms of price. The correctness of price is ensured algorithmically or with crypto/fiat collateral, depending on the stablecoin type.

Wrapped assets. In a blockchain, a wrapped asset is transferred from one chain to another. So, for example, to receive a wrapped bitcoin on the Tezos blockchain, we should lock the original bitcoin on its native chain and mint a new, wrapped bitcoin on Tezos. And the price should be equal or almost equal to the original one.