Reference
Plain-English definitions for over 100 key terms in decentralised finance and cryptocurrency — from AMM and DAO to flash loans, perps, and RWA tokenisation.
This glossary is for educational purposes only. Nothing here is financial advice. Always do your own research before making any investment decision.
A type of decentralised exchange protocol that uses a mathematical formula — typically x × y = k — to price tokens in a liquidity pool, rather than an order book of buyers and sellers. Users trade directly against the pool. Uniswap, Curve, and Balancer are AMMs.
The free distribution of a protocol's governance or utility tokens to wallet addresses that meet specific criteria — typically prior use of the protocol. Uniswap's 2020 airdrop (400 UNI per wallet) and Arbitrum's 2023 airdrop are among the most valuable in DeFi history.
The practice of exploiting price differences for the same asset across different markets. In DeFi, arbitrage bots constantly scan DEXs for price discrepancies and execute trades to profit from the difference, simultaneously normalising prices across platforms.
One of the largest DeFi lending protocols, allowing users to deposit assets to earn interest or borrow against crypto collateral. Launched in 2017 as ETHLend and rebranded in 2018. As of 2026, Aave holds tens of billions in total value locked across Ethereum and multiple Layer 2 networks.
The practice of strategically using DeFi protocols before their token launches to qualify for a retroactive token airdrop. Airdrop farmers interact with protocols, bridge assets, provide liquidity, and perform governance actions to maximise their airdrop allocation. Notable examples: Uniswap (2020, 400 UNI per user), Arbitrum ARB (2023), and Jupiter JUP (2024).
Automatically reinvesting earned yield rewards back into the same position to earn yield on yield — accelerating growth through compounding. In DeFi, auto-compounding vaults (like those on Yearn or Beefy Finance) claim protocol rewards and reinvest them multiple times per day, significantly improving effective APY vs manual compounding.
A data structure containing a batch of validated transactions on a blockchain. Each block references the previous block (via a hash), forming a chain. On Ethereum, a new block is added approximately every 12 seconds. Block size limits how many transactions can be included per block.
A distributed ledger of transactions stored in chronological blocks, each cryptographically linked to the previous one. Copies of the blockchain are held by thousands of nodes worldwide. Completed transactions cannot be altered, making the ledger tamper-resistant.
A protocol that enables the transfer of assets or data between two separate blockchain networks. For example, a bridge allows you to move ETH from Ethereum mainnet to Arbitrum. Bridges are a significant security risk — cross-chain bridge exploits account for a large proportion of total DeFi losses.
A sustained period of rising asset prices, characterised by optimism and increasing investment. In crypto, a bull market is often associated with Bitcoin reaching new all-time highs and broad DeFi protocol TVL expansion.
A sustained period of declining asset prices — typically defined as a fall of 20% or more from recent highs. Crypto bear markets have historically been severe, with assets falling 70-90% from peak to trough. The 2022 bear market saw DeFi TVL fall from ~$180B to under $40B.
A delta-neutral trading strategy that profits from the difference (basis) between the spot price and futures price of an asset. In DeFi, the Ethena USDe stablecoin implements a basis trade: holding staked ETH (earning staking yield) while shorting ETH perpetual futures (capturing positive funding rates when the market is bullish). The combined yield funds USDe's interest payments.
A higher yield rate earned by users who lock governance tokens (typically in a vote-escrow system) to boost their liquidity mining rewards. On Curve Finance, CRV holders who lock as veCRV can boost their LP farming rewards by up to 2.5×. The boost reduces the effective token inflation rate for non-boosted participants and rewards long-term aligned holders.
A cryptocurrency wallet that stores private keys offline, disconnected from the internet. Hardware wallets (Ledger, Trezor) are the most common form. Cold wallets are significantly more secure against remote hacking than software (hot) wallets.
Assets deposited as security for a loan. In DeFi lending (Aave, Compound), collateral must exceed the borrowed amount — called overcollateralisation. If the collateral value falls below the required ratio, it is automatically liquidated to repay the loan.
A decentralised lending protocol on Ethereum that pioneered the concept of algorithmic interest rates set by supply and demand. Users supply assets to earn interest and borrow against deposited collateral. Compound's governance token COMP was the first major DeFi governance token, sparking the 'DeFi Summer' of 2020.
A decentralised exchange (DEX) optimised for trading between assets that should have similar prices — typically stablecoins (USDC, USDT, DAI) and liquid staking tokens (stETH, rETH). Curve uses a specialised bonding curve that minimises slippage for pegged assets.
A smart contract mechanism where users lock crypto assets as collateral to mint (borrow) a stablecoin. The CDP enforces over-collateralisation — you must deposit more value than you borrow — and automatically liquidates collateral if the value falls below the minimum ratio. MakerDAO's Vault (which mints DAI), Liquity's Trove (which mints LUSD), and Curve's crvUSD positions are all CDPs.
The ability of DeFi protocols to interoperate — to use each other's tokens, liquidity, and mechanisms as building blocks without permission. Because DeFi protocols share a common on-chain state, LP tokens from Uniswap can be used as collateral in Aave, which can be used to borrow tokens for Curve, and so on. Composability is sometimes called 'money Legos' — the distinguishing feature that makes DeFi more than the sum of its parts.
A decentralised stablecoin issued by MakerDAO (now Sky), soft-pegged to the US dollar and backed by over-collateralised crypto assets deposited into Maker Vaults. Unlike USDC or USDT, DAI is not backed by any company's bank account — it maintains its peg through smart contract mechanisms.
An organisation governed by token holders through on-chain voting, with rules encoded in smart contracts rather than legal documents. Major DeFi protocols (Uniswap, Aave, Compound) are governed by DAOs. Token holders propose and vote on protocol upgrades, treasury spending, and parameter changes.
A category of financial applications built on public blockchains that replicate and extend traditional financial services — lending, borrowing, trading, earning interest — without banks, brokers, or any central authority. Smart contracts automate all functions.
A cryptocurrency exchange that operates through smart contracts without a central authority holding user funds. Users trade directly from their self-custodial wallets. Uniswap, Curve, and Balancer are leading DEXs. Unlike centralised exchanges (CEXs), DEXs require no account registration or identity verification.
A portfolio or strategy with no net directional exposure to an asset's price movements — gains from price increases in one leg are offset by losses in another. In DeFi, Ethena's USDe maintains delta-neutrality by holding staked ETH (long) while shorting ETH futures of equal notional value. The result is a stablecoin-like position that earns yield without ETH price risk.
The act of assigning your governance token voting power to another address (a delegate) without transferring the tokens. Delegation allows passive token holders to contribute to governance by empowering active community members to vote on their behalf. Major DeFi protocols (Uniswap, Aave, Compound) all support delegation, and many have ecosystems of professional delegates who publish their voting rationale.
The second-largest cryptocurrency by market capitalisation and the dominant blockchain for DeFi. Ethereum's programmability (via smart contracts) enabled the creation of DeFi applications. Ethereum transitioned from Proof of Work to Proof of Stake in September 2022 ('The Merge'), reducing energy consumption by ~99.95%.
A fixed time period used in DeFi protocol mechanics — typically weekly — during which votes are tallied, rewards are distributed, and parameters are updated. Curve Finance, Velodrome, Aerodrome, and similar ve(3,3) protocols operate in weekly epochs: veToken holders vote at the start of each epoch to direct emissions, and rewards are distributed at the epoch's end.
The runtime environment that executes smart contracts on Ethereum and all EVM-compatible chains. The EVM defines the instruction set and execution model for Ethereum smart contracts written in Solidity or Vyper. 'EVM-compatible' chains (Arbitrum, Optimism, Base, BNB Chain, Polygon, Avalanche, Sonic) can run unmodified Ethereum smart contracts, enabling protocol deployment across multiple chains without rewriting code.
An uncollateralised DeFi loan that must be borrowed and repaid within a single blockchain transaction. If not repaid, the entire transaction reverts as if it never occurred. Flash loans require no credit check or collateral — they are used for arbitrage, collateral swaps, and self-liquidation.
The practice of inserting a transaction ahead of another transaction in the same block to capture profit. In DeFi, MEV (Maximal Extractable Value) bots monitor the mempool for pending transactions and pay higher gas fees to have their own transaction executed first, profiting from the price impact.
A periodic payment between long and short positions in a perpetual swap contract that keeps the perp price aligned with the underlying spot price. When longs outnumber shorts, longs pay shorts (positive funding). When shorts dominate, shorts pay longs (negative funding).
The total market capitalisation of a cryptocurrency if its entire maximum supply were in circulation at the current price. FDV = current price × maximum supply. FDV is important context when evaluating tokens with large unvested allocations — a token with $500M market cap but $5B FDV has 90% of supply yet to unlock, representing significant potential selling pressure from future unlock events.
In DeFi, front-running occurs when a bot detects a profitable pending transaction in the mempool and submits an identical or similar transaction with a higher gas fee to execute first and capture the profit. Classic front-running copies an arbitrage opportunity discovered by another trader. Sandwich attacks are a related form of front-running specific to large DEX swaps. MEV-protected RPCs (Flashbots Protect) help prevent front-running.
The fee paid to validators to process and record a transaction on a blockchain. Gas fees on Ethereum are priced in Gwei (billionths of ETH) and vary with network congestion. Layer 2 networks (Arbitrum, Optimism, Base) offer gas fees that are 10-100x lower than Ethereum mainnet.
A decentralised perpetual swap and spot trading protocol operating on Arbitrum and Avalanche. GMX uses a multi-asset liquidity pool (GLP) as the counterparty to all trades, rather than an order book. GLP providers earn trading fees and borrowing fees but bear the risk of trader profits.
A smart contract mechanism on Curve Finance (and protocols using similar ve(3,3) designs) that controls the flow of token emissions to a specific liquidity pool. Gauge weights are determined by weekly votes from veCRV holders — pools with more votes receive more CRV emissions. This creates a market where protocols bribe veCRV holders to vote for their pool's gauge, known as 'gauge bribing' or 'the Curve Wars'.
The maximum amount of gas units you are willing to consume for a transaction. Gas units measure computational work — complex operations (like a multi-hop DEX trade) use more gas than simple transfers. If your gas limit is set too low and the transaction runs out of gas mid-execution, it fails (reverts) and you lose the gas spent up to that point. Wallets estimate gas limits automatically, but you can adjust them manually.
A token that grants holders the right to participate in protocol governance — voting on proposals, delegating voting power, and shaping the protocol's future. Major governance tokens include UNI (Uniswap), AAVE (Aave), MKR (MakerDAO), COMP (Compound), and CRV (Curve). Governance tokens may also have fee-sharing rights, staking rewards, or buyback mechanisms depending on the protocol's governance design.
A cryptocurrency wallet connected to the internet, typically a software application (MetaMask, Coinbase Wallet). Hot wallets are convenient for DeFi interactions but more vulnerable to remote hacking than cold (hardware) wallets. Best practice: keep only small amounts in hot wallets.
A numeric score in DeFi lending protocols (Aave, Compound, Morpho) that represents the safety of a collateralised borrowing position. Health Factor = (collateral value × liquidation threshold) ÷ borrow amount. A health factor above 1 means the position is safe; below 1 triggers automatic liquidation. Maintaining a health factor of 1.5+ is a common recommendation for comfortable buffer against liquidation from market volatility.
The temporary reduction in dollar value experienced by liquidity providers in an AMM pool when the price ratio of their deposited tokens diverges from the time of deposit. If prices revert to the original ratio, the loss disappears — hence 'impermanent'. The greater the price divergence, the larger the IL: a 2× price move causes ~5.7% IL, a 5× move causes ~25.5% IL vs simply holding both tokens. Trading fees earned can offset IL if volume is sufficient.
The base blockchain layer — the main chain itself (Ethereum, Bitcoin, Solana). Layer 1 handles final settlement and security but often has limited throughput and high transaction costs. All transactions ultimately settle on L1.
A secondary network built on top of a Layer 1 blockchain that processes transactions off the main chain and posts compressed proofs back to L1. L2 networks offer dramatically lower fees and higher speed. Major Ethereum L2s include Arbitrum, Optimism, Base, and zkSync.
The automatic closure of a borrower's collateralised position when the collateral value falls below the required ratio. In DeFi lending, smart contracts and liquidation bots execute this without human intervention. Liquidated borrowers typically receive a smaller amount of collateral back after a liquidation penalty is deducted.
The largest DeFi protocol by total value locked as of 2026. Lido provides liquid staking for Ethereum — users deposit ETH and receive stETH (staked ETH) in return, which earns staking rewards while remaining liquid and usable across DeFi protocols.
The ease with which an asset can be bought or sold without significantly affecting its price. High liquidity means large orders can be filled with minimal slippage. In DeFi, liquidity is provided by users who deposit assets into AMM pools, lending pools, or order books.
A smart contract holding reserves of two or more tokens that enables trading on a DEX. Users called liquidity providers deposit tokens into the pool and earn a share of trading fees. The pool's price algorithm (typically x × y = k) determines the exchange rate between the tokens.
A DeFi service that allows users to stake a Proof of Stake asset (like ETH) and receive a liquid token representing their staked position (like stETH). The liquid token can be used in DeFi while the underlying asset continues to earn staking rewards.
A token received when restaking liquid staking tokens (like stETH) through a restaking protocol like EigenLayer, EtherFi, or Renzo. LRTs represent restaked ETH that is simultaneously earning ETH staking rewards and AVS (Actively Validated Service) restaking rewards. Examples include eETH (EtherFi), ezETH (Renzo), and pzETH (Swell). LRTs add additional slashing risk on top of standard liquid staking risk.
The minimum collateral ratio a borrowing position must maintain in a DeFi lending protocol before it becomes eligible for liquidation. Also called the Liquidation Threshold. For example, if AAVE's liquidation threshold for ETH is 82%, a position with $100 in ETH collateral can be liquidated if the borrow amount exceeds $82. Liquidation ratios vary by collateral type — more volatile assets have lower (more conservative) thresholds.
A user who deposits tokens into a DeFi liquidity pool or lending market to provide capital for trading or borrowing. In AMMs, LPs deposit token pairs (e.g., ETH and USDC) into a pool and earn trading fees in return. In lending protocols, LPs (suppliers) deposit single assets and earn interest from borrowers. LPs take on risks including impermanent loss (for AMMs), smart contract risk, and counterparty risk (for lending).
The ratio of the amount borrowed to the value of the collateral, expressed as a percentage. LTV = (borrow amount ÷ collateral value) × 100. A lower LTV means more overcollateralisation and lower liquidation risk. Most DeFi lending protocols set maximum LTV ratios by collateral type (e.g., ETH max LTV of 80% on Aave) and liquidate positions where LTV exceeds the liquidation threshold.
The most widely used self-custodial Ethereum wallet, available as a browser extension and mobile app. MetaMask allows users to store crypto, connect to DeFi protocols, sign transactions, and interact with decentralised applications. Holding private keys on MetaMask makes the user the sole custodian of their assets.
One of the oldest DeFi protocols, responsible for the DAI and USDS stablecoins. Users lock collateral (ETH, wBTC, RWAs) into Maker Vaults to mint DAI. MakerDAO rebranded to Sky in 2024 and introduced the USDS stablecoin and SKY governance token.
The maximum profit that can be extracted by a block validator or builder by reordering, inserting, or censoring transactions in a block, beyond standard block rewards and gas fees. Common MEV strategies include sandwich attacks (profiting from large DEX trades), DEX arbitrage (exploiting price discrepancies between pools), and liquidation MEV (racing to liquidate undercollateralised positions). MEV extraction is estimated to have exceeded $2 billion on Ethereum by 2025.
A smart contract wallet that requires multiple private keys to sign transactions before they execute — for example, 3-of-5 multisig requires 3 out of 5 keyholders to approve. Multisigs are used by DeFi protocols, DAOs, and high-value wallets to prevent any single point of compromise. Safe (formerly Gnosis Safe) is the dominant multisig wallet on Ethereum, used by most major DeFi protocols for treasury management.
A sequentially incrementing integer assigned to each transaction sent from an Ethereum address. The nonce ensures transactions are processed in the correct order — a transaction with nonce 5 cannot be processed before nonce 4. If you submit a transaction with a higher gas price and the same nonce as a stuck transaction, you can replace the stuck transaction (known as a 'speed up' or 'cancel' in wallet interfaces).
A wallet, exchange, or protocol that does not hold your private keys or have the ability to freeze or confiscate your assets. Non-custodial wallets (MetaMask, Ledger) and DeFi protocols give users full control — no company or authority can block access to your funds. The trade-off is that you bear full responsibility for securing your private keys. 'Not your keys, not your coins' is the maxim emphasising the importance of non-custodial asset control.
A service that provides external data — typically asset prices — to smart contracts on a blockchain. DeFi protocols rely on oracles to determine collateral values and trigger liquidations. Chainlink is the dominant decentralised oracle network. Oracle manipulation is a common attack vector in DeFi exploits.
The requirement that the value of collateral deposited exceeds the value of the loan taken. DeFi lending protocols require overcollateralisation (typically 110–175%) to protect lenders in case of rapid collateral price declines. A borrower depositing $1,500 of ETH to borrow $1,000 of USDC has a 150% collateral ratio.
A Layer 2 scaling solution that processes transactions off Ethereum mainnet and posts compressed transaction data as calldata or blobs to Ethereum. Unlike zkRollups, optimistic rollups assume transactions are valid by default ('optimistically') and rely on fraud proofs — any validator can challenge an invalid transaction within a 7-day challenge window. Arbitrum One and Optimism are the leading optimistic rollups. Post-Pectra, their blob fees have fallen significantly.
A borrowing position or stablecoin design where the value of collateral deposited exceeds the value of assets borrowed. For example, depositing $150 of ETH to borrow $100 of USDC is 150% collateralised (50% over-collateralised). Over-collateralisation is required in DeFi lending because there is no credit scoring or legal enforcement — the excess collateral provides a buffer against price volatility before liquidation.
A derivative contract that tracks an asset's price with no expiry date, allowing traders to go long or short with leverage. A funding rate mechanism keeps the perp price aligned with spot. Leading DEX perp platforms include dYdX, GMX, Drift Protocol, and Hyperliquid.
The largest decentralised prediction market by volume, running on Polygon. Users buy YES/NO shares on real-world events (elections, crypto prices, economic outcomes). During the 2024 US presidential election, Polymarket processed over $600M in volume and was widely cited for its predictive accuracy.
A cryptographic string that proves ownership of a blockchain wallet and authorises transactions. Anyone with your private key controls your wallet and all funds within it. Private keys should never be shared, stored digitally, or entered on any website. Loss of a private key means permanent loss of access to the wallet.
A consensus mechanism in which validators are chosen to create blocks in proportion to the cryptocurrency they have 'staked' (locked as collateral). Ethereum uses PoS since 'The Merge' in September 2022. Validators earn staking rewards for honest participation and risk having their stake 'slashed' for dishonest behaviour.
The original blockchain consensus mechanism used by Bitcoin. Miners compete to solve computationally intensive puzzles; the winner adds the next block and earns a reward. PoW is energy-intensive but extremely well-tested. Bitcoin, Litecoin, and Monero use Proof of Work.
In DeFi, a protocol is a set of smart contracts deployed on a blockchain that provides a specific financial service — lending, trading, yield generation, etc. Examples: Aave (lending protocol), Uniswap (trading protocol), Lido (liquid staking protocol). The term is often used interchangeably with 'platform' or 'application'.
A platform where users buy and sell shares representing the probability of future events. Shares pay $1 if the event occurs and $0 if it doesn't — so the price reflects the crowd's probability estimate. Decentralised prediction markets (Polymarket, Augur) settle automatically via oracle networks.
A system that anyone can interact with without seeking approval, creating an account, or meeting eligibility criteria — just a compatible wallet and the required assets. Permissionless is a core DeFi property: anyone on earth with a crypto wallet can supply to Aave, trade on Uniswap, or stake on Lido without identity verification or approval. This contrasts with permissioned systems where participants must be whitelisted or approved.
A pre-token incentive mechanism used by DeFi protocols before their governance token launches. Users earn points by using the protocol (depositing, trading, referring) — points later convert to token allocations in a retroactive airdrop. Points systems allow protocols to incentivise early usage without immediately launching a token. EigenLayer, EtherFi, Ethena, and dozens of others used points systems ahead of their token launches in 2024-2025.
The change in token price caused by your own trade on an AMM. Large trades deplete one side of the pool reserve, driving the price up for buyers and down for sellers. Price impact is deterministic and calculable before executing — DEX interfaces show estimated price impact as a percentage. Price impact is distinct from slippage (which also includes price movement from other traders). Larger trades in shallower pools have higher price impact.
Liquidity that is permanently owned by a protocol's treasury rather than rented from liquidity providers. Pioneered by OlympusDAO (2021), the concept emerged because protocols that pay high token emissions to attract LP liquidity face constant sell pressure on their tokens. Protocol-owned liquidity earns trading fees forever and cannot be withdrawn on a whim — making it more sustainable than incentivised liquidity.
The minimum percentage of total voting power (or token supply) that must participate in a governance vote for it to be valid. Without quorum, even a unanimous 'yes' vote cannot pass a proposal. Quorum requirements prevent small groups from passing proposals when most holders are not paying attention. Typical DeFi quorum requirements are 1-10% of circulating supply, adjusted based on the sensitivity of the decision.
Off-chain assets — US Treasury bonds, private credit, real estate, commodities — represented as tokens on a blockchain. RWA tokenisation bridges traditional finance and DeFi by bringing off-chain yield on-chain. BlackRock BUIDL, Ondo Finance, and Centrifuge are leading RWA protocols.
A DeFi scam in which the team behind a protocol withdraws all liquidity or mints unlimited tokens and sells them, abandoning the project and leaving investors with worthless tokens. Warning signs include anonymous teams, unaudited contracts, very high APYs with no clear revenue source, and unlocked liquidity.
Returns generated from genuine protocol revenue — trading fees, borrowing interest, or consensus rewards — rather than inflationary governance token emissions. Real yield is sustainable: GMX distributes trading fees in ETH to stakers; Uniswap's fee switch distributes swap fees to UNI holders; Aave's treasury earns from protocol revenue. Token emission-funded yield is not real yield — it dilutes existing holders and depends on new buyers absorbing selling pressure.
Re-using already-staked assets (typically staked ETH via LSTs like stETH) as cryptoeconomic collateral for additional decentralised services beyond Ethereum consensus. EigenLayer pioneered restaking, allowing Ethereum stakers to 'opt in' to securing Actively Validated Services (AVSs) — new protocols that inherit Ethereum validator security. Restakers earn additional rewards but take on the risk of slashing from AVS operator misbehaviour.
A sequence of 12 or 24 words that encodes a wallet's private key and can be used to recover the wallet on any compatible application. A seed phrase grants complete access to a wallet — it must be written down, stored securely offline, and never shared with anyone or entered into any website.
Self-executing code stored on a blockchain that automatically carries out the terms of an agreement when predefined conditions are met. Smart contracts are the foundation of DeFi — they automate lending, trading, yield generation, and governance without human intermediaries. Once deployed, smart contract code cannot be altered (unless the contract has explicit upgrade mechanisms).
A cryptocurrency designed to maintain a stable value, typically pegged 1:1 to the US dollar. Stablecoins come in three main types: fiat-backed (USDC, USDT — backed by cash in bank accounts), crypto-backed (DAI — backed by overcollateralised crypto), and algorithmic (USDe — backed by delta-neutral derivatives positions).
The process of locking cryptocurrency to support a blockchain network's operations and earn rewards. In Proof of Stake blockchains, validators stake ETH (or other assets) as collateral for the right to validate transactions. In DeFi, 'staking' is also used loosely to describe depositing tokens into a protocol to earn yield.
An MEV attack where a bot detects a large pending DEX swap, places a buy order immediately before it (frontrun — pushing the price up), lets the victim's trade execute at the worse price, then immediately sells (backrun — pocketing the price impact). The victim receives fewer tokens than expected; the bot profits from the spread. Protection: use MEV-resistant RPCs (Flashbots Protect), tight slippage tolerance, or intent-based protocols like CoW Protocol.
The difference between the expected price when submitting a swap and the actual execution price. Slippage occurs because other trades can move the pool price between when you submit your transaction and when it confirms on-chain. Slippage tolerance is a user-set limit — if actual slippage exceeds the tolerance (e.g., 0.5%), the transaction reverts. Setting too high a slippage tolerance exposes you to sandwich attacks.
A gradual liquidation mechanism introduced by Curve's crvUSD lending system (LLAMMA). Instead of a sharp all-or-nothing liquidation when a position falls below a threshold, soft liquidation converts collateral incrementally to the borrowed stablecoin as prices fall through a liquidation range, and re-converts back if prices recover. This reduces the brutal 'cliff edge' liquidation experience of traditional DeFi lending.
A security review of a smart contract's code by independent expert reviewers looking for bugs, vulnerabilities, logic errors, and attack vectors. Audits by firms such as Trail of Bits, OpenZeppelin, Certora, Spearbit, and ChainSecurity are considered quality signals — though not guarantees of security. All major DeFi protocols undergo multiple audits before launch. Audit reports are typically published publicly.
A tokenised representation of a real-world or other crypto asset created by DeFi protocols. Synthetix allows minting of synths (sETH, sBTC, sEUR) by depositing SNX collateral. Synthetic assets let DeFi users gain price exposure to assets they cannot easily access on-chain (equities, commodities, forex) without holding the underlying. Synthetix V3 and GMX Synthetics are the main synthetic asset platforms in DeFi.
A digital asset issued on an existing blockchain (as opposed to a coin, which is the native asset of its own blockchain). Tokens can represent governance rights (UNI, AAVE), staked positions (stETH), ownership shares (LP tokens), or almost any other value. Most DeFi tokens are ERC-20 tokens on Ethereum.
The economic design of a cryptocurrency or token — including total supply, distribution schedule, vesting periods, inflation/deflation mechanics, fee captures, and burn mechanisms. Strong tokenomics align the incentives of all participants (team, investors, users) with the protocol's long-term success.
Time-Weighted Average Price — an oracle that calculates the average price of an asset over a defined time window rather than using a single instantaneous price. TWAP oracles are significantly harder to manipulate via flash loans than spot price oracles, making them a safer choice for DeFi protocol price feeds.
A mandatory delay between when a governance proposal passes and when it executes on-chain — typically 24-72 hours. Timelocks give users time to review approved proposals and exit the protocol if they disagree with a decision. They are a critical security mechanism: without a timelock, a compromised or malicious governance vote could drain a protocol's funds before users can react. Most reputable DeFi protocols have timelocks on all admin actions.
The scheduled release of previously locked or vested tokens into the circulating supply. Team allocations, investor portions, and ecosystem reserves are typically locked at token launch and unlock on a schedule (e.g., 10% immediately, then 2% per month for 4 years). Token unlock events can create significant selling pressure as insiders become able to sell. Resources like Token Unlocks (tokenunlocks.app) and Vesting Schedule track upcoming unlock events.
The total dollar value of all crypto assets deposited in a DeFi protocol's smart contracts at a given time. TVL is DeFi's primary size metric — a protocol with $5B TVL has $5B of user deposits. TVL fluctuates with asset prices and net deposits/withdrawals. DeFiLlama (defillama.com) is the standard tracking source. TVL has limitations as a metric: it is reflexive (rises with prices, not just deposits), can be gamed by incentives, and doesn't measure revenue or users.
The largest decentralised exchange by volume, operating on Ethereum and multiple Layer 2 networks. Uniswap pioneered the AMM (Automated Market Maker) model in 2018 and introduced concentrated liquidity in Uniswap V3 (2021), allowing liquidity providers to allocate capital within custom price ranges for greater capital efficiency.
A fiat-backed stablecoin issued by Circle, pegged 1:1 to the US dollar and backed by cash and short-term US Treasury bonds held in regulated US financial institutions. USDC is fully regulated, with monthly attestations of reserves. It is the most widely used stablecoin in DeFi as of 2026.
The largest stablecoin by market capitalisation, issued by Tether Limited. USDT is pegged 1:1 to the US dollar and backed by a mix of cash, Treasury bills, commercial paper, and other assets. USDT is widely used on centralised exchanges and DeFi protocols, though its reserve transparency has historically faced scrutiny.
In DeFi, a vault is a smart contract that automatically manages a yield strategy — typically depositing user assets into one or more protocols, compounding rewards, and optimising for returns. Yearn Finance popularised the vault model. In MakerDAO, a vault is the collateralised debt position where users lock assets to mint DAI.
A governance token design where users lock tokens for a defined period (up to 4 years) to receive vote-escrow tokens (ve tokens) that grant boosted governance power and protocol fee rights. The longer the lock, the more veTokens received. Popularised by Curve Finance (veCRV), the model aligns long-term token holder incentives with protocol health. Variations include Aerodrome's veAERO, Velodrome's veVELO, and Pendle's vePENDLE. Critics note ve models can concentrate power in large early holders.
The scheduled release of tokens to team members, investors, or protocol treasuries over time. Vesting prevents insiders from receiving all tokens immediately at launch and immediately selling. Typical team vesting: 1-year cliff (no tokens for first year) followed by linear monthly vesting over 3-4 years. The vesting schedule is a critical factor in assessing a protocol's long-term token supply dynamics and potential selling pressure.
The practice of deploying crypto assets across DeFi protocols to maximise returns — often combining trading fees, lending interest, and governance token emissions. Yield farming strategies range from simple (depositing USDC in Aave) to complex (recursive lending, multi-protocol LP strategies). Higher yields typically indicate higher risk.
A Layer 2 scaling solution that batches hundreds of transactions off-chain and submits a cryptographic proof (zero-knowledge proof) to Ethereum, verifying the validity of all transactions without revealing their contents. zkRollups offer Ethereum-level security with drastically lower fees. zkSync Era and Polygon zkEVM are leading zkRollup networks.
A zero-knowledge rollup that is Ethereum Virtual Machine compatible — able to execute and prove Ethereum smart contracts using zero-knowledge proofs. zkEVMs combine the EVM's smart contract compatibility with zkRollup security and efficiency. Building a zkEVM is technically more complex than an optimistic rollup, but eliminates the 7-day challenge period, enabling faster withdrawals to Ethereum mainnet. Polygon zkEVM, zkSync Era, Scroll, and Linea are the leading zkEVM implementations.
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