# DeFi Glossary

### Aave

Aave is an open-source and non-custodial lending protocol enabling the creation of money markets.

Users can earn interest on deposits and also borrow assets. Aave provides depositors a Liquidity Token that represents an equivalent derivative deposit in an identical asset.

For example, a user can deposit DAI and receive aDAI, which is a type of USD-based crypto derivative that essentially represents the value of the underlying DAI asset plus the interest gains from allowing the borrowing of one's DAI. That aDAI, could then also be used to implement further strategies to potentially amplify their gains even further.

### Alpha Code

Early-stage prototype computer code, programs, and algorithms meant to solve a problem, and/or provide new digital goods or services. Alpha software comes with the expectation that the code is at an early prototype stage and is meant for an early testing phase meant for very limited testing.

Alpha code or software may be missing all or parts of expected software functionality. Planned features and the security of the software may also be very limited or even non-existent in many aspects.

### Audit

An audit is either an internal or independent comprehensive review of a concept, system, process, company, or product. A comprehensive audit includes a thoughtful and in-depth look at the structure, strengths, weaknesses, and vulnerabilities of the thing or process being audited.

Audits may be either informal or formal audits and are meant to be a tool to find and analyze weaknesses, so that issues and problems discovered during an audit may be remediated, mitigated, or corrected.

### MakerDAO CDP

The MakerDAO in charge of it describes it as:

"The MakerDAO Collateralized Debt Position (CDP) is a smart contract which runs on the Ethereum blockchain. It is a core component of the Sai Stablecoin System whose purpose is to create Sai in exchange for collateral which it then holds in escrow until the borrowed Sai is returned."

### Margin

An available avenue of borrowed capital that is considered very high risk, as collateral must be provided for a margin loan to secure the loan. It is called margin or a margin loan because a risky loan is being taken on the margins of the investment to hopefully amplify gains for the investor or trader.

A margin loan is considered very high risk as the deposited base asset is at risk of liquidation during a margin call.

### Margin Call

The act of implementing a Forced Liquidation or Liquidation Event when an investor or trader cannot meet debt obligations on leveraged trade positions. Margin calls can be triggered by rapidly changing market conditions and high volatility that bring Liquidation Events for some leveraged traders on exchanges and markets.

### Marketcap

Market Capitalization. A measure of the total funds invested in a company or project. This market cap of a coin, company, or project can be calculated by multiplying the asset's unit price by the total number of coins.

MetaMask is a popular mobile or desktop software cryptocurrency wallet that can hold, transmit or receive Ethereum and ERC-20 compatible coins or tokens.

### Mining Pool

A pool of cryptocurrency miners that provides mining services to a cryptocurrency network. Mining Pool operators and contributors are incentivized by a coin or token's programmed mining rewards to support transactions and provide liquidity on a coin's network.

### Multisig Wallet

A multiple signature wallet is a cryptocurrency wallet that controls access and changes to one or more Smart Contracts. Community governed projects like a DAO often require multiple signers to approve a transaction before it will be executed. For community-based efforts, Multisig wallets for DAOs and DeFi projects are often implemented as 6 of 9 wallets, where 6 of 9 community wallet signers must agree to sign a transaction before a Smart Contract can be implemented.

### Oracle

A feed of data, such as the current market prices of an asset or assets, that provides a high confidence service to users and other services that the source and detail of the oracle's data are timely, accurate, and untampered. Sources of data may be singular or decentralized sources and may be dispersed geographically from one another. All exchanges and markets require accurate and timely information to operate properly at high efficiency. An example of the most well-known oracle protocol is Chainlink (LINK).

### Pool

A smart contract containing shared amounts of assets provided by depositors. Pools are either used in Automated Market Makers (AMMs)for optimized trading purposes, lending aggregation (yPool), or in shared yield farming strategies (yVaults), among other things.

### Primitive

A generic building block.

### Protocol

In High Technology, a protocol is a set of developed rules or specifications. These rules detail definitions, standards, limitations, and potential stipulations of a protocol. Examples of technology protocols include TCP/IP and ERC-20.

### Rebalance

1. To make changes to a portfolio or pool of funds for various reasons.
2. An automated or manual tactical change to a yield farming strategy that is meant to nearly instantaneously do one or more of the following actions:
• Gain profits through arbitrage
• Take or secure profits
• Reduce risks to investors or pooled funds

During periods of high volatility, the latter is especially the case if margin or leveraged funding is used by the trader, investor, or controller in charge of pooled funds. If an assessment is made that market conditions are a risk to invested funds, mitigation efforts will be implemented either autonomously or through manual intervention to reduce risks to invested funds.

### Retail Investor

A non-professional individual investor who buys, sells, lends and/or yield farms cryptocurrencies, crypto derivatives, and crypto offerings. Retail investors pay full retail price for their transactions, instead of benefitting volume discounts and other preferential treatment reserved for whales and CIIs.

### ROI

Return On Investment. The gains or losses on an investment. For example, doubling your investment in an asset would be a 100% gain, or 100% ROI. Losing all of your investment would be a 100% loss, or -100% ROI.

### Slippage

In trade, there is almost always a spread between the price that a buyer will pay and the price that a seller will sell an asset. When an order is made, this difference in price between buyer and seller expectations results in price slippage. This slippage in price is usually 1-3% but can be even more for coins with limited liquidity. This slippage can lead to a final sale price of the asset that is either more or less than the requested transaction amount.

### Smart Contract

A digital contract that is programmed in a language that is considered Turing complete, meaning that with enough processing power and time, a properly programmed Smart Contract should be able to use its code base and logical algorithms to perform almost any digital task or process. Ethereum's programming languages, such as Solidity and Vyper, are Turing complete.

When an order is made on an exchange or market, the disagreement of the difference in price between potential buy and sell offers of an asset is called the spread. A wide spread in price can lead to higher slippage.

### Stablecoin

In cryptocurrency, it is a digital cryptocurrency equivalent to one (1) Dollar USD. In theory, the price of the stablecoin is pegged to the US Dollar, but in practice, there is some variance to nearly all stablecoins except for coins like DAI, which are designed with no volatility.

A stablecoin is an attractive investment to investors because:

• It can be used as a safe harbor or hedge for cryptocurrency funds in times of downward volatility, also known as a bear market, whether this trend in downward volatility is temporary or prolonged in duration.
• It can be used as diversification into the realm of Cryptocurrency finance to take advantage of new products in CeFi and DeFi that are unavailable elsewhere, as a safe diversification into crypto that won't lose nor gain significant value to the stablecoin price.
• A coin with a stable price is used for transferring crypto around, as a means to not lose value in the base asset itself as its being moved around or deployed to Smart Contracts or wallets.

### Stake

The act of depositing a cryptocurrency coin or token into a yield farming project and/or protocol, whether the access to the project is either through CeFi or DeFi methods.

Stakers hope to gain interest on their deposits into these yield farming projects and offerings. CeFi is considered safer for several reasons - including strict rules, permitting, and regulations. However, DeFi tends to give much high rewards, while being accompanied with much higher risks, the earlier the investor participates in the project's lifecycle, testing, and development.

### Staking

The act of staking a cryptocurrency deposit to yield farm additional cryptocurrency via CeFi or DeFi staking offerings, programs, or projects.

### Testnet

A testing network for a new coin, project, or product, or for potential improvements to an existing product or offering. Testnets are used to test the viability and vulnerability of new ideas, concepts, code, and processes prior to moving on to a production network or networks of some sort.

### Token

A type of coin, except with much greater functionality. Tokens can also be used as a method of payment like coins, but unlike coins, they can excel at other use cases such as the democratic governance of a protocol or system, or as a means to use underlying coins to make liquidity tokens from these coin deposits.

These liquidity tokens could then be used in innovative new strategies elsewhere via delegated funds to amplify gains with little risk to the underlying asset the liquidity token is based upon. An investor could choose this action so that further gains to their assets may be made by using the automated actions of intelligent Smart Contracts to optimize gains.

### Turing Complete

In programming, it refers to a language that is powerful and semi-autonomous, in a way. When a language such as Solidity or Vyper is Turing complete, it means that with enough processing power and time, a properly programmed Smart Contract using a Turing complete language should be able to use its code base and logical algorithms to perform nearly any digital task or process.

A Turing complete language can even be programmed to have impacts on real-world activities through electronic means, as these rapidly executed digital commands can trigger actions in the real world through sensors, relays, switches, cameras, alarms, and alerts that can trigger a human and/or automatic response.

The concept of a Turing complete programming language was named after the inventor of the idea, Alan Turing. He was an unsung war hero and legendary mathematician. Turing was also a renowned and brilliant computer scientist, cryptanalyst, and forward thinker.

### TVL

The Total Value Locked into a Smart Contract or set of Smart Contracts that may be deployed or stored at one or more exchanges or markets. This is used as a measurement of investor deposits. It is the dollar value of all the coins or tokens locked into a platform, protocol, lending program, yield farming program, or insurance liquidity pool.

### Volatility

In investing, a measure of how rapid changes are seen to the price of an asset or market. Newer early-stage technology companies and projects in the explosive growth stage tend to see very high volatility in the price of their assets in their early days. Should the company or project behind the volatile asset see their venture survive over time, this volatility tends to be much reduced as the company's market cap grows and matures.

### Wallet

A software or hardware cryptocurrency wallet that can hold a variety of coins.

Wallets may also be considered a cold wallet - meant to be used for long term storage of crypto coins for security purposes or a hot wallet, which is considered more at risk than a cold wallet due to its inaccessibility (usually offline). A hot wallet is meant to be used for active or semi-active transactions in and out of that wallet, as well as a place to withdraw or add funds.

### Whale

A person who HODLs a large amount of cryptocurrency or cryptocurrencies.

### Yearn Finance

A suite of DeFi tools and products in an interconnected financial ecosystem running on various smart contracts. The yEarn Finance ecosystem is community-controlled and governed via a governance token called YFI.

### YFI

The governance token for the yEarn Finance ecosystem and suite of tools. YFI holders can submit, discuss, and vote upon various YIPs to make operational or governance changes to the ecosystem and its products. YFI was the first Fair Launch token, meaning that there was no Founder, Venture Capitalist, or early investor pre-mining program to privately claim a portion of a coin's supply. YFI was Fair Launched on July 20, 2020, with an initial limited supply of only 30,000 tokens and an initial price of \$34.53, according to Coingecko.

### Yield Farming

The manual or automatic lending and/or arbitrage of digital assets to provide an ROI for lending out or depositing digital assets in CeFi or DeFi. Yield Farming can provide an additional income stream over and above any potential increase in the value of an underlying asset. For several reasons - including the ability to make rapid changes, much lower overhead costs, and no regulatory costs - DeFi tends to provide much higher yields when compared to CeFi options.

### YIP

Yearn Improvement Protocol (YIP). Potential YIPs are collaboratively generated by the yEarn Finance community, and are discussed, rejected, or improved upon by YFI token holders and community members providing feedback and suggestions. YIPs are submitted using a certain approved format and method.

Under current governance rules, a quorum of 20% of deposited governance tokens is required to vote on a YIP for it to be considered a valid vote. To pass: a vote on a YIP must have a majority vote of 50%+ of deposited governance tokens voting in favor of the YIP for a YIP to be passed. This democratically community approved YIP is then implemented by multisignature wallet signers in charge of the Smart Contracts behind yEarn Finance

### yInsure

A new type of insurance was invented by YFI Developer Andre Cronje for crypto-assets and crypto derivatives with underwriting provided by Nexus Mutual. It is a prototype for a new type of tokenized insurance. yInsure tokens are liquidity tokens of various types that allow investors to provide liquidity for crypto insurance pools.

Investors who choose to be Liquidity Providers (LPs) of crypto insurance services are rewarded with a share of initiation fees and weekly fees of customers who have sought the cover or hedge against thefts or hacks of insured digital assets that are offered by yInsure.

Andre explains an innovative aspect of this prototype crypto-insurance:

The design of this system allows any asset that has a financial primitive to be insured, be it a base asset such as DAI, or a composite asset such as aDAI or yDAI.

### yLiquidate

A set of automated liquidation Smart Contracts for Aave that requires zero capital. It is currently being developed in a Testnet.

### ySwap

A Single-sided Automated Market Maker (AMM) that is in production but at a Beta stage of its development.

### yToken

A cryptocurrency derivative asset class invented by Developer Andre Cronje, a yToken represents a liquidity token that is given in exchange to an investor's deposit(s). yTokens are used in Yearn Finance products for a variety of uses including lending, insurance liquidity (yInsure), and automated optimized yield farming (yVault).

Examples of yTokens include yCRV, yYFI, and yaLINK. These are primary or secondary crypto derivatives of base crypto assets CRV, YFI and the primary crypto derivative aLINK provided by Aave.

This cryptocurrency derivative asset may also be a second cryptocurrency derivative running a Smart Contract atop another cryptocurrency derivative such as aDAI, an Aave USD liquidity token on Aave.

### yVault

A programmatically adjusted lending aggregator, arbitrageur, and optimized yield farmer. Yearn smart contracts are considered simpler and lower risk than their yVault counterparts. In comparison, yVault smart contracts are considered more complex and higher risk, but in return tend to yield higher ROI.

An example of a complex strategy that can be accomplished by a yVault using a Turing complete program and Smart Contract is the yETH strategy, described as:

1. Lending - Where assets are lent out via lenders such as Aave, Compound, and dYdX.
2. Trading - Assets provided to Uniswap, Balancer, and Curve earn trading fees.
3. Liquidity incentives - Protocols and markets such as Compound, Balancer, and Curve provide liquidity incentives.

By applying the voting power of governance tokens, the power of delegated funds are used to vote for additional incentive rewards for providing liquidity, which can sometimes be reward multipliers for volume users. These multipliers can greatly enhance the ROI of deposited funds.

### Zapper

Zapper.fi is a DeFi tool that allows users to simplify their entry and exit into DeFi products and offerings by batching or "zapping" transactions in a batch. It is designed to simplify and speed up this process. In some cases, this method of transaction can reduce gas fees for investors.

This tool is also used to provide granular insight and tracking of a user's DeFi investments and assets. Zapper . fi is natively supported by many DeFi protocols and products.

For other terms not found in this list, check out CoinMarketCap Glossary.