📖 DeFi Glossary
Every DeFi term you need to know, explained in plain English. Click any term to jump to its deep-dive page.
A
Algorithm that prices assets using a mathematical formula (like x·y=k) instead of an order book. Uniswap, Curve, and Balancer are AMMs.
→ Interactive deep-diveYour effective annual return including compound interest. 5% APY means $100 becomes $105 in a year if compounded.
Profiting from price differences across markets. If ETH is $3,000 on Uniswap and $3,010 on SushiSwap, arbitrageurs buy low/sell high until prices converge.
→ Interactive deep-diveAave's receipt token. When you deposit DAI into Aave, you get aDAI that automatically accrues interest — your balance grows every block.
→ Interactive deep-diveB
A mathematical curve that determines token price based on supply. More tokens minted → higher price. Used in token launches and some AMMs.
C
Lock collateral (e.g., ETH) to mint stablecoins (e.g., DAI). If collateral value drops too far, you get liquidated.
→ Interactive deep-diveHow much you can borrow against a deposited asset. 75% collateral factor on ETH means $10,000 ETH lets you borrow $7,500.
→ Interactive deep-diveDeFi's killer feature — protocols plug into each other like LEGOs. Deposit into Aave → use aTokens on Curve → stake LP tokens in a yield farm.
→ Interactive deep-diveCompound's receipt token. Deposit USDC, get cUSDC. The exchange rate increases over time as interest accrues.
→ Interactive deep-diveD
An organization governed by token holders through on-chain voting. No CEO — proposals and votes determine protocol direction.
→ Interactive deep-diveAn exchange running entirely on smart contracts. No company holds your funds. Uniswap, Curve, and dYdX are DEXs.
→ Interactive deep-diveE
The standard interface for fungible tokens on Ethereum. Defines transfer(), balanceOf(), approve() — lets all tokens work with all protocols.
Tokenized vault standard. Standardizes yield-bearing tokens so protocols can integrate without custom adapters for each vault.
F
Borrow any amount with zero collateral — but you must repay in the same transaction. If you can't, the whole thing reverts as if nothing happened.
→ Interactive deep-diveG
The fee paid for computation on Ethereum. Measured in gwei (billionths of ETH). Complex transactions cost more gas.
A token that grants voting power over protocol decisions. UNI, AAVE, COMP, and CRV are governance tokens.
→ Interactive deep-diveH
Ratio measuring how safe a borrowing position is. Above 1.0 = safe. Below 1.0 = liquidatable. Calculated as (collateral × liquidation threshold) / debt.
→ Interactive deep-diveI
The opportunity cost of providing liquidity vs. just holding. When token prices diverge, your LP position is worth less than holding both tokens separately.
→ Interactive deep-diveL
When a borrower's collateral drops below the required threshold, liquidators repay part of their debt and seize collateral at a discount.
→ Interactive deep-diveA smart contract holding pairs of tokens that traders can swap between. Liquidity providers deposit tokens and earn trading fees.
→ Interactive deep-diveReceipt token proving your share of a liquidity pool. Burn it to withdraw your share of the pool's assets plus earned fees.
→ Interactive deep-diveM
Profit extracted by reordering, inserting, or censoring transactions in a block. Includes sandwich attacks, arbitrage, and liquidations.
→ Interactive deep-diveO
A service that brings off-chain data (like asset prices) on-chain. Chainlink, Pyth, and UMA are oracles. DeFi relies on them for accurate pricing.
→ Interactive deep-diveP
Pendle splits yield-bearing assets into principal (PT) and yield (YT). PT = fixed return at maturity. YT = variable yield exposure.
→ Interactive deep-diveR
Using already-staked ETH to secure additional protocols (AVSs) via EigenLayer. Earn extra yield but face additional slashing risk.
→ Interactive deep-diveS
MEV strategy: front-run a large swap to move the price, let the victim trade at a worse price, then back-run to profit from the price difference.
→ Interactive deep-divePenalty for validator misbehavior (double signing, downtime). A portion of staked ETH is destroyed. EigenLayer adds slashing risk for restakers.
→ Interactive deep-diveThe difference between expected and actual execution price. Larger trades in smaller pools have more slippage. Set slippage tolerance to protect yourself.
→ Interactive deep-diveLido's liquid staking token. Deposit ETH → get stETH that earns ~3-4% staking yield while remaining liquid and usable in DeFi.
→ Interactive deep-diveT
The total dollar value of crypto deposited in a DeFi protocol. Higher TVL generally means more liquidity and user trust.
U
Percentage of deposited assets currently borrowed. High utilization → higher interest rates. Aave and Compound use this to set rates dynamically.
→ Interactive deep-diveV
A smart contract that automates yield strategies. Deposit tokens → vault compounds, rebalances, and optimizes yield automatically.
Lock tokens for a period to get voting power and boosted rewards. Longer lock = more power. Curve pioneered this with veCRV.
→ Interactive deep-diveW
A token pegged 1:1 to another asset, making it compatible with a different chain or standard. WETH wraps ETH into ERC-20 format. WBTC wraps BTC for Ethereum.
X
The constant product formula powering Uniswap V2. The product of two token reserves must stay constant. This creates the familiar bonding curve.
→ Interactive deep-diveY
Maximizing returns by moving assets between protocols, stacking rewards, and compounding. Often involves providing liquidity + staking LP tokens for extra token emissions.
→ Interactive deep-dive