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DeFi Vocab

A Pretty Good DeFi Glossary here

DeFi

DeFi refers to “decentralized finance,” an effort to transform the financial-services industry by making transactions faster, cheaper, and more secure.

Think of DeFi in layers:

  1. The blockchain – Ethereum contains the transaction history and state of accounts.
  2. The assets – ETH and the other tokens (currencies).
  3. The protocols – smart contracts that provide the functionality, for example a service that allows for decentralized lending of assets.
  4. The applications – the products we use to manage and access the protocols.

Staking

Staking refers to the process of actively participating in transaction validation on a proof-of-stake (PoS) blockchain. In the context of Ethereum, stakeholders (called validators) contribute ETH to a staking pool in exchange for rewards in proportion to the size of their stake. The Ethereum network selects a winner based on the amount of ETH each validator has in the pool and the length of time they’ve had it there (rewarding the most invested participants). After the winner has validated the latest block of transactions, other validators can attest that the block is accurate; after consensus is reached, the blockchain is updated, and all participating validators receive a reward in ETH.

Yield Farming

Yield farming is the practice of staking or locking up cryptocurrencies within a blockchain protocol to generate tokenized rewards. Many DeFi projects rely on yield farming to incentivize users to contribute to the network's liquidity and stability, since these projects do not rely on a centralized market facilitator.

TVL

Total Value Locked (TVL) is a metric that measures the aggregate value of all crypto assets locked in decentralized finance (DeFi) protocols via smart contracts. TVL can also refer to the amount locked on a specific protocol (such as Aave or Uniswap).

Stablecoins

A stablecoin is a digital currency created with the intent of holding a stable value. The value of most existing stablecoins is tied directly to a predetermined fiat currency or tangible commodity. However, stablecoins can also achieve price-stability through collateralization against other cryptocurrencies or algorithmic token supply management.