What is DeFi?
DeFi (Decentralized Finance) is an ecosystem of financial services on the blockchain, where operations are executed by smart contracts instead of banks and intermediaries.
What does decentralized finance mean?
It is a model in which the management of assets, lending, exchanges, and derivatives is carried out through open code and a network of nodes, without a single center of control.
What is a DeFi protocol?
It is a set of smart contracts that implement a specific financial service: DEX, lending, derivatives, stablecoins, indexes, etc.
What does permissionless access in DeFi mean?
It is the ability for any user to use the protocol without approval, registration, or verification by a centralized organization.
What is a DEX in the context of DeFi?
DEX is a decentralized exchange where trades take place directly between wallets via smart contracts, without storing funds on the exchange.
What is an AMM (Automated Market Maker)?
AMM is a model where token prices are determined by a formula and the balance in a liquidity pool, rather than by buyers’ and sellers’ orders.
What does a liquidity pool mean?
It is a contract into which users deposit a pair or set of tokens, providing liquidity for swaps and receiving a share of the fees.
Who is a liquidity provider (LP)?
An LP is a user who has deposited tokens into a liquidity pool and receives LP tokens and income from fees or protocol emissions.
What is an LP token?
It is a token that confirms a user’s share in a liquidity pool; it can be used as collateral or redeemed to withdraw assets.
What does impermanent loss mean?
Impermanent loss is the temporary decrease in an LP’s deposit value compared to simply holding the tokens, caused by changes in their price within the pool.
What is Yield Farming?
Yield Farming is a strategy of allocating liquidity and staking across different protocols to maximize returns.
What does Liquidity Mining mean?
Liquidity Mining is the distribution of additional protocol tokens to users for providing liquidity.
What is lending in DeFi?
Lending is a decentralized service where users deposit tokens and earn interest, while others borrow against collateral.
What is borrowing in DeFi?
It is obtaining tokens against collateral of other assets via a smart contract, with automatic collateralization control.
What does an overcollateralized loan mean?
It is a loan where the collateral exceeds the debt amount in order to protect the protocol from volatility and default.
What is liquidation in DeFi?
Automatic sale of collateral when its value falls below the allowed collateralization level for a loan.
What is a stablecoin in DeFi?
A stablecoin is a token pegged to a stable asset (usually the dollar), used as a unit of account and protection against volatility.
What does an algorithmic stablecoin mean?
It is a stablecoin whose price is regulated by code and market mechanisms rather than direct reserves in banks.
What is a DEX aggregator?
A service that searches for the best swap route across multiple DEXs, minimizing slippage and fees.
What does cross-chain DeFi mean?
It is the use of DeFi protocols and liquidity across different networks with the ability to move assets via bridges.
What is a flash loan?
An instant loan without collateral that must be fully repaid within a single transaction, otherwise it is reverted.
What does a self-repaying loan mean?
A loan that is repaid automatically using the yield generated by the collateral assets in DeFi.
What is a derivatives protocol in DeFi?
It is a platform for trading futures, options, and other derivative contracts based on smart contracts.
What do perpetual futures in DeFi mean?
Perpetual futures are contracts without an expiration date, where the price is kept in line with spot via a funding rate.
What is a funding rate?
A periodic payment between longs and shorts in perpetual contracts to align the price with the spot market.
What does TVL (Total Value Locked) mean?
TVL is the total value of assets locked in a protocol, an indicator of its scale and trust.
What is protocol-owned liquidity?
Liquidity owned by the protocol itself rather than by users, which reduces dependence on short-term capital.
What does the veToken model mean?
A mechanism where tokens are locked for a period, and voting power and rewards depend on the lock duration.
What is gauge voting?
Voting by ve-token holders on how emissions and incentives are distributed across liquidity pools.
What does buyback & burn mean in DeFi?
The protocol buys back its own tokens on the market and burns them, reducing supply and supporting value.
What is an oracle in DeFi?
A data source for prices and events that delivers information to smart contracts.
What does oracle risk mean?
The risk of incorrect or manipulated data that can trigger liquidations and losses.
What is a governance token?
A token that grants the right to participate in protocol governance: voting on parameters, upgrades, and the treasury.
What does DAO mean in the context of DeFi?
DAO is a decentralized autonomous organization that governs a protocol through token-based voting.
What is a multisig treasury of a protocol?
A treasury whose funds can only be moved with the approval of multiple signers.
What does DeFi 2.0 mean?
A wave of protocols focused on sustainable liquidity, protocol-owned assets, and improved risk management.
What is a stable swap AMM?
A type of AMM with a curve optimized for swapping stablecoins with minimal slippage.
What does leveraged yield farming mean?
A strategy where loans are taken against collateral to increase yield farming positions, boosting returns as well as risks.
What is an isolated lending market?
A market where the risk of specific assets is isolated so that the failure of one does not affect the entire system.
What does a shared collateral pool mean?
A common collateral pool used to secure multiple markets or products within a protocol.
What is a circuit breaker in DeFi?
An emergency pause mechanism that temporarily blocks operations when anomalies are detected.
What does dynamic fee mean?
A fee that automatically changes depending on volatility or load.
What is an insurance fund?
A fund that covers user losses in the event of liquidations, bugs, or extreme events.
What does protocol insolvency mean?
A situation where a protocol’s liabilities exceed its assets, creating a deficit and risk for users.
What is a governance attack via flash loan?
An attack where an exploiter takes a large flash loan, temporarily gains majority voting power, and passes a malicious proposal.
What does MEV mean in the context of DeFi?
Maximal Extractable Value — extra profit that validators or bots can extract by changing the order of transactions.
What is a sandwich attack on a DEX?
A bot places transactions before and after a victim’s trade, manipulating the price and extracting profit at their expense.
What does a rug pull mean?
Project creators withdraw liquidity or funds from a contract and disappear, leaving users’ tokens worthless.
What is a honeypot token?
A token that can be bought but cannot be sold due to malicious contract logic.
What does a protocol audit mean?
An independent review of smart contract code for vulnerabilities and logical errors.
