🌎 GLOBAL 🌎 GLOSSARY QL7 — Learn and earn rewards for learning!
❓⇒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.
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