DeFi Glossary
Glossary of all the new terms around DeFi 2.0
We update constantly the glossary to include all the new terms and products crypto community is coming with.
Annual percentage rate (APR)An annualized representation of an interest rate that does not take into account compound interest.
Annual percentage yield (APY)
Similar to APR but it does take into account compound interest.
Arbitrage
The simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms in order to take advantage of differing prices for the same asset.
Automated Market Maker (AMM)An automated market maker is a type of decentralized exchange (DEX) protocol that relies on a mathematical formula to price assets (e.g. Uniswap, Sushiswap). AMMs are used for trading trustlessly and can also be used to provide liquidity through the creation of liquidity pools that contain popular token pairings.
Auto-compoundingA feature native to Olympus, in which stakers’ rewards are automatically folded into their total stake at every rebase (see below). Rewards are calculated as a stakers’ portion of the total pool, meaning reward amounts automatically increase and compound as their base stake increases.
Bonding
Bonding means buying discounted Tokens in exchange for providing Liquidity pool tokens or other assets to the Treasury of the Protocol. What are Liquidity pool Tokens? When a user deposits funds into a pool with liquidity, the provider is rewarded with liquidity provider (LP) tokens. Each pool token represents a user's share of the pool's total assets. Bonding allows the Protocol to acquire its own Liquidity and other reserve assets. Bonding usually comes with a vesting period. Vesting is the process of locking and releasing tokens after a given time
Bond Control Variable (BCV) is the scaling factor at which bond prices change. A higher BCV means a lower discount for bonders and higher inflation by the protocol. A lower BCV means a higher discount for bonders and lower inflation by the protocol.
Bonding Curves
Bonding curves allow the price of a token to increase when new tokens are bought/purchased and the price to decrease when tokens are redeemed/reclaimed.
Centralized Exchange (CEX)
Centralized exchanges directly hold funds on behalf of clients for investing purposes. Examples include; coinbase, binance, kucoin
Collateral
An asset that is pledged by the borrower to protect the interests of the lender. Used when borrowing assets as well as in the creation of synthetic assets.
Collateralization Ratio
A collateralization ratio is the rate at which a user needs to maintain a minimum collateral amount to be in good standing with the protocol they are borrowing assets from. If the collateral ratio is 100%, then users can borrow up to the amount collateralized. If the collateralization ratio is not maintained then the borrower's position may be liquidated.
Compounding
The process in which an asset’s earnings are reinvested to generate additional earnings over time.
Decentralized Autonomous Organization (DAO)
A member owned community / organization, without centralized leadership, that is often governed by code instead of leaders.
Decentralized Exchange (DEX)
A peer to peer marketplace where transactions occur directly between crypto traders.DEX are run via smart contracts which enforce rules and carry out trades but dont take ownership of your funds. Whereas, CEX (Centralized Exchange) will take ownership or protect funds while on exchange.
Examples include Uniswap, Sushiswap, Pancakeswap
DeFi
DeFi is short for Decentralized Finance. It is a blockchain form of finance utilizing smart contracts outside traditional brokerages and exchanges.
Deflationary Token
Deflationary tokens increase in value over time as they are burned, bought back, or removed permanently. The increase in value comes from scarcity. This is the opposite of inflationary tokens which reduce in value in time as more are minted.
Decentralized Application (dApp)
dApps are digital applications that run on a blockchain without control or oversight from a central authority.
Deflation Control Variable (DCV) is the scaling factor at which protocol defined buy pressure changes. A higher DCV means more buy pressure from the protocol, resulting in a higher deflation. A lower DCV means less buy pressure from the protocol, resulting in a lower deflation.
Ethereum Virtual Machine (EVM) is a state machine in which all Ethereum accounts and smart contracts live. At any given block in the chain, Ethereum has one and only one canonical state, and the EVM is what defines the rules for computing a new valid state from block to block.
Game Theory
Game theory simply put is the thought mechanisms behind a situation and its outcomes. Players can take actions that produce positive (winning) outcomes, or negative (losing) outcomes. In many games, there is an "optimal" strategy that players can choose, which leads to the best results for all participants, even if they cannot communicate or cooperate.
Impermanent loss
Impermanent loss is caused when the difference between the price of two assets in a pool is changed. The bigger the change is, the more you are exposed to the loss. However, the loss is not realized until funds are removed from the pool. Thus, impernanet loss is reversible if the assets value increases to original value. To summarize, impermanent loss is the loss you get when you have less money by investing in a liquidity pool compared to the value of the assets that you would have had if you just held them.
Inflation
Inflation, at base, is the reduction in buying power of an asset. For example, if the price of a can of corn changes from $0.90 to $1.00 over the course of a year, with no change in quality, then this price difference represents inflation. This single price change would not, however, represent general inflation in an overall economy. To measure overall inflation, the price change of a large "basket" of representative goods and services is measured. In the last year the supply of the US dollar increased by a staggering 26%, and the situation is comparable across all major economies. This means if you are saving and not investing, your buying power has decreased, although inflation indices do not yet reflect this as they are lagging indicators.
Initial Discord Offering - (IDO)
The first offering of a token that is organized through membership of a Discord server.
Layer 2
A secondary framework or protocol that is built on top of an existing blockchain system to provide increased scalability.
Liquidation
Occurs when a user, who has either borrowed or created a synthetic position, defaults on the required collateral ratio maintained by a protocol. Users may lose all of their assets posted as collateral during liquidation as it is a means to ensure the solvency of a protocol.
Liquidity Mining (or Yield Farming)
Liquidity mining is earning interest on your currency through lockup periods in exchange for interest to provide liquidity in the asset. In addition to interest, you can earn other rewards. The risk in liquidity farming is depreciation during lock up of the cryptocurrency, thus; interest and rewards should be greater than the risk.
Liquidity Pool
A liquidity pool is a pool of tokens to be exchanged amongst traders. A liquidity provider supplies liquidity to the pool in the form of tokens in exchange for rewards. PCV Protocol Controlled Value, is the amount of funds the treasury owns and controls. The more PCV the better for the protocol and its users.
Prisoner’s Dilemma
A theory showing, in essence, that coordination between two “counterparties” tends to benefit each more than both, or either, acting solely out of self-interest. The concept is core to DeFi’s general philosophy – WAGMI – as well as the structure of the Olympus protocol.
Protocol Owned Liquidity (POL) is the amount of LP the treasury owns and controls. The more POL the better for the protocol and its users.
Protocol Controlled Value (PCV)Is the amount of funds the treasury owns and controls. The more PCV the better the protocol and its users.
Proof of Reserve (PoR) is the mechanism of strengthening the reserve of the protocol's treasury via the sales of bonds. Bonders provide liquidity to the treasury, thereby building its reserve. In return for their service, bonders get paid in the native protocol token.
Rebase
Rebasing looks to achieve a specific pegged value. Due to market volatility pegged values can increase or decrease due to changes in demand. Rebasing protocols are used to maintain pegged value by increasing the number of tokens. This is very similar to the stock market, i.e., stock splits and stock buybacks.
Reserve Bonds
Reserve bonds are single asset bonds. They are sometimes referred to as "naked" bonds. Examples are USDC bonds.
Reward Rate
Reward rate is the configured percentage of native protocol token distributed to all stakers on each rebase relative to the total supply. The reward rate is precisely set by the policy team.
Reward Yield
Reward yield refers to the actual amount of native protocol token received by each staker on each rebase. The reward yield is a rough target from a policy point of view. It can almost never be maintained precisely due to e.g. fluctuating amounts of native protocol token staked.
Risk Free Value (RFV)is the amount of funds the treasury guarantees to use for backing native protocol token.
Seigniorage
The difference between the face value of money and the cost to produce it. Example - OHM costs 1 DAI to produce but has a value of ~$750USD. The difference is the seigniorage.
Slippage
Slippage refers to the difference between the expected price of a trade and the price at which the trade is executed.
Stablecoins
Stablecoins function to reduce volatility in the DeFI ecosystem. They are usually pegged to an underlying asset with little to no volatility.
Staking
Staking is a form of passive income. With staking, users deposit their tokens in order to get rewards on it. By staking, holders lend their coins (which are going to be used as a part of the blockchain validation success) to the network.
Synthetic Asset
A tokenized representation of an asset that a trader does not actually own but would like to be exposed to.
Treasury as a Service (TaaS)
The business model of centralized custody of partnership funds.
Time Weighted Average Price (TWAP)is the average price of an asset over a specific time. TWAPs are used to represent the fair value of an asset as defined by the market
Total Value Locked (TVL) The dollar amount of all native protocol tokens staked in the protocol. This metric is often used as a growth or health indicator in DeFi projects.
Yield Yield is earnings that are generated from an investment. The amount of yield can vary depending on risk, type of security, and duration invested/locked. Yield can come in the method of interest or other rewards.
Annual percentage yield (APY)
Similar to APR but it does take into account compound interest.
Arbitrage
The simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms in order to take advantage of differing prices for the same asset.
Automated Market Maker (AMM)An automated market maker is a type of decentralized exchange (DEX) protocol that relies on a mathematical formula to price assets (e.g. Uniswap, Sushiswap). AMMs are used for trading trustlessly and can also be used to provide liquidity through the creation of liquidity pools that contain popular token pairings.
Auto-compoundingA feature native to Olympus, in which stakers’ rewards are automatically folded into their total stake at every rebase (see below). Rewards are calculated as a stakers’ portion of the total pool, meaning reward amounts automatically increase and compound as their base stake increases.
Bonding
Bonding means buying discounted Tokens in exchange for providing Liquidity pool tokens or other assets to the Treasury of the Protocol. What are Liquidity pool Tokens? When a user deposits funds into a pool with liquidity, the provider is rewarded with liquidity provider (LP) tokens. Each pool token represents a user's share of the pool's total assets. Bonding allows the Protocol to acquire its own Liquidity and other reserve assets. Bonding usually comes with a vesting period. Vesting is the process of locking and releasing tokens after a given time
Bond Control Variable (BCV) is the scaling factor at which bond prices change. A higher BCV means a lower discount for bonders and higher inflation by the protocol. A lower BCV means a higher discount for bonders and lower inflation by the protocol.
Bonding Curves
Bonding curves allow the price of a token to increase when new tokens are bought/purchased and the price to decrease when tokens are redeemed/reclaimed.
Centralized Exchange (CEX)
Centralized exchanges directly hold funds on behalf of clients for investing purposes. Examples include; coinbase, binance, kucoin
Collateral
An asset that is pledged by the borrower to protect the interests of the lender. Used when borrowing assets as well as in the creation of synthetic assets.
Collateralization Ratio
A collateralization ratio is the rate at which a user needs to maintain a minimum collateral amount to be in good standing with the protocol they are borrowing assets from. If the collateral ratio is 100%, then users can borrow up to the amount collateralized. If the collateralization ratio is not maintained then the borrower's position may be liquidated.
Compounding
The process in which an asset’s earnings are reinvested to generate additional earnings over time.
Decentralized Autonomous Organization (DAO)
A member owned community / organization, without centralized leadership, that is often governed by code instead of leaders.
Decentralized Exchange (DEX)
A peer to peer marketplace where transactions occur directly between crypto traders.DEX are run via smart contracts which enforce rules and carry out trades but dont take ownership of your funds. Whereas, CEX (Centralized Exchange) will take ownership or protect funds while on exchange.
Examples include Uniswap, Sushiswap, Pancakeswap
DeFi
DeFi is short for Decentralized Finance. It is a blockchain form of finance utilizing smart contracts outside traditional brokerages and exchanges.
Deflationary Token
Deflationary tokens increase in value over time as they are burned, bought back, or removed permanently. The increase in value comes from scarcity. This is the opposite of inflationary tokens which reduce in value in time as more are minted.
Decentralized Application (dApp)
dApps are digital applications that run on a blockchain without control or oversight from a central authority.
Deflation Control Variable (DCV) is the scaling factor at which protocol defined buy pressure changes. A higher DCV means more buy pressure from the protocol, resulting in a higher deflation. A lower DCV means less buy pressure from the protocol, resulting in a lower deflation.
Ethereum Virtual Machine (EVM) is a state machine in which all Ethereum accounts and smart contracts live. At any given block in the chain, Ethereum has one and only one canonical state, and the EVM is what defines the rules for computing a new valid state from block to block.
Game Theory
Game theory simply put is the thought mechanisms behind a situation and its outcomes. Players can take actions that produce positive (winning) outcomes, or negative (losing) outcomes. In many games, there is an "optimal" strategy that players can choose, which leads to the best results for all participants, even if they cannot communicate or cooperate.
Impermanent loss
Impermanent loss is caused when the difference between the price of two assets in a pool is changed. The bigger the change is, the more you are exposed to the loss. However, the loss is not realized until funds are removed from the pool. Thus, impernanet loss is reversible if the assets value increases to original value. To summarize, impermanent loss is the loss you get when you have less money by investing in a liquidity pool compared to the value of the assets that you would have had if you just held them.
Inflation
Inflation, at base, is the reduction in buying power of an asset. For example, if the price of a can of corn changes from $0.90 to $1.00 over the course of a year, with no change in quality, then this price difference represents inflation. This single price change would not, however, represent general inflation in an overall economy. To measure overall inflation, the price change of a large "basket" of representative goods and services is measured. In the last year the supply of the US dollar increased by a staggering 26%, and the situation is comparable across all major economies. This means if you are saving and not investing, your buying power has decreased, although inflation indices do not yet reflect this as they are lagging indicators.
Initial Discord Offering - (IDO)
The first offering of a token that is organized through membership of a Discord server.
Layer 2
A secondary framework or protocol that is built on top of an existing blockchain system to provide increased scalability.
Liquidation
Occurs when a user, who has either borrowed or created a synthetic position, defaults on the required collateral ratio maintained by a protocol. Users may lose all of their assets posted as collateral during liquidation as it is a means to ensure the solvency of a protocol.
Liquidity Mining (or Yield Farming)
Liquidity mining is earning interest on your currency through lockup periods in exchange for interest to provide liquidity in the asset. In addition to interest, you can earn other rewards. The risk in liquidity farming is depreciation during lock up of the cryptocurrency, thus; interest and rewards should be greater than the risk.
Liquidity Pool
A liquidity pool is a pool of tokens to be exchanged amongst traders. A liquidity provider supplies liquidity to the pool in the form of tokens in exchange for rewards. PCV Protocol Controlled Value, is the amount of funds the treasury owns and controls. The more PCV the better for the protocol and its users.
Prisoner’s Dilemma
A theory showing, in essence, that coordination between two “counterparties” tends to benefit each more than both, or either, acting solely out of self-interest. The concept is core to DeFi’s general philosophy – WAGMI – as well as the structure of the Olympus protocol.
Protocol Owned Liquidity (POL) is the amount of LP the treasury owns and controls. The more POL the better for the protocol and its users.
Protocol Controlled Value (PCV)Is the amount of funds the treasury owns and controls. The more PCV the better the protocol and its users.
Proof of Reserve (PoR) is the mechanism of strengthening the reserve of the protocol's treasury via the sales of bonds. Bonders provide liquidity to the treasury, thereby building its reserve. In return for their service, bonders get paid in the native protocol token.
Rebase
Rebasing looks to achieve a specific pegged value. Due to market volatility pegged values can increase or decrease due to changes in demand. Rebasing protocols are used to maintain pegged value by increasing the number of tokens. This is very similar to the stock market, i.e., stock splits and stock buybacks.
Reserve Bonds
Reserve bonds are single asset bonds. They are sometimes referred to as "naked" bonds. Examples are USDC bonds.
Reward Rate
Reward rate is the configured percentage of native protocol token distributed to all stakers on each rebase relative to the total supply. The reward rate is precisely set by the policy team.
Reward Yield
Reward yield refers to the actual amount of native protocol token received by each staker on each rebase. The reward yield is a rough target from a policy point of view. It can almost never be maintained precisely due to e.g. fluctuating amounts of native protocol token staked.
Risk Free Value (RFV)is the amount of funds the treasury guarantees to use for backing native protocol token.
Seigniorage
The difference between the face value of money and the cost to produce it. Example - OHM costs 1 DAI to produce but has a value of ~$750USD. The difference is the seigniorage.
Slippage
Slippage refers to the difference between the expected price of a trade and the price at which the trade is executed.
Stablecoins
Stablecoins function to reduce volatility in the DeFI ecosystem. They are usually pegged to an underlying asset with little to no volatility.
Staking
Staking is a form of passive income. With staking, users deposit their tokens in order to get rewards on it. By staking, holders lend their coins (which are going to be used as a part of the blockchain validation success) to the network.
Synthetic Asset
A tokenized representation of an asset that a trader does not actually own but would like to be exposed to.
Treasury as a Service (TaaS)
The business model of centralized custody of partnership funds.
Time Weighted Average Price (TWAP)is the average price of an asset over a specific time. TWAPs are used to represent the fair value of an asset as defined by the market
Total Value Locked (TVL) The dollar amount of all native protocol tokens staked in the protocol. This metric is often used as a growth or health indicator in DeFi projects.
Yield Yield is earnings that are generated from an investment. The amount of yield can vary depending on risk, type of security, and duration invested/locked. Yield can come in the method of interest or other rewards.