DeFi Dictionary: Crypto Lingo Cheat Sheet

The crypto space changes fast, and what you know today might be outdated tomorrow. With new terms and trends coming up every week, the best way to catch up is with a DeFi Dictionary. Here’s our cheat sheet to help new investors with all the crypto lingo and jargon out there:

Accumulation Phase

The accumulation phase is the process where institutional investors buy undervalued cryptocurrencies mid-term. Because a large purchase would disrupt the price, they instead make smaller orders until completed months later. Accumulation phases appear as sideways price movement that follows crashes and precedes rallies.

Admin Keys

Admin keys are a form of centralization sometimes used on (ironically) decentralized applications. With admin keys, developers can access any balance and change rules on the platform or blockchain. While they exist for “security reasons,” they expose users to exit scams and cyber-attacks.

The safest protocols have no admin keys.

Aggregator

Aggregators are similar to search engines because they link and collect data from other DeFi dApps. They give a snapshot of the entire crypto space, which makes them useful for competitive analysis. There are DEX aggregators (e.g., 1inch) and NFT aggregators (e.g., NFTrade).

Airdrop

A crypto airdrop is an awareness marketing campaign where founders send a new token to some user addresses. To participate, you have to either sign up on a website, join a whitelist, or hold another token. Airdrops work because users have no pressure to sell free tokens, and others are more likely to buy something that already has some trading volume.

BEP-20

BEP-20 is a token standard for all coins created in the Binance Chain ecosystem. It allows traders to swap countless BEP-20 tokens and use decentralized Binance applications. It’s the equivalent of ERC-20 on Ethereum.

Bid-Ask Spread

In limit orders, the bid-ask spread is the difference between your buying price and someone’s selling price. Large centralized and decentralized exchanges have low bid-ask spreads because there are several traders making both orders. Depending on liquidity and demand, different platforms have different bid-ask spreads.

Black Swan Event

A black swan event is an unexpected big bad news with a direct impact on prices. It can be the beginning of a war, a change in monetary policies, a large-scale cyberattack, the collapse of a stablecoin, or housing crashes. Because they’re external events, they make great buying opportunities for value investors.

Block Reward

Block rewards are cryptocurrency incentives provided to users who help validate transactions or secure the blockchain. Block rewards depend on token supply, total contributions, and consensus models. They are mining rewards in proof-of-work and staking rewards in proof-of-stake networks.

Bug Exploit

Bug exploits are smart contract vulnerabilities that allow attackers to take unauthorized funds. Depending on the severity, hackers might drain all tokens and crash prices permanently. To avoid such mistakes, platforms do security updates, audits, and bug bounties.

Burn (Tokens)

To burn is to remove tokens from circulation for deflationary purposes. When tokens can’t be destroyed, there’s instead a smart contract that sends them to an inaccessible “burn” wallet address. Without these, tokens with unlimited or flexible token supply wouldn’t be sustainable.

Confirmation

Several validators create their own blockchain versions and decide which one will be official. Confirmations mean that many validators have included your transaction in their chain. When your transaction has enough confirmations it becomes confirmed, meaning it’s on the official, immutable blockchain.

Consensus Mechanism

Consensus mechanisms are the rules used to verify crypto transactions and decide who should validate them. While blockchains use different consensus models, the common ones are proof-of-work (computing power) and proof-of-stake (token holdings). The ideal consensus mechanism should incentivize validators to protect the network, prevent centralization, improve cost-speed, and reduce energy waste.

dApp

Decentralized applications (dApps) are platforms that integrate blockchain services (typically financial) using smart contracts. To use a dApp, you need to connect a decentralized wallet on the right network (by default, Ethereum). You then select an action from the app interface (staking, borrowing, buying…), pay network fees, and complete.

Decentralized

Decentralized blockchains distribute control among users in a way that prevents single entities from dominating it. Because there’s no central authority, decentralized platforms are often unregulated, autonomous, worldwide accessible, and trustless. Decentralized networks reach consensus by using fault-tolerant rules and immutable ledgers.

Degen

Degen is associated with high risk, speculation, emotional market analysis, and gambling. Degen traders don’t mind losing $100s on bad trades while chasing the one coin or NFT that will make them rich. It’s about buying meme coins, micro-cap tokens, or profile-picture NFTs just because a greater fool will buy them.

DEX

A decentralized exchange like UniSwap v3 is a trading platform that works with smart contracts and liquidity pools. Unlike traditional exchanges, DEXs allow buyers to fulfill orders even when there are no sellers at their price. It also allows interest earners to earn passive crypto for lending to the platform.

Diamond Hands

Diamond hands are people who almost never sell their assets regardless of price pressure. They treat their coins like hard money (like diamonds or gold) to get rich, or at least protect from inflation and market volatility. Diamond hands are the opposite of paper hands.

ERC20

ERC20 is the token standard used in the Ethereum ecosystem. Generally, any application built in Ethereum that has utility tokens is ERC20. Because it’s the largest dApp blockchain, users can quickly swap hundreds of ERC-20 tokens on decentralized exchanges.

Fan Token

Popular sports teams use fan tokens to create membership business models. Buying your team’s tokens might give you access to exclusive game tickets, discounts, rewards, voting rights, and other VIP benefits. It’s similar to betting because token prices rise and fall based on the team’s success.

Flippening

Because Bitcoin dominance goes down and Ethereum’s goes up, many believe that Ethereum might flip Bitcoin. Flippening is the colloquial name for the moment Ethereum’s market cap grows above Bitcoin’s. It’s also the end of coin prices being determined by Bitcoin.

Fork

A fork is a modified blockchain version, often created by different teams from founders. Fork chains can have other consensus models, network costs, rules, and app ecosystems. This new division doesn’t accept older versions of the (original) blockchain, so those who want to use it need to update to the latest one.

Futures

On future contracts, traders agree to exchange assets on a specific date at prices fixed on the day the contract started. Longer periods allow more price flexibility and leverage, which makes futures a form of crypto betting. At the end of the contract, you must buy or sell whether you lose or profit (if there’s no imposition, they’re called Options instead).

Gas fees

Gas fees are small transactions that execute autonomous programs (smart contracts). Gas fees are present in all decentralized applications involving cryptocurrency or NFT services. They’re exclusive to blockchains that support smart contracts, each with different costs and speeds.

Governance

Governance is the rules and consensus model followed by a blockchain community to make decisions. Developers can share improvement proposals with nodes, who can vote in favor or against. Assuming there’s positive reception, improvements apply to scheduled code updates.

Hash Rate

In proof-of-work blockchains like Bitcoin, the hash rate measures the total computing power used to process transactions. Higher hash rates correlate with high network security and low efficiency. A hash is the one-way encryption of block data into an alphanumeric code of fixed length.

HODL

Hold On for Deal Life is the simplest investment strategy with great long-term success. HODL claims that no matter where you buy (if you wait long enough) you’ll sell high more often than not. While HODL is useful for big projects, it’s riskier on smaller ones that might not be around years later.

IDO

The Initial DEX Offering is a blockchain project that’s launching its token on decentralized exchanges. If it’s an Ethereum token, you’ll be able to buy from any Ethereum exchange using the custom contract address. Many coins take months to appear on regulated exchanges (if ever), which makes IDOs an excellent opportunity for early investing.

Interoperable

Blockchains are, by default, incompatible with each other. Interoperable protocols (also called cross-chain) allow chains to communicate and use other networks’ infrastructure. That means that developers can import programs and don’t have to code their apps from scratch.

Examples of interoperable technology are oracles and EVM-compatible code.

KYC (& AML)

Know Your Customer (and Anti-Money Laundering) are procedures set by regulated companies and required by governments. The purpose is to verify that the individual has a valid identity and isn’t a legal threat. The process requires sharing ID information, proof of address, and screening tests.

KYC approval is a basic requirement on custodial exchanges and doesn’t guarantee that your account won’t be shut down anytime.

Launchpad

Similar to aggregators, launchpads are platforms that help users discover upcoming projects. There are different launchpads for cryptocurrencies, DeFi protocols, blockchain games, and NFT collections. Some launchpads create utility tokens to limit who can participate in pre-sales.

Layer

A layer is a different level of blockchain infrastructure. Foundational layers are Internet-technology based while the furthest layers are applications. Most cryptocurrencies and blockchains are called Layer 1.

Leverage

Similar to compound interest, leverage allows to magnify interest rates by lending borrowed crypto. The difference is that higher yields reduce the margin of error, which increases liquidation risk (losing principals). Leverage can help traders offset trading fees and profit from tiny price differences.

Liquid Staking

To increase token circulation, some DeFi dApps offer liquidity as a service. Liquid Staking allows you to stake while receiving tokens of equal value to use on other DeFi tools. While it’s possible to cash out, you need these tokens to un-stake later.

Liquidity Mining

Liquidity mining is the tokenization of liquidity pools. Not only do liquidity providers earn interest or fees but also Liquidity Provider (LP) Tokens. Mining LP tokens allows lenders to redeem liquidity funds anytime, transfer pool ownership, or stake these for even more yield.

It’s called mining because (1) most LP tokens aren’t in circulation at first, (2) there’s a fixed token supply, and (3) they’re often deflationary.

Liquidity Pool

Liquidity pools are the counterpart of token swaps on decentralized exchanges (DEXs). They are shared funds consisting of two tokens provided by lenders that traders use to swap for one another. Liquidity providers earn fee rewards in proportion to their total contribution to the liquidity pool (and unlike traditional lending, they can withdraw anytime).

Market Cap

The market cap shows the total market value of a token. The current coin price multiplied by the number of tokens in circulation equals the market cap. Large caps correlate with stable prices whereas micro-cap coins are more volatile.

Market Maker

The market maker is the algorithm that exchanges use to efficiently fulfill trading orders. Traders can quickly buy coins at fair prices because market makers match them with several sellers near their buying price. When exchanges don’t have enough liquidity, they fulfill orders using liquidity pools and automated market makers (AMMs).

Metaverse

The metaverse is a collection of technologies (blockchain included) that make the Internet more interactable, interconnected, decentralized, and user-centric. It involves DeFi applications, virtual and augmented reality (VR & AR), artificial intelligence, semantic web, and digital asset tokenization (NFTs). The Metaverse offers new ways to experience playing, learning, working, socializing, and exploring.

Mint

To mint an NFT is to create a non-fungible token and put it in circulation (for sale). The minting process is finding an NFT marketplace, creating your NFT listing, and publishing. There’s a small initialization fee after which you can mint countless NFTs for free at any sale price.

It’s possible to mint without owning the collection. You visit the branded website (if any), click Mint, pay network fees, and smart contracts mint the NFT in your wallet. If you’re buying in an NFT marketplace, it’s pre-minted.

Multisig (signature)

Multi-signature platforms allow multiple users or devices to manage a wallet balance based on preset policies. For example, a multisig of 5 users might require 3 users to approve transactions and 5 users to add new users. While everyone has “admin rights,” actions only execute when there’s enough agreement and no one rejects it.

NFT

Non-fungible tokens (NFTs) are contract addresses that only allow one token (also called ERC-721 in Ethereum). Because they’re unique, they’re associated with collectibles with real value in cryptocurrency, especially digital assets. While NFTs can represent any media, they only exist in one blockchain (thus, every network is another NFT marketplace).

Node

A node is every computer that participates in a blockchain network. You become a node when creating a crypto wallet and using it for transactions. There are also full nodes (which hold copies of the blockchain) and validator nodes (which maintain the network).

Not Your Keys Not Your Coins

Not Your Keys Not Your Coins means that you cannot guarantee security without your wallet’s private keys. By sharing those keys, you’re giving others the freedom to use your balance however they wish, as if it no longer belonged to you. That’s why custodial wallets (from 3rd-party exchanges) are so risky.

Off-Ramp (and On-Ramp)

Crypto on and off ramps are the payment methods that allow the easy conversion of crypto and fiat money. We use on-ramps to buy cryptocurrencies with fiat and off-ramps to exchange back to fiat and withdraw. Because these interact with traditional money, decentralized on and off-ramps don’t exist yet.

Off-Chain (and On-Chain)

Blockchains work with on-chain data verified with validators and consensus models. Off-chain data is external variables the network can’t verify, such as weather, temperature, sports match results, or another blockchain. If blockchains could use both on and off-chain data, it would exponentially increase use cases.

Oracle

Oracles are information sources that provide off-chain data to blockchains. Platforms that compare dozens of oracles are called decentralized oracles. They calculate the most accurate result based on trust indexes, averages, and majority rules.

Example of oracles are Fetch and Tellor.

Over-Collateralized

Over-collateralized protocols require collaterals that exceed the loan value. In yield farming, this protects investors from DeFi risks such as liquidation, stablecoin de-pegging, or loan defaulting.

Over-collateralized stablecoins follow the opposite approach of fractional reserve banking.

P2E

P2E (or PTE) stands for play-to-earn. P2E allows players to earn rewards with real-world value, such as NFTs and utility tokens. While not always, most P2Es are pay-to-win games where someone’s earnings are someone else’s losses.

For P2Es to remain successful long-term, they need to be intrinsically fun and create economies that reward reinvesting over withdrawing.

Pegged

Pegged cryptocurrencies have market values attached to another currency, typically fiat. Traders buy these currencies during market volatility to sell crypto without cashing out. De-pegging can be disastrous for holders, which is why protocols explore different ways of fixing prices.

Private Key

A private key is a secret code that allows you to use cryptocurrencies sent to a “wallet” address (also called public keys). They remove the need for registration and verification, which makes crypto simpler and more accessible worldwide. This key is a 256-bit alphanumeric string that often comes with a QR code.

Because they grant full wallet control, you should never share private keys with anyone.

Protocol

In blockchains, protocols are the underlying code that rules how applications should function. A DeFi protocol allows two parties to reach a consensus on financial agreements by using autonomous programs. Protocols consist of dApps, utility tokens, and community governance.

Pump (and Dump)

Cryptocurrency pumps are temporary price manipulations produced by large investors. The strategy involves an illiquid token kept in secret from a pump-and-dump community (retail investors looking for a quick profit). Large investors later reveal the token, and users rush to buy it expecting a pump.

100s of buyers cause the price spike, which large investors use to sell high and dump the price within seconds.

Rekt

To get REKT (wrecked) is to lose most of your money on a bad trade.

Rugpull

Rug pulls capitalize on the initial public excitement, and there’s no intention of creating lasting, valuable projects. These teams profit from presales and initial offerings by making the project look promising, even when they’ve built nothing. After enough funding, the founders abandon the project (e.g., a shitcoin, an NFT collection…) while keeping the funds.

Scalability (Solution)

Scalability is the ability to maintain efficiency with greater network size. Too many users bring problems such as network congestion, overpriced fees, and lower app practicality. Scalability solutions (AKA Layer 2s) are complimentary, high-performing blockchains with independent ecosystems (e.g., Polygon and Ethereum).

Seed Phrase

The seed phrase is 12-24 words randomly pulled from a list of 2048 terms. Also called Recovery Phrase, it allows anyone to recover access to a wallet and all private keys linked to it. If you import your seed phrase on another device, you’ll access the same wallet accounts and balances across different networks.

You should never share your seed phrase, as it’s the master “password” that gives access to all private keys.

Shill

Shilling is associated with pump-and-dumps, sleazy marketing, and Ponzi schemes. To shill is to promote a project you invested in, not because it’s good, but because selling it will make you money (see Greater Fool Theory). Ironically, those who shill don’t care about the project, but they still make bold claims when promoting it to others.

Slippage

Slippage is the price deviation that occurs while your order is processing. While the recommended slippage is below 0.5%, it can be as high as 30% when there’s low liquidity and volatile prices. On decentralized exchanges, you can configure slippage tolerance to cancel the trade if the variation exceeds your target.

Because you’re still paying network fees, slippage tolerance should be high enough to avoid transaction failure.

Smart Contract

Smart contracts are autonomous programs that only execute in form of blockchain transactions (AKA gas fees). Once the user pays the fee with a Web3 wallet, the app executes the contract safely without 3rd-party intervention. Most use cases are DeFi services.

Stablecoin (and Wrapped tokens)

Stablecoins are cryptocurrencies that have prices pegged to stable fiat currencies like USD. If a stablecoin always equals $1, then those who buy it can protect their crypto from volatility without converting to fiat money. The most reliable stablecoins are over-collateralized.

When a token fixes its price on another cryptocurrency, they’re called wrapped tokens instead. Investors buy wrapped tokens when their blockchain doesn’t support original ones.

Staking

Crypto Staking is a security feature present in proof-of-stake blockchains that focuses on holdings. The logic is that those who hold the most tokens for a long time will have the best interests of the network (otherwise, they’d lose money on prices and penalties). Because staking has high-entry barriers, users delegate staking to validators, who earn interest rewards and share yields with them.

Tokenization

Tokenization is the conversion of real and digital assets to blockchain formats like utility tokens and NFTs. Tokenization allows us to trade previously un-transferable assets and fractionalize illiquid ones. For example, Internet providers can offer pay-as-you-go models where clients get different bandwidths by buying the utility token.

Tokenomics

Tokenomics explain how a project manages token supply and demand. It describes the rules that allow producing, removing, or distributing coins among users, founders, and programs. Along with utility, tokenomics show what market value and price trends will look like.

Total Value Locked (TVL)

TVL is the total amount of user funds deposited or staked in a DeFi protocol. High TVL indicates there’s high token utility, liquidity, and demand. To calculate TVL, multiply the token price by the number of tokens deposited.

Trustless

We say decentralized finance is trustless because it removes the need of trusting other parties. Trustless technology is associated with smart contracts, autonomous governance, and peer-to-peer (P2P) marketplaces. Trustless blockchains introduce services that weren’t possible before.

Validator

Validators are special users that ensure the proper functioning of the blockchain. Different incentives ensure that validators make transactions safe and efficient, such as interest and fees. Every blockchain has different conditions to select validators, including randomness, minimum holdings, and some technical knowledge.

Web3

Web3 or Web 3.0. is the third iteration of the Internet focused on digital asset ownership. Besides reading and interacting with the Internet, users can own what they use instead of relying on private tech companies. For example, DeFi dApps like Web3 wallets allow people to own utility tokens and NFTs attached to virtual assets.

Whitepaper

Every cryptocurrency and blockchain project has a whitepaper to describe its product-market fit, technology, competitive analysis, and purpose. Like a business plan, a whitepaper gives analysts and investors all the technical data they need for research. Whitepapers are often the most reliable source of information on unreleased projects.

Yield Farming

Yield farming includes all possible strategies to generate yield (passive income) from idle cryptocurrencies. Investors can break even and profit without ever selling, even if token prices never change. It’s possible because of lending, liquidity providing, staking, and other DeFi services.

51% Attack

51% attacks are situations where a single user controls over half of the network. Depending on the network, it might mean having the most computing power or having the largest holdings. 51% attacks centralize the blockchain, which allows the attacker to partially manipulate the blockchain and exploit it financially.

How many of these words have you heard? How many did you know? What’s sure is that the crypto lingo is expanding, just like we’re also updating this dictionary.

While it can be overwhelming, you don’t need to know them all. Once you understand the basic terms of blockchain technology, you can use them to explain even the most complex ones.