DeFi Terms Glossary

Address (Wallet)

A digital wallet with address (0x...) allows you to receive transactions on the blockchain. The address is a character string that is used as your "personal identification".

APY

Annual percentage yield represents the rate of return for your interest accrued. Unlike annual percentage rate (APR), APY stresses the idea of compound interest that you are earning in DeFi. To calculate your daily ROI, divide APY by 365 for the daily rate.

Arbitrage

Oftentimes in inefficient markets, you have many opportunities to profit off of imbalances. This can happen with asset prices being different depending on the exchange or switching between interest rates.

Audit

Security and smart contract risk is the most important aspect of DeFi. All protocols should have their smart contract audited, which allows a third-party service into the codebase to check for potential bugs or vulnerabilities that may have not been noticed by the engineering team.

Automated Market Maker (AMM)

Market makers play a huge role in DeFi, as they play the roles of ensuring liquidity on both the buyer and seller’s end. An automated market maker is a smart contract that creates liquidity pools of specific tokens which are traded algorithmically rather than individual trading. Liquidity providers (LP) earn fees based on their liquidity provisions in creating market efficiency.

Cold Wallets

This is used for long-term storage of crypto assets. Examples of this include hardware wallets and paper wallets.

Collateralization

Borrowing a digital asset to gain exposure on other assets.

Cryptocurrency

Cryptocurrencies are also known as digital currencies. These are algorithmic based currencies that live on the blockchain and available to send and receive.

DAO

Decentralized autonomous organization. Full control of the platform lies in the hands of the governance token holders.

dApp

The user interface that interacts with the web3 smart contracts. Decentralized application that enables users to easily use the underlying protocol(s).

DeFi

Decentralized Finance is a series of Smart Contracts on the blockchain that hosts financial primitives in a non-custodial manner.

Derivative

Investment figure based off of an underlying value.

DEX

Decentralized exchange that puts the power of trading back into the users' hands. DEXes do not require a middleman and use Smart Contracts to process trades between parties.

Digital Signature

Confirmation of a transaction on the blockchain.

Distributed Ledger

Shared consensus of data across the blockchain network. There is no central administrator that controls the data and transactions.

EVM compatible blockchain

A blockchian that uses Ethereum Virtual Machine.

Native Token

The token that is used by the blockchain to pay its validators (network fees/gas fees)

EVM

Blockchain-based software program that allows developers to interact with the Ethereum network.

Fiat

Government issued currency.

Midas Pools

A customized lending and borrowing pool system employed by Midas Capital

Gas Fees

Rewards paid to validators that confirm each transaction on the blockchain.

Governance (and Token)

Token issued by projects used to grow the platform through voting power.

GWEI

Unit that measures the value of gas fees on the blockchain.

Hot Wallets

Wallets that are used for daily purposes. Examples include: exchanges, mobile wallets, and desktop wallets.

Impermanent Loss

When providing liquidity to markets that are still not efficient, liquidity providers may not receive their initial equivalent value upon withdraw due to volatility across token prices and arbitragers.

IOU Token

Token that represents your share in the pool.

Lending Aggregator

Algorithmic based system that maximizes your yield across lending protocols.

Liquidation

When trading on leverage, you supply the collateral to support your borrowed position. If the price of the asset at hand falls below the price determined by your collateralization ratio, then your position is liquidated. This means that someone bought you out of your position and most likely took a fee depending on the platform.

Liquidity Providing

Providing liquidity to protocols to create more market efficiency. Liquidity providers are rewarded for their through fees.

Mainnet

The official deployed version of the live blockchain that developers can interact with.

Multisig Wallet

One of the most secure wallets you can create. Requires at least two keys to sign off on a transaction.

Node

Computer connected to the blockchain that follows rules and shares information with other computers on the network.

Optimize

Autonomously searching for the highest ROI.

Private Key

Lock and key scenario for your wallet. Private key is your secure password that needs to be kept in a safe location and not shared with anyone.

Protocol

Suite of smart contracts that allow users to interact with the application.

Public Key

This is your public address that you can share and is used to receive assets.

Rebalance

The process of algorithmically finding the best yield for users through constant adjustments of the allocation.

Relayer

Products that provide direct access to an underlying protocol.

Robo-Advisor

Algorithmic based system that actively returns the highest net value profit.

ROI

Return on Investment.

Scalability

Relates to the limitations of the blockchain in processing transactions (speed or transactions per block).

Smart Contract

A smart contract is code on the Ethereum blockchain that controls the exchange of value in a trustless manner.

Solidity

The coding language that is used to write Smart Contracts.

Stablecoin

1:1 USD equivalent in digital form on the blockchain. Some maintain a $1 US peg, while some suffer from volatility like DAI.

Supply Cap

In reference to our pools, a limit placed on supply to ensure there isn't too much collateral in the pool to effectively liquidate if necessary.

Transaction Block

Basket of data that flows through the blockchain.

TVL

TVL stands for "total value locked" within a protocol; the amount of assets a protocol has.

TWAP Oracles

Time Weighted Average Price. TWAP oracles are implemented by Uniswap and Sushiswap, and utilized by Midas Capital. As they are a lagging indicator, TWAP oracles tend to balance security over freshness.

VWAP Oracles

Volume Weighted Average Price. Chainlink price feeds are an example of this.They track prices on all exchanges - CEX and DEX - and weight by real volume.

51% Attack

Single entity or organization taking control of the blockchain voting power through their monopoly of mining power.