Welcome to the world of DeFi!

If you've ever felt overwhelmed by the alphabet soup of crypto jargon, you're not alone. Decentralized Finance (DeFi) is reshaping how we interact with money, but it comes with a learning curve. That’s why we’ve created this simple, beginner-friendly glossary to help you understand the foundational terms and navigate the DeFi space with confidence.

Whether you're exploring your first DApp or just trying to wrap your head around what a "liquidity pool" is, this cheat sheet will be your go-to guide.

DeFi (Decentralized Finance)
A financial system built on blockchain technology that operates without centralized intermediaries like banks. It enables peer-to-peer transactions using smart contracts.

Blockchain
A digital ledger that records all transactions across a decentralized network. Ethereum is the most widely used blockchain for DeFi applications.

Smart Contract
A self-executing program that runs on the blockchain and automatically enforces agreements based on predefined rules.
Example: On a lending platform like Aave, a smart contract manages the process of someone lending out DAI and another user borrowing it — no paperwork or middleman needed.

DApp (Decentralized Application)
An application built on a blockchain, often powered by smart contracts. Examples include Uniswap, Aave, and Compound.

Wallet
A digital tool (like MetaMask or Trust Wallet) that allows you to store, send, and receive crypto assets, and interact with DeFi platforms.

Token
A digital asset that exists on a blockchain. Tokens can represent value, ownership, access rights, or other assets.

ETH
Ether, the native cryptocurrency of the Ethereum blockchain. It’s used to pay for transactions and smart contract interactions.

Stablecoin
A token pegged to the value of a stable asset like the US dollar. Common stablecoins include USDC, USDT, and DAI.

Governance Token
A token that gives holders the ability to vote on protocol changes and decisions. Example: UNI (Uniswap's governance token).

DEX (Decentralized Exchange)
A platform that allows users to trade cryptocurrencies directly with each other without an intermediary. Example: Uniswap, SushiSwap.
Example: If you’ve ever used Uniswap, you’ve interacted with a DEX. You can swap ETH for USDC instantly, all handled by a smart contract, not a company.

Liquidity Pool
A collection of tokens locked in a smart contract that facilitates decentralized trading by providing liquidity to a DEX.
Example: On Uniswap, if you provide ETH and USDC to a liquidity pool, you earn a portion of the trading fees each time someone swaps between those two tokens.

Yield Farming
The practice of earning rewards (often in the form of tokens) by providing liquidity or staking assets in DeFi protocols.
Example: Depositing tokens into Yearn Finance lets the platform automatically move your crypto to the most profitable yield-generating strategies.

Staking
Locking up crypto assets in a protocol to earn rewards, often in return for helping to secure the network or provide liquidity.

Impermanent Loss
A potential loss faced by liquidity providers when the price of their deposited tokens changes compared to when they were deposited.

Rug Pull
A scam in which developers of a DeFi project suddenly withdraw all funds and disappear, leaving investors with worthless tokens.
Example: A notable case was the SushiSwap controversy in 2020, when the anonymous founder sold millions worth of tokens and caused panic — although the project was later salvaged by the community.

Audit
A security review of a smart contract’s code, usually conducted by a third party to identify and fix vulnerabilities.

Private Key / Seed Phrase
A set of secret words or numbers that gives access to your crypto wallet. Never share this with anyone—losing it means losing access to your funds.

DAO (Decentralized Autonomous Organization)
An organization governed by smart contracts and its token holders, rather than a central authority.
Example: MakerDAO is a decentralized organization where token holders vote on interest rates for DAI loans, without needing a central bank.

TVL (Total Value Locked)
The total amount of assets held in a DeFi protocol. It’s often used as a measure of a project’s popularity and scale.

Gas Fees
The cost of performing a transaction or executing a smart contract on the Ethereum network. Fees vary based on network congestion.

The DeFi space can seem intimidating at first, but once you get familiar with the key terms, it opens up a world of financial innovation and opportunity. Use this glossary as your compass while you explore, and don’t be afraid to dig deeper into each concept.

Stay curious, stay secure, and welcome to the future of finance.

Welcome to the world of DeFi!

If you've ever felt overwhelmed by the alphabet soup of crypto jargon, you're not alone. Decentralized Finance (DeFi) is reshaping how we interact with money, but it comes with a learning curve. That’s why we’ve created this simple, beginner-friendly glossary to help you understand the foundational terms and navigate the DeFi space with confidence.

Whether you're exploring your first DApp or just trying to wrap your head around what a "liquidity pool" is, this cheat sheet will be your go-to guide.

DeFi (Decentralized Finance)
A financial system built on blockchain technology that operates without centralized intermediaries like banks. It enables peer-to-peer transactions using smart contracts.

Blockchain
A digital ledger that records all transactions across a decentralized network. Ethereum is the most widely used blockchain for DeFi applications.

Smart Contract
A self-executing program that runs on the blockchain and automatically enforces agreements based on predefined rules.
Example: On a lending platform like Aave, a smart contract manages the process of someone lending out DAI and another user borrowing it — no paperwork or middleman needed.

DApp (Decentralized Application)
An application built on a blockchain, often powered by smart contracts. Examples include Uniswap, Aave, and Compound.

Wallet
A digital tool (like MetaMask or Trust Wallet) that allows you to store, send, and receive crypto assets, and interact with DeFi platforms.

Token
A digital asset that exists on a blockchain. Tokens can represent value, ownership, access rights, or other assets.

ETH
Ether, the native cryptocurrency of the Ethereum blockchain. It’s used to pay for transactions and smart contract interactions.

Stablecoin
A token pegged to the value of a stable asset like the US dollar. Common stablecoins include USDC, USDT, and DAI.

Governance Token
A token that gives holders the ability to vote on protocol changes and decisions. Example: UNI (Uniswap's governance token).

DEX (Decentralized Exchange)
A platform that allows users to trade cryptocurrencies directly with each other without an intermediary. Example: Uniswap, SushiSwap.
Example: If you’ve ever used Uniswap, you’ve interacted with a DEX. You can swap ETH for USDC instantly, all handled by a smart contract, not a company.

Liquidity Pool
A collection of tokens locked in a smart contract that facilitates decentralized trading by providing liquidity to a DEX.
Example: On Uniswap, if you provide ETH and USDC to a liquidity pool, you earn a portion of the trading fees each time someone swaps between those two tokens.

Yield Farming
The practice of earning rewards (often in the form of tokens) by providing liquidity or staking assets in DeFi protocols.
Example: Depositing tokens into Yearn Finance lets the platform automatically move your crypto to the most profitable yield-generating strategies.

Staking
Locking up crypto assets in a protocol to earn rewards, often in return for helping to secure the network or provide liquidity.

Impermanent Loss
A potential loss faced by liquidity providers when the price of their deposited tokens changes compared to when they were deposited.

Rug Pull
A scam in which developers of a DeFi project suddenly withdraw all funds and disappear, leaving investors with worthless tokens.
Example: A notable case was the SushiSwap controversy in 2020, when the anonymous founder sold millions worth of tokens and caused panic — although the project was later salvaged by the community.

Audit
A security review of a smart contract’s code, usually conducted by a third party to identify and fix vulnerabilities.

Private Key / Seed Phrase
A set of secret words or numbers that gives access to your crypto wallet. Never share this with anyone—losing it means losing access to your funds.

DAO (Decentralized Autonomous Organization)
An organization governed by smart contracts and its token holders, rather than a central authority.
Example: MakerDAO is a decentralized organization where token holders vote on interest rates for DAI loans, without needing a central bank.

TVL (Total Value Locked)
The total amount of assets held in a DeFi protocol. It’s often used as a measure of a project’s popularity and scale.

Gas Fees
The cost of performing a transaction or executing a smart contract on the Ethereum network. Fees vary based on network congestion.

The DeFi space can seem intimidating at first, but once you get familiar with the key terms, it opens up a world of financial innovation and opportunity. Use this glossary as your compass while you explore, and don’t be afraid to dig deeper into each concept.

Stay curious, stay secure, and welcome to the future of finance.