DeFi 101 Glossary
Basic Terms
Altcoin
Any cryptocurrency other than Bitcoin
Thousands exist with different purposes and features
APY (Annual Percentage Yield)
The yearly return on an investment, including compound interest
Example: A 10% APY means $100 would grow to $110 over a year if returns remain constant
Blockchain
A digital ledger that records transactions across a network of computers
Think of it like a public database that anyone can view but nobody can tamper with
Cryptocurrency
Digital or virtual currency secured by cryptography
Exists on a blockchain rather than being issued by a central authority
Examples: Bitcoin (BTC), Ethereum (ETH), Solana (SOL)
Decentralization
Distribution of power away from a central authority
Core concept of blockchain where no single entity controls the network
Increases security and resistance to censorship
DeFi (Decentralized Finance)
Financial services built on blockchain technology
Operates without traditional intermediaries like banks
Mining
Process of validating transactions and adding them to the blockchain
Requires solving complex mathematical problems
Used in Proof of Work blockchains like Bitcoin
Private Key
Secret code that allows you to access and manage your crypto
Never share with anyone
Generated from or used to generate your seed phrase
Public Key
Derived from your private key
Used to receive cryptocurrency
Safe to share with others
Smart Contract
Self-executing programs on a blockchain
Like digital vending machines: input triggers automatic output
Powers most DeFi applications
Staking
Locking up cryptocurrency to support network operations
Alternative to mining used in Proof of Stake blockchains like Solana
Earns rewards similar to interest
Token
Digital assets created on existing blockchains
Represents value, stake ownership, or specific utility within an ecosystem
Different from coins, which have their own blockchain
Wallet
Digital tool to store, send, and receive cryptocurrencies
Contains your private keys, not the actual coins
Like a bank account for your crypto, but you control the keys
Wallet Terms
Cold Wallet
Hardware device for storing crypto offline
More secure than hot wallets
Example: Ledger
Gas Fees
Small amounts paid to process transactions on a blockchain
Paid in the network's native token (SOL for Solana)
Similar to paying for postage to send mail
Hot Wallet
Digital wallet connected to the internet
Used for active trading and regular transactions
Example: Phantom Wallet
Seed Phrase
12-24 words that serve as the master key to your crypto wallet
Must be kept secure and private
Cannot be recovered if lost
Trading Terms
AMM (Automated Market Maker)
Software that enables automatic trading
Sets prices based on mathematical formulas
Replaces traditional order books
Slippage
The difference between expected and actual trading prices
Higher for larger trades or less liquid tokens
Example: Expecting to pay $1.00 but actually paying $1.02
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