DeFi Glossary

Basic & Advanced Terms Every Crypto User Needs to Understand

Dynamo DeFi

Feb 27, 2025

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