DeFi Glossary

Basic & Advanced Terms Every Crypto User Needs to Understand

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