Your open-finance reference shelf
25 terms.
A little less jargon.
Clear DeFi definitions with a path to the deeper explanation. Use the term index to jump straight to a concept.
Automated market maker (AMM)
A trading mechanism that uses defined rules to price exchanges against pooled assets. Different designs use different formulas and liquidity structures. Identify the particular mechanism before using a simplified pool calculation or assuming how a trade changes inventory.
See this term in context ↗Annual percentage rate (APR)
An annualized rate commonly quoted without compounding in the figure. Always check the methodology, asset unit, period, and fee treatment. A positive nominal rate does not establish a positive outcome after token-price changes or the costs of entering and leaving a strategy.
See this term in context ↗Annual percentage yield (APY)
An effective annual yield reflecting stated compounding assumptions. The standard fixed-rate formula assumes reinvestment at a specified frequency. A DeFi display may instead annualize historical results, so the label alone does not establish how the number was produced or whether it can persist.
See this term in context ↗Blockchain bridge
A system coordinating information or asset claims between networks. Designs differ in custody, verification, token representation, and execution. Understand both the outgoing and return routes, including the exact asset received, rather than treating every bridge as an equivalent transfer service.
See this term in context ↗Collateral
Assets pledged or assigned to support an obligation under specified rules. In a lending position, collateral value and liquidation parameters help determine the borrowing buffer. Collateral can also appear in other designs, so its availability and role must be checked in context.
See this term in context ↗Decentralized autonomous organization (DAO)
An organizational arrangement using defined governance processes, often including token-based voting and onchain execution. The label does not tell you who effectively controls a particular action. Examine participation, delegation, administrator roles, and how approved decisions actually reach the deployed system.
See this term in context ↗Decentralized finance (DeFi)
A category of financial applications using blockchain-based programs to coordinate activities such as exchange and collateralized lending. It is not one application or a universal standard of decentralization. Evaluate the assets, contracts, interfaces, and control structure of each particular system.
See this term in context ↗Decentralized exchange (DEX)
A system for exchanging assets through blockchain-related trading mechanisms. Designs and execution routes differ. A useful quote review identifies the actual input and output assets, network, costs, permitted execution limits, and any spending authority requested by the route.
See this term in context ↗Gas
A measure of computational work used in networks such as Ethereum, with transaction fees determined by the network’s fee rules. Keep the unit of work separate from the currency paid. Included failed transactions can still consume resources and incur a fee.
See this term in context ↗Governance
The process for proposing, authorizing, and implementing changes to a system. Examine it together with administrative permissions and upgrade mechanisms. A vote, a timelock, and a multisignature account have different functions and should not be treated as interchangeable evidence of control.
See this term in context ↗Health factor
A protocol-specific measure of a borrowing position’s buffer. In Aave’s framework, it compares liquidation-adjusted collateral value with borrowed value. It changes with its inputs and is not a guarantee of safety. Verify the rules and parameters for the relevant deployment.
See this term in context ↗Impermanent loss
A comparison between a liquidity position and holding its starting assets separately when relative prices change. It is not a separate fee and need not mean the position is below its entry value. Pool design, fees, and the chosen benchmark matter.
See this term in context ↗Layer 2
A scaling system that handles activity while relying on a base network in specific ways. Ethereum layer-2 implementations differ in settlement, data availability, controls, and withdrawal mechanics. Another chain is not automatically a layer 2 simply because the same wallet supports it.
See this term in context ↗Liquid staking token
A transferable token representing an interest associated with staked assets under a particular arrangement. Its market price, reward accounting, and redemption relationship must be examined separately. Depositing it into another application adds that application’s dependencies to the original staking exposure.
See this term in context ↗Liquidation
A protocol process that acts on an eligible undercollateralized position, typically allowing debt repayment in exchange for collateral under the applicable rules. Eligibility, amounts, and incentives vary. It should not be assumed to include a personalized warning or response period.
See this term in context ↗Liquidity pool
Assets made available under a contract-based mechanism for trading or another financial function. A liquidity position follows that mechanism’s accounting rather than necessarily preserving fixed quantities of the starting assets. Understand composition, fee treatment, and exit mechanics before comparing its performance.
See this term in context ↗Loan-to-value (LTV)
The ratio of borrowed value to collateral value. A maximum entry LTV and a liquidation threshold can be different protocol parameters. Neither is a recommended borrowing target. Model changes in both debt and collateral and verify how multiple assets are combined.
See this term in context ↗Oracle
A mechanism supplying information used by a contract, such as an asset-price input. Examine its sources, update behavior, and failure handling. The availability of a public market price does not establish which value a particular contract will use at a particular moment.
See this term in context ↗Private key
Secret cryptographic material used to authorize actions for an associated account. Protect it from disclosure and follow the exact wallet’s verified recovery process. An exposed key is not repaired by changing a website password or disconnecting a browser session from an application.
See this term in context ↗Slippage
The difference between the quoted and executed trade result. A tolerance specifies an acceptable execution boundary under the transaction’s rules; it does not create liquidity or improve the original quote. Distinguish slippage from the price impact caused by the trade itself.
See this term in context ↗Smart contract
A program deployed in a blockchain environment that applies defined rules to interactions. Publicly inspectable code is useful evidence but not a guarantee of correct or safe behavior. Review dependencies, administrative controls, and whether the deployed version matches the security review.
See this term in context ↗Stablecoin
A token designed to track a specified reference value. Its target, backing, control structure, and redemption route are separate questions. Holding it in a lending market or vault adds the risks of that application; a stable input asset does not guarantee a stable strategy outcome.
See this term in context ↗Token approval
Permission for a specified spender to act on an asset under the token’s rules. It is distinct from merely connecting a website to a wallet. Disconnecting the interface does not necessarily remove an existing allowance, and revoking permission cannot reverse an already-completed transfer.
See this term in context ↗Total value locked (TVL)
A value measure of assets attributed to a protocol or set of contracts under a particular methodology. Check the observation time, prices, and whether layered claims are counted repeatedly. A large figure is not proof of solvency, secure code, or future withdrawal availability.
See this term in context ↗Yield farming
Using DeFi activities or incentives in pursuit of rewards, sometimes across several applications. Trace each reward to its source, identify the assets used to measure returns, and include costs and exit constraints. A headline yield is not a complete statement of the economic result.
See this term in context ↗Definitions need context
These concise definitions are a starting point. Follow each term to its guide for examples, limitations, and primary-source references. Protocol parameters and implementation details must be checked for the exact deployment; a glossary is not a substitute for that documentation.
New readers can begin with the learning path. See the editorial policy for the source and corrections approach.