DeFi glossary
Swaps, liquidity pools, lending and yield. Follow the DeFi conversation from a wallet approval to the numbers behind a liquidity position.
Automated market maker
A trading mechanism that uses an algorithm and available liquidity to quote or determine exchange prices.
Borrow rate
The interest rate charged on borrowed assets.
Collateral
Assets pledged to support a loan or leveraged position.
Concentrated liquidity
An AMM design that lets liquidity providers allocate assets within chosen price ranges.
Constant product
An AMM model that relates two asset reserves through the formula x × y = k.
Decentralized exchange
An exchange whose trading execution or settlement relies on blockchain protocols.
DeFi
Decentralized finance: financial applications that use blockchain protocols and smart contracts.
Depeg
A significant move away from an asset's intended reference price, such as a stablecoin's dollar target.
Fee tier
A configured trading-fee level used by a pool or exchange mechanism.
Fiat-backed stablecoin
A stablecoin that uses fiat-denominated reserves to support its target value.
Flash loan
A loan that must be repaid under the protocol’s rules within the same atomic transaction.
Health factor
A collateralized position’s safety metric; in Aave, liquidation-adjusted collateral value divided by debt value.
Impermanent loss
A liquidity position’s value shortfall compared with holding the deposited assets, caused by changing relative prices.
Liquid staking
Staking through a system that issues a transferable token representing a staking position or claim.
Liquid staking token
A transferable token representing a claim connected to assets in a liquid staking protocol.
Liquidation
The forced repayment or closing of a position that no longer meets its collateral or margin rules.
Liquidation threshold
The collateral parameter used to determine when a borrowing position becomes eligible for liquidation.
Liquidity mining
Distributing token incentives to participants who provide liquidity or perform qualifying protocol activities.
Liquidity pool
Assets held under a protocol’s rules to support activities such as swaps or lending.
Liquidity provider
A participant who supplies assets for a protocol’s trading, lending or other liquidity needs.
Loan-to-value
A loan’s value relative to its collateral value, often expressed as a percentage.
LP token
A token representing a liquidity provider’s claim on a pool or liquidity position.
Oracle
A mechanism that supplies information a blockchain application cannot directly obtain for itself.
Overcollateralization
Backing a debt or position with collateral worth more than the obligation it supports.
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