DeFi

Understanding DeFi terminology

September 8, 2021
Dean Batcheldor

It’s a new world out there. Here is some common terminology to help you understand the DeFi space:

DeFi

Decentralised Finance. An umbrella term used to describe financial apps in the digital asset and blockchain space aimed at disrupting traditional finance.

Digital asset

Any asset that is stored digitally. All cryptocurrencies are considered digital assets.

Blockchain

A system where transactions of a digital asset are recorded across a network of computers that maintain accuracy of the data.

Smart contract

Programs that run on the blockchain with customisable rules and conditions to define operations. They enable developers to create permission-less, autonomous, scalable and decentralised apps.

Stablecoin

A type of digital asset which tracks fiat (govt. issued currency such as USD) or commodities (such as gold). Most importantly stablecoins enable interaction with DeFi while providing stability from volatile digital asset markets.

DApps

Decentralised applications that run on top of a blockchain using smart contracts to define operations.

Decentralised exchange (DEX)

A type of digital asset exchange that enables secure Peer to Peer (P2P) transactions without the need for an intermediary.

Automated market maker (AMM)

The underlying protocol that allows users to trade digital assets on decentralised exchanges.

Protocol

A generic term with origins outside of DeFi. Essentially a basic set of rules defining how data should be shared between computers.


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