Glossary

Explore the LFi Glossary for quick explanations of key terms in the blockchain and crypto space.

Glossary

Following are the key terms to get to know the decentralized finance industry, as well as these docs.

Key Terms

DeFi: Short for "decentralized finance", a catch-all term for financial services that are provided on public blockchains by leveraging smart contracts, including swapping tokens, adding liquidity, staking in pools, yield farming, and more.

APR (Annual Percentage Rate): The rate of return on staked assets.

Automated Market Maker (AMM): An automated market maker is a type of DEX that uses a mathematical formula to price assets, rather than using an order book model of bids (buyers) and asks (sellers) typical in traditional finance on centralized exchanges.

Decentralized Exchange (DEX): A protocol that uses smart contracts to allow users to swap between crypto tokens without a centralized intermediary.

Liquidity: The extent to which an asset is available to be bought or sold. In the context of a DEX, the number of crypto tokens that can be traded for one another.

Liquidity Provider: Someone who adds liquidity to a protocol by supplying (generally equal) amounts of two crypto tokens to a liquidity pool.

Liquidity Pool: A combination of two crypto assets in a smart contract that allows a decentralized exchange to facilitate trading between the two tokens.

LP Token: Short for "liquidity provider token," a new token that is created and granted to a liquidity provider as a "receipt" of the liquidity that they added to a liquidity pool.

Swap: To trade some amount of one token for an equivalent amount of another token.

Unvesting: token Unvesting, which some call token Unlock, is the process of unlocking up a certain amount of tokens. These tokens are often released over an agreed period

Vesting: token vesting, which some call token lock-up, is the process of locking up a certain amount of the total tokens from circulation.

Yield Farm: A product that allows users to stake LP tokens to earn tokens as a reward. Yield Farms incentivize users to add liquidity to a DEX so that the DEX can continue to facilitate token swaps between the two tokens in the liquidity pool.