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DeFi Glosary

New to DeFi? We are more than happy for you to be taking your first steps with us. Below you'll find the most common terms for you to check out when you find a word you don't know the meaning of.

A

Annual Percentage Rate (APR)

A measure of the anticipated return to be generated by a deposit over the course of a year, assuming that the current performance is maintained over that time period. Does not factor in compounding. See also APY, ROI.

Annual Percentage Yield (APY)

A measure of the anticipated return to be generated by a deposit over the course of a year, assuming that the current performance is maintained over that time period. Unlike APR, APY factors the effects of compounding over the course of the year into the return. See also APR, ROI.

Address

A long string of numbers and letters that identifies and locates an account that can transact on a particular blockchain. Addresses are generally created and managed by a wallet.

Airdrop

A method of distributing tokens where they are directly sent to users’ wallets, often as a promotional tactic or a reward of some kind.

Approval Transaction

In order for a dApp to transact with a user’s tokens on their behalf, an initial transaction must be sent to the blockchain that confirms the user’s permission to do so, and also includes a limit on the amount that can be spent. A common misstep in DeFi is completing an initial approval transaction, but not realizing that there is a second transaction required to complete a particular process with a dApp.

Arbitrum

An EVM-compatible layer 2 scaling solution for Ethereum that provides greater transaction capacity and lower transaction fees.

Audit

A security review of smart contract code by a trusted, established auditing firm, who looks for potential vulnerabilities or sources of exploits in the code, and suggests actions to remediate any issues. BadgerDAO’s smart contracts have been audited by several leading firms.

Automated Market Maker (AMM)

A decentralized trading system that uses asset pools established by liquidity providers to facilitate buying and selling of crypto assets, as opposed to the order book market making in traditional finance. Popular AMMs include Uniswap and Sushiswap.

B

Binance Smart Chain (BSC)

An EVM -compatible blockchain created by the centralized exchange Binance. BSC is a fork of the Ethereum blockchain, but uses centralized validators to enable transactions at lower cost. It’s native token is BNB, and tokens on BSC conform to the BEP-20 standard, a version of Ethereum’s ERC-20 standard.

Bitcoin (BTC)

A decentralized cryptocurrency that can be sent and received in a trustless manner without requiring the involvement of any supervising intermediary. Bitcoin can be used as a medium of exchange, a store of value and a unit of account, similar to any traditional currency. The Bitcoin network is secured by strong cryptography and transactions are processed by miners who are incentivized by earning additional Bitcoin for their work.

Block

A bundle of transactions being processed on a blockchain network. New blocks are created on a regular interval, and each block is linked to the previous one, creating a “chain” of blocks, giving blockchain its name.

Blockchain

A distributed, immutable public ledger of transactions that is secured by strong cryptography. Transactions are bundled into blocks, which are then validated and added the to the end of this public ledger, where they remain indefinitely. Blockchains are the core underlying technology of all cryptocurrency networks like Bitcoin and Ethereum.

Blockchain explorer

A website that provides an easy-to-use look at transactions for a particular blockchain, which are often used to view the status of a transaction, or to view the contents of any wallet address. Etherscan for Ethereum and Blockstream Explorer for Bitcoin.

Bridging

The Bitcoin network does not support smart contracts, the code that powers DeFi applications. In order to use Bitcoin on DeFi, BTC needs to be transferred to another blockchain, like Ethereum, where it is represented by some form of wrapped Bitcoin. Wrapped BTC can also be bridged back to the Bitcoin network, where it returns to being native BTC. Also applies to bridging assets to sidechains and layer 2 scaling solutions.

C