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.
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.
A method of distributing tokens where they are directly sent to users’ wallets, often as a promotional tactic or a reward of some kind.
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.
An EVM-compatible layer 2 scaling solution for Ethereum that provides greater transaction capacity and lower transaction fees.
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.
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.
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.
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.
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.
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.
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.
A fundamental property of cryptocurrency networks that does not allow for anyone, including centralized entities, to alter or remove transactions once they have been finalized and committed to the immutable blockchain.
Centralized Exchange (CEX)
A venue for buying and selling cryptocurrency that maintains custody of its users’ assets. CEXs also often serve as a fiat on/off-ramp, allowing users to convert cryptocurrencies to and from fiat money and to make transfers to and from standard bank accounts. Compare with DEX.
Centralized Finance (CeFi)
A term used for crypto-related financial services that have a centralized, custodial business model where users do not retain complete control and possession of their assets via a private key.
The native asset of a particular cryptocurrency, which is issued directly by the blockchain of that currency. Is used as a medium of exchange or store of value, but often also to pay transaction fees on the network, or to incentivize miners or other types of validators on the network. Bitcoin and Ether ere examples of a coin.
DeFi applications created with smart contracts can interact with one another, creating an ecosystem of interconnected assets and services that are sometimes referred to as “money Legos”, because they are building blocks for the creation of a new financial system.
The process of repeatedly using a yield-producing deposit's earnings to generate additional earnings alongside the principal over a period of time, which allows for an exponential rate of growth rather than a linear one.
A measure of how busy a blockchain network is at a given moment. As the network becomes busier, increased demand for transactions compared to the supply of miners to process those transactions tends to increase gas prices, as users of the network compete to provide a more enticing incentive for miners to mine the block containing their transaction.
A digital medium of exchange, represented by a coin, which uses a public transaction ledger (see blockchain) and strong cryptography to ensure the integrity of transactions. Generally there is no central issuing or regulatory entity, instead preferring a decentralized model.
A service which holds cryptocurrency assets without giving users access to the private keys that cryptographically prove ownership of those assets. The service maintains direct ownership, and manages assets on the users’ behalf. Centralized exchanges and CeFi services are custodial. DeFi protocols and wallets like MetaMask are non-custodial.
Decentralized Exchange (DEX)
A smart contract based venue for buying and selling cryptocurrencies that does not rely on a centralized entity to make the market and process trades. Instead of a centralized market maker, individuals provide liquidity through trades via the Automated Marker Maker (AMM) model. Popular DEXs include Sushiswap and Uniswap.
Lacking a central authority, middleman, regulator or other entity who possesses direct control of a system, instead giving control to the users of that system.
Decentralized Finance (DeFi)
A broad term for any decentralized blockchain-based application that provides financial services and products that do not require a centralized entity or direct custody of assets to operate.
Decentralized autonomous organization (DAO)
A company-like organizational structure that operates without a centralized legal entity and formal hierarchical management. Often features the use of on-chain voting via a governance token to suggest and ratify proposals that determine the direction of the organization. BagderDAO is a decentralized autonomous organization.
A collection of smart contracts that comprise a single DeFi organization or entity. May also refer to the organization as a whole, and its contributors.
A popular messaging application that is used widely across the DeFi space as a gathering place for communities that build up around DeFi protocols.
Decentralized Application (dApp)
An application, generally a web application and associated smart contracts, that provide a set of features or functions. See also: Web3.
The Ethereum standard to defining new types of cryptocurrency tokens. The native token for the Ethereum blockchain is Ether (ETH), but many, many other tokens have been created via this standard, such as BADGER and ibBTC. Other blockchains have similar standards for creating tokens.
The Ethereum standard for Non-Fungible Tokens (NFTs).
Elastic supply token
A token which seeks to control its value by adjusting the supply of then token available.
In DeFi, it is common to incentivize use of a DeFi protocol by rewarding users with the governance token for that protocol. These reward tokens are “emitted” from each protocol’s smart contracts, and sent to each user’s wallet.
The native token of the Ethereum network. All transactions on Ethereum require gas fees to be paid in ETH.
The leading smart contract enabled blockchain, focused on decentralization, censorship resistance, privacy and open access for all. Ethereum is the primary blockchain platform for many DeFi protocols.
Ethereum Virtual Machine (EVM)
The decentralized, blockchain-based execution environment in which Ethererum’s smart contract code runs.
The most popular blockchain explorer for the Ethereum blockchain. Can be used to view information about transactions, wallets and smart contracts.
A venue for buying, selling and trading goods of some kind. See centralized exchange (CEX) and decentralized exchange (DEX).
A blockchain which is able to run smart contracts created for use on Ethereum within its own execution environment. See: Ethereum Virtual Machine (EVM).
A currency, like the US dollar or the Euro, that is not backed by a reserve of a physical commodity like gold or silver, but by the entity that issues it, generally a government, who maintains its value through various monetary policies.
A unit of measure that is used to describe the amount of computational effort required to execute a particular piece of smart contract code on the Ethereum blockchain. Used to determine gas fees that are paid to miners who process transactions. Gas is the resource that powers Ethereum, just as gas powers a car.
The Ethereum blockchain charges a fee for transactions, which is paid to the miners who process and secure the network. The size of this fee reflects the resource requirements of the transaction. A complex smart contract requires more gas than a simple transfer, much as a car requires more gas to make a cross-country road trip compared to a run to the grocery store. The fee also changes based on how congested the network is. Gas fees are paid in Ether, but are denominated in gwei.
The maximum amount of gas that a particular smart contract is expected to require. Used to calculate the total gas fees for a transaction: gas limit * gas price = gas fee.
The gas fee charged per 1 unit of gas, the unit of measurement for computation on the Ethereum blockchain. Expressed in gwei.
A popular website that allows developers and teams to store, manage and collaborate on code for various projects. Commonly used by DeFi protocols who wish to open source some or all of their code.
The set of rules, policies and technology platforms that determine how decisions are made at a decentralized autonomous organization. This generally includes on-chain voting using a governance token.
A unit of Ether equal to 0.000000001 ETH, commonly used to express gas prices on the Ethereum blockchain. Gwei is shorthand for “giga-wei”, which is the smallest possible unit of Ethereum, one billionth the size of 1 wei, which was named for cryptocurrency pioneer Wei Dai.
A non-custodial wallet which uses dedicated hardware to store and manage the private keys that cryptographically prove ownership of those assets. As with any wallet, assets are not stored on this device, they are stored on the blockchain itself.
Unable to be changed from its initial state. Blockchains and their transactions are immutable: they cannot be changed or altered in any way.
In DeFi, it is common to incentivize use of a DeFi protocol by rewarding users with the governance token for that protocol.
Layer 2 scaling solution (L2)
A token given to liquidity providers as a receipt for their deposit of assets into a liquidity pool. Can be traded or used with DeFi smart contacts just as like other token.
A pool of assets used by a decentralized exchange (DEX) that uses that automated market maker (AMM) method of creating a venue for crypto asset trading. Pools are supplied tokens by liquidity providers.
A user who has deposited assets into a liquidity pool for use by a decentralized exchange (DEX) for automated market making (AMM). Liquidity providers are generally incentivized to deposit assets into the pool by receiving incentive rewards, often in the form of governance tokens from the DeFi protocols involved with the pool.
The most popular non-custodial wallet used in DeFi, which takes the form of a browser extension.
The individuals or groups who process blocks of transactions on a particular blockchain, securing the network in the process. Miners are paid a fee to incentivize their participation.
Wallet software that requires the approval of multiple people in order to initiative a transaction, generally to increase security by distributing control of funds to a group instead of an individual. Commonly used by DeFi protocols as part of their governance process.
Non-fungible token (NFT)
A form of token, such as those conforming to Ethererum’s ERC-721 standard, that are not interchangeable from one token to the next. Each token has its own intrinsic properties that distinguish it from another. Commonly used for art and other forms of creative expression.
A service or software which manages cryptocurrency assets while giving users full control over the private keys that cryptographically prove ownership of those assets. DeFi protocols and wallets like MetaMask are generally non-custodial, as opposed to centralized exchange (CEX) and centralized finance (CeFi) services.
A form of governance voting where votes are cast and accounted for directly on a blockchain platform, providing the same security and integrity as any other blockchain transaction. Votes are typically allocated to holders of a protocol’s governance token.
Code for a particular application or set of applications that is publicly available for anyone to access, providing a more transparent view into the inner workings of that application.
A cryptocurrency token that has been developed to track another asset ’s price as closely as possible. Stablecoins are pegged to the US dollar, for example.
A percentage-based fee charged for a DeFi product, such as a vault, that is only applied to the gains generated by the product, not to the entire amount deposited by a user.
An EVM-compatible side chain that features a similar set of DeFi protocols as the Ethereum network, but with much lower transaction fees. The native token of Polygon is MATIC.
Cryptocurrencies are secured through the use of very strong cryptography , the central element of which is the private key, a secret that should only ever be known by the owner of a particular wallet. Private keys are managed by software wallets like MetaMask or hardware wallets, and users generally only interact with the mnemonic seed phrase for their private keys.
Proof of Stake
A method for processing a blockchain’s transactions that asks validators to commit some amount of the blockchain’s coins in order to participate, instead of committing resources as with Proof of Work. Validators who commit a higher stake will receive more blocks to process. Improper validation could lead to loss of stake, which incentivizes validators to provide high quality validation.
Proof of Work
A method for processing a blockchain’s transactions that involves miners performing resource-intensive cryptographic operations that help secure and verify transactions in exchange for coins. Miners who commit more resources will process more transactions and receive more of the incentive payments.
Return on Investment (ROI)
A measure of the performance of a deposit over a time period, often a year. Measures the difference between the initial amount of the deposit and its current value. May be expressed as a raw value, or a rate of return using methods like APR or APY.
See Elastic supply token.
See Incentive rewards.
An EVM-compatible blockchain that runs in parallel to Ethereum and is intended to provide greater capacity and lower cost transactions, while providing its own security and decentralization. Polygon is a popular sidechain. Compare with: Layer 2 scaling solution.
Code that is stored and executed on the blockchain of a particular cryptocurrency network. Can be used to create many kinds of applications, including DeFi protocols.
Smart contract risk
The risk of loss resulting from errors, exploits or other unexpected outcomes occurring in the code of any smart contract that interacts with users’ funds in a particular protocol. May be reduced by having smart contract code audited by a trusted auditor.
A token which has been developed to track the price of the US dollar (or other fiat currency) as closely as possible. Some popular stablecoins in DeFi include USDC, Tether and Dai.
Locking a particular token into a smart contract (removing it from one’s wallet) in exchange for some kind of benefit. Typically there is a benefit to both the user, often in the form of yield, and to the protocol offering the staking.
A set of rules and instructions contained in the smart contracts for a DeFi vault in order to maximize yield for users who deposit their funds into the contract.
The amount of a particular token that is available for buying, selling and trading.
A unit of cryptocurrency that has been created according to the token standard for a particular blockchain (like ERC-20 for Ethereum). Distinct from a blockchain’s native coin, tokens are used to create new applications and use cases on a blockchain.
A term that combines “token” and “economics” and describes the economic policies applied to a particular token and its related DeFi applications, including the creation, distribution and destruction of tokens.
Total value locked (TVL)
The dollar value of all of the cryptocurrency deposited by users in a DeFi protocol’s smart contracts. A popular measure of the relative size of a particular protocol within the DeFi space.
An action initiated by a cryptocurrency user that is verified and stored on the blockchain. May be a token transfer, digital signature, smart contract interaction or other type of action.
A form of transaction, enabled by blockchain technology, that allows parties to exchange assets without requiring either party to have a trust relationship with the other. The blockchain itself guarantees the authenticity and integrity of the transaction without any involvement from the individuals involved.
A DeFi product that users deposit funds into, which are then put to use by smart contract -based automated strategies to generate yield. Vaults often deposit user funds into other DeFi protocols on their behalf, and manage those funds in a way that maximizes yield and minimizes transaction fees.
A participant in a blockchain system that independently verifies the security and integrity of transactions in exchange for an incentive of some kind. See also: Miner, Proof of Stake, Proof of Work.
A piece of software that manages cryptocurrency funds and transactions, as your private keys, for one or more blockchains. Cryptocurrency wallets do not actually store funds, they are stored on the blockchain itself. In order to access these funds, your private key is used. Wallets manage your keys, making it easy to interact with the blockchain. On Ethereum, MetaMask is a popular software wallet, which takes the form of a browser extension. Hardware wallets such as those made by Ledger and Trezor, increase security by storing your private keys on a dedicated, secure hardware device.
A decentralized evolution of the World Wide Web that builds on top of core cryptocurrency technologies and methodologies like decentralized applications (dApps) non-custodial wallets and trustless transactions.
A fee deduced from one’s balance when removing funds from a vault or other DeFi product. Withdrawal fees provide revenue to DeFi protocols, and also serve an important security function.
The Bitcoin network does not support smart contracts directly, so to use Bitcoin on a smart contract enabled blockchain like Ethererum, BTC is bridged to the blockchain, where it is represented as a token using the standard for that blockchain, which is ERC-20 in the case of Ethereum.
The return on a particular deposit, usually stated as APY, APR, or ROI. Unlike traditional finance’s simple interest or fixed-income yield, DeFi offers a number of sources of yield, usually combined into some form of yield farming.
Using DeFi platforms to generate yield in the form of interest, trading fees, or incentive rewards, often in the form of governance tokens. Yield farming is at the core of most DeFi protocols, including BadgerDAO.
Zap contract (Zap)
Allows for depositing into a liquidity pool, vault or other DeFi product using any token in one’s wallet, instead of requiring the exact tokens being used by the product. The zap contract performs a swap using a decentralized exchange (DEX) from the token provided to the appropriate underlying token.