Impermanent Loss: The Hidden Cost of Liquidity Providing Impermanent loss is the sneaky tax on liquidity providers. Your tokens can lose value even when the pool is profitable. It’s math, not magic – but it feels like getting robbed. Impermanent loss occurs when the price ratio of tokens in a liquidity pool changes compared to…
Liquidity Pool: The Fuel That Powers DEX Trading Liquidity pools are why decentralized exchanges work. They’re shared pots of tokens that enable trading without traditional buyers and sellers. A liquidity pool is a collection of tokens locked in a smart contract that provides liquidity for decentralized trading. Instead of matching buy and sell orders, traders…
Staking: Earning Rewards by Holding Crypto Staking turns your crypto into a money-making machine. Hold tokens, earn more tokens – it’s that simple. But the devil’s in the details. Staking is the process of locking up cryptocurrency tokens to support a blockchain network’s operations and earning rewards in return. Think of it as earning interest…
Yield Farming: Crypto’s High-Risk, High-Reward Game Yield farming is DeFi’s answer to traditional investing – except the yields are higher, the risks are bigger, and the game changes daily. Yield farming is the practice of lending, staking, or providing liquidity with your cryptocurrency to earn maximum returns across multiple DeFi protocols. It’s like playing musical…
Governance Token: Voting Rights in Digital Form Governance tokens turn users into stakeholders with voting power over protocol decisions. It’s democracy meets DeFi, with mixed results. A governance token grants holders voting rights on protocol decisions like parameter changes, upgrade proposals, treasury spending, and strategic direction. Token weight typically determines voting power – more tokens…
Flash Loan: Borrowing Millions Without Collateral Flash loans let you borrow millions of dollars without putting up collateral, but you must pay it back in the same transaction. It’s DeFi’s most mind-bending innovation. A flash loan is an uncollateralized loan that must be borrowed and repaid within a single blockchain transaction. If you can’t repay…
Decentralized Exchange (DEX): Trading Without Middlemen DEXs are what happens when you remove the corporate overlords from crypto trading. No account required, no permission needed – just you, your wallet, and the market. A decentralized exchange (DEX) is a cryptocurrency trading platform that operates without a central authority controlling user funds. You trade directly from…
Total Value Locked (TVL): DeFi’s Scorecard TVL measures how much money is deposited in DeFi protocols. It’s like measuring the size of a bank by its total deposits – bigger usually means more trust and activity. Total Value Locked (TVL) is the aggregate value of all assets deposited in a DeFi protocol or across the…
Wrapped Token: Bringing Assets Cross-Chain Wrapped tokens let you use Bitcoin on Ethereum, Ethereum on Solana, and any asset on any blockchain. They’re the universal adapters of crypto. A wrapped token is a cryptocurrency that represents another asset on a different blockchain, maintaining a 1:1 peg through collateralization. The original asset gets locked in a…
Oracle: Connecting Blockchains to Reality Oracles are the bridges between blockchain smart contracts and real-world data. Without them, DeFi would be a closed system talking only to itself. An oracle is a service that provides external data to blockchain networks, enabling smart contracts to access real-world information like prices, weather, sports scores, or any off-chain…