Explanation of key MetaFi terms
A marketing technique used in the cryptocurrency industry. Usually, a new project distributes small amounts of its tokens for free in order to attract the audience's attention.
A type of speculation based on making trades with the same instrument (coin, futures contract) at different exchanges/sites. The reason for the trade appears when the quotation in one place is very different from the quotation in another place. Usually, arbitrage trades are carried out by trading bots with high-speed access to trading desks.
Automated Market Maker. Market-making is a complex of measures necessary for functioning of exchange trading. AMM is a pool of participants' funds that are used to fill the trading floors of decentralized exchanges, where cryptocurrencies are bought and sold. An AMM is essentially like the order book of a regular exchange, except that they are:
- not backed by a central authority;
- dependent on participants to provide liquidity.
An affiliate program is a way to promote a project in which participants earn rewards for bringing new participants into the project.
Annual Percentage Rate. If a person deposits $1,000 into a savings account that pays 50%, at the end of the year he will receive $500 and have $1,500 in his account.
The annual percentage yield. Annual percentage yield. Unlike APR, APY takes into account compound interest (when reinvesting the yield received, i.e. getting compound interest). For example, if a person deposits $1,000 into a savings account that pays 50% APR, but with reinvestment each month, at the end of the year he will have $1,632 in his account.
A standard (protocol) for tokens issued on the Binance Smart Chain blockchain network. Similar to ERC-20 for the Ethereum network, but provides more features and lower transaction costs.
A technology for maintaining a register where a record of transactions is kept. Transaction information is stored in 'blocks', which are added one by one to form a 'chain'. Hence, the term: 'blockchain'.
Key features of the technology:
- The register is distributed in a decentralized way. Each node stores a copy. There is no master copy, everyone can get their own copy. All copies are equally valid.
- New transactions are tested before they are added to the registry. Changes are made to all copies at once.
- Hack resistance. It is considered that for a network to be compromised, an attacker must gain control of more than 50% of the nodes.
The process by which a user borrows money. Borrowing can be done either in a classic financial system (for example, borrowing from a bank), or in a decentralised system (DeFi). But in a DeFi environment, the process of borrowing is more transparent and usually offers better terms.
Binance Smart Chain. A blockchain network created in the ecosystem of Binance, the largest exchange for cryptocurrency assets. They made rebranding, now they are BNB Chain.
A program run by a project to find/fix vulnerabilities, and to improve (test) its security. Whoever finds the threats to security gets a reward from the project.
Burning tokens. Means reducing the number of tokens previously issued in order to maintain the value of the tokens (deflationary measure).
Abbreviation for 'Centralised Finance'.
A term describing a classical financial system in which authority/governance is always centralised. The CeFi system is governed by laws and regulators such as the Central Bank, Ministry of Finance. CeFi includes banks, stock exchanges, and other organisations - for example: investment, insurance, pension funds.
Abbreviation for 'Centralised Exchange'. A classic exchange with a physical address, regulated by laws and government agencies. For example, NYSE is the New York Stock Exchange.
The fees a project charges for the services it provides. Thanks to DeFi's features, project fees are low and transparent.
Cross-chain is a measure for the interoperability of different networks. The growing number of different independent blockchains is raising the issue of incompatibility.
Bridges are software solutions, essentially connectors, that allow users of different networks to transfer crypto assets, smart contracts, and exchange data. For example, to use Bitcoin on the Ethereum network.
Crypto is a term that originally refers to public key cryptography, a method of encrypting data. This method is used in the verification of data when it is added to a blockchain.
Cryptocurrency is the common name for financial assets created on a blockchain using public key cryptography. Characteristics of cryptocurrencies:
- transparency (open code),
- visibility of wallets;
- reliability, hacker-proof;
Decentralized Autonomous Organization. An organization (company) whose activities are governed by programmed rules. Features of a DAO:
- using of blockchain technology;
- high degree of automation;
- a minimum of personnel;
- transparency of processes;
- not subject to governments and state regulators;
- resistance to censorship.
The fact that a DAO is controlled by the community determines the way decisions are made within that organization. This is done by voting, and those who have governance tokens can vote.
Short for Decentralized Application. A software product based on blockchain technology.
This is the principle of network architecture where there is no main node in the network. All nodes in the network have equal rights, and usually fulfil the role of both client and server.
Decentralisation is applicable in various ways, in finance it has led to the development of DeFi.
Short for DEcentralized FInance.
It is an ecosystem of financial applications built on blockchain networks that evolved with the implementation of Ethereum.
DeFi aims to eliminate the need to rely on a middleman such as a bank by using smart contracts, which are essentially computer code executed based on predefined conditions. The overall aim is to reduce the costs and transaction fees associated with financial products such as lending, borrowing and saving.
Features of DeFi project services:
- transparency (work with open source code),
- independence from a central authority,
- user control over their assets,
- high degree of automation.
The DeFi trend has excellent prospects, as it has the potential to create a full-fledged alternative to the existing financial system.
Short for DEcentralized EXchange.
Generally, a decentralized exchange is a place where participants can buy and sell cryptocurrencies and other assets based on blockchain technology.
The advantage of DEX is that users' funds are stored in their decentralized wallets (such as Metamask). Assuming even if hackers crack DEX, user funds remain untouched.
It is a blockchain network that uses the ETH token. The peculiarity of Ethereum is that this network allows users to write smart contracts, issue their tokens and create their projects.
If bitcoin is a currency unit with relevant narrow functions (means of payment, exchange, storage and accumulation), then Ethereum is a platform that enables the release of almost any projects with limitless functions.
Protocol for issuing tokens on the Ethereum blockchain network.
Fiat currencies are classic money. For example, the U.S. dollar, the Chinese yuan or the euro. Cryptocurrencies are an alternative to the usual fiat money.
Raising money for a specific purpose. For example, for a charity or to launch a project.
Fear, uncertainty, and doubt. Initially, it is a way to influence people's opinions for propaganda, marketing and other purposes. In cryptocurrencies, FUD means strong public concerns about the future state of the market.
The convergence of the gaming industry and emerging Decentralized Finance, which manifests itself in the fact that players can earn. GameFi is inseparably linked to the term Play-to-Earn.
Implementing game elements in processes that are not directly games. For example, it is possible to gamify the performance of work.
A token that is used to manage a decentralized project. By owning the tokens, the project user can, for example, vote with them on priority areas of development, changes in the terms of their services.
A slang term derived from the misspelling of the word 'HOLD'. The meaning of the term is long-term holding of a cryptocurrency asset. This strategy is based on the idea that the asset will eventually grow, even after a long drawdown.
A strong deflationary effect, which is expressed in a rapid increase in the value of the financial asset. This is the opposite of hyperinflation, which depreciates the internal value of, for example, fiat money.
This is the loss a liquidity provider can suffer due to volatility. Suppose a farmer blocked his assets in the pool in order to get a reward. But when the assets were withdrawn from the pool, their value relative to the dollar declined. This is the Impermanent loss, and the reward received may not always compensate for it.
To avoid Impermanent loss, you can invest in pools where both tokens are stabelcoins. But the best way is to be more responsible in choosing a token pool.
Key performance indicator. Metrics used to assess the effectiveness of business processes.
Know Your Client. A policy used worldwide to combat money laundering, tax evasion, and terrorist financing. The idea is that a company must identify a customer before executing his or her financial transaction.
Also known as cryptocurrency incubators. Essentially, these are solutions that allow blockchain projects at the startup stage to raise the funds needed for their development. Typically, this takes the form of an early sale of project tokens (presale) to investors at discounted prices.
The leverage provided to traders/investors. For example, having a capital of $1000 a market participant can use 1:2 leverage to buy 2 times more tokens (or other assets). Thus a market participant gets an opportunity to increase profit, but at the same time he/she bears higher risk. Trading with a leverage is called margin trading.
Lending your money at interest. Lending money to get it back with a profit is an easy way to raise capital that is used in both classic finance and DeFi. For example, you can lend your money to traders for leverage trading.
Liquidity is an exchange term describing how much money is in the market. If many buyers and sellers with large amounts of capital trade in a market, then that market is called liquid. In cryptocurrencies, a liquidity provider is a participant who provides funds to fill the market (liquidity pool) to facilitate a trading process where buyer and seller can always find each other.
Adding an exchange asset to the list of assets supported for trading.
Lockup tokens are blocking tokens (usually temporary, for a limited period of time). Hence, the Lockup period is the period when no actions can be performed with the Lockup token. This is done for long-term sustainability. For example, project managers can lock up tokens to avoid mass sales when the project reaches a certain success.
For example, immediately after a token is listed on a cryptocurrency exchange, many holders are tempted to sell it. Lockups will prevent them from doing so to avoid a collapse in the value of the token.
LP (Liquidity Provider) tokens are distributed among those who provide their funds to the liquidity pool. The number of tokens is proportional to the amount of liquidity provided. LP tokens allow liquidity providers to control their funds, and can also be used for stacking.
Short for Meta Finances. MetaFi is formed as a synergy at the intersection of the game industry, metaverses, DeFi, and DAO.
Widely known service providing free wallets for storing cryptocurrency assets issued on Ethereum blockchain.
Digital 3D worlds in which you can interact with other people (e.g., negotiate, play, trade). Blockchain technology expands the possibilities of metaverses.
In the classical sense, this is mining of cryptocurrency assets using the proof-of-stake (PoS) algorithm. Sometimes this process is called mining, but it is more correct to refer mining to the mining of cryptocurrency assets using the proof-of-work (PoW) algorithm. In a broader sense, minting is the release/creation of any digital asset, such as cryptocurrency or NFT, on a blockchain.
Non-Fungible Token is a blockchain data format used to store objects that exist in singular numbers - for example, paintings, photos, music files, copies of collections. NFTs can be bought and sold, thus forming a market for digital art objects.
Illegal practices aimed at misleading the user and obtaining his personal data - logins, passwords, bank card information. Those who engage in phishing usually act on behalf of trusted brands.
A vault that holds the funds needed to organize the trading of cryptocurrency assets - so that there is always a supply and demand. On a classic exchange, the funds are usually provided by a market maker, such as an investment bank. On decentralized exchanges, liquidity is provided by willing and able participants, for which they receive rewards.
A variant of the name is Seeding Open Sales. This is the stage of early token sales before the Public Sale begins. As a rule, during Presale, a limited batch of tokens is put up for sale at reduced prices. DeFi projects use Presale to attract attention and raise funds for their development. Project organizers usually set limits for participation in Presales.
The early stage of token sales. As a rule, tokens are offered to investors through personal contacts with project creators. Risks are high, prices are as low as possible, almost like at the Seed Round stage. Project organizers usually set limits for participation in Private Sale.
The main and mass sale of tokens of the project after the Private Sale and Presale are completed. At this stage, the project already has ready products, there are standard prices for tokens, and those who wish can freely buy tokens through DEX or CEX.
A blockchain network algorithm that determines the type of validation that occurs when a new block is added to the registry. To approve the addition of a block, the validator needs to have enough cryptocurrency (tokens) in its account.
A blockchain network algorithm that determines the type of validation that occurs when a new block is added to the registry. To approve the addition of a block, the validator needs to perform complex mathematical calculations.
In the field of cryptocurrencies, scams are projects that aim to take over users' funds. A scammer is the creator of a scam project.
The earliest engagement of investors is when the project exists at the idea stage. Investors bear the highest risks, but the rewards are also high. The role of investors is usually played by so-called business angels.
The system of gradual release of tokens into free circulation. The amount released is calculated as a percentage of token lockup balance. The Slow Claim system is designed to stabilize tokenomics, smooth token release peaks, and protect the exchange rate from sharp spikes.
Smart contracts appeared along with the implementation of the Ethereum network. In simple words, they are programs that:
- are stored in the blockchain,
- are triggered when the necessary conditions occur,
- perform predetermined actions, including triggering other smart contracts.
Smart contracts allow to automate processes, make them transparent, eliminate intermediaries, and save time.
A cryptocurrency whose value is fixed at a certain level. Stablecoins are helpful when the high volatility of the cryptocurrency market becomes an issue. Examples of stablecoins are USDT, BUSD, and other assets tied to the value of the U.S. dollar.
The term Staking comes from Proof-of-Stake, one of the consensus algorithms that validators use to verify when adding new blocks to the blockchain network. In order to approve a transaction, a validator must have the funds (Stake) available. And to motivate validators to provide their funds, a reward is given.
Staking, therefore, is a way to receive rewards available to owners of those crypto assets that run on a blockchain with a Proof-of-Stake algorithm. Staking usually takes place through a Staking Pool and can be thought of as an interest-bearing savings account. If you want to benefit from staking, be sure to visit DEX, Staking, Farming
It is the aggregation of funds of those who support Proof-of-Stake networks. Stacking pools increase the power of the network and provide rewards to those who have contributed funds to the pool.
Token exchange. Services, which work on the principle of exchange points, allow you to exchange cryptocurrency/token of one project for another cryptocurrency/token of another project.
A token is a crypto asset. Token is similar to cryptocurrency, but the difference is that token is not a means of money, but rather a pass that allows you to use the services of the project that issued the token.
Tokenomics is a system of rules regulating the circulation of project tokens. When emitting the token needed to realize the project's goals, the founders must think through the number of tokens, their pricing, and ways to protect them from negative influences.
Total Value Locked – this is the sum of all assets deposited in DeFi's decentralized funding protocols. By depositing assets, participants of DeFi projects are able to earn interest, new coins and tokens, and earn a fixed income. The value of TVL indicates the success/popularity of the DeFi project.
Tether USD is a popular stabelcoin whose exchange rate, according to the claims of the issuer, is tied to the U.S. dollar.
This is the status of the token. Utility tokens can:
- provide access to the services of the project that issued this utility token
- provide access to additional functionality
- circulate between users within the project. In some cases, utility tokens can be used outside of the project. For example, DOGE, which with increasing popularity is accepted as a currency for payment for goods and services in different countries of the world.
Vaults (safes) for cryptocurrency assets. Decentralized projects create and use different vaults for different purposes, so that assets do not overlap and are spent for their intended purpose.
Features of safes:
- can be autonomous, manually operated, or hybrid;
- transparency. With a vault address on the blockchain network, anyone can look at the contents and history of transactions.
This is the release of tokens. Hence, the Vesting period is the period during which locked tokens become fully available for trading / withdraw. Chronologically, the Vesting period follows the Lockup period.
WAGMI is a term used in some NFT (non-fungible token) communities that stands for "We're all gonna make it." It is an optimistic phrase that encourages positivity and suggests that everyone will succeed financially in the NFT space, regardless of whether or not that is actually true. The phrase is meant to foster a sense of camaraderie and support within the community.
These are various methods of multiplying cryptocurrency assets. Farmers (those involved in farming) give their assets to liquidity pools, which can be used to provide interest-bearing loans, finance traders, and in more advanced profit-making schemes using smart contracts.
Farmers are rewarded with their share, proportional to the amount of money invested in the liquidity pool.
Farming began to spread with the development of DeFi. It turns out that in an environment of decentralized finance, farmers receive the profits that banks receive in the classical financial system.
Yield farming is also called liquidity mining. Like staking, farming allows owners of crypto assets to earn passive income. Staking and farming are often used synonymously, but they are not. If you want to benefit from farming, be sure to visit DEX, Farming, Staking.