Terms that people need to know in DeFi

Some people are entering situations like agreeing to licensure agreement of an application without reading the whole terms and conditions of it. That is why some of them are dealing with unwanted penalties or such things in the long run using the application. Luckily, Yield.app wants to educate people about DeFi terms so that we can fully understand what DeFi or Decentralized Finance is all about.

Before we push through to our main topic, we would like you to know what DeFi is for those who are new in this service.

DeFi or Decentralized Finance allows people to store or borrow funds using digital assets such as bitcoin and etherium. Due to our rising technology they now come up with the idea of letting people use or lend digital assets at a fair price and rates, like our traditional banking system. However, the DeFi platform is a game changer for its favorable terms and conditions that our traditional banking system doesn't have. Giving people many opportunities. The most important factor of DeFi is they allow traders to invest more of their cryptocurrencies or assets by the use of what they are calling Market Makers.

DeFi Terms

We list down terms that are commonly used in DeFi to educate new comers and traders for better understanding how DeFi works.

Cryptocurrency

Also known as coins, crypto or token. Cryptocurrency is a digital currency or asset that is used to borrow, lend and trade on any DeFi platforms like yield.app.

Crypto Wallet

Crypto wallet is an individual account that enables users to store, send and receive their tokens or coins.

AML

Anti-Money Laundering or AML is the laws and regulations made to protect users or traders from criminal activities in the digital currency industry.

Collateral

The same as our traditional banking, DeFi requires collateral using cryptocurrencies in order for people to be able to borrow or lend. It’s like putting your house as exchange for bank loans just in case the borrower ran to their responsibility in paying their loans. There is nothing new about collaterals but the good thing here is DeFi impose favorable terms and conditions for people who want to acquire their services.

dApp

dApp or Decentralized Application is the foundation of DeFi. dApp is an application that runs by itself, without middlemen or managers. It allows users to transfer funds by themselves.

DAO

DAO means Decentralized Autonomous Organization. It is a company that doesn’t have any staff nor managers, like dApp. All the happenings inside the organization are fully automated and it can be used or viewed by anyone with the help of open-source computer programming code. DAO is censorship-resistant just like DeFi.

Ethereum

Ethereum is a blockchain like Bitcoin. It is also what normal traders or miners use in DeFi. Ethereum is acting like a library for dApps DeFi industry. Some people are confused about Ether (ETH) and Ethereum, but these two are different.

Gas

These fees are imposed to the “miner” for them to be able to process blockchain transactions. They are placed in the ETH Token. Normally broken down into small accruals that they called Gwei. The more transactions made the higher the gas fees imposed. It helps small trades to be less cost-effective.

Bitcoin Maxis

Believe it or not, there are people who truly believe that Bitcoin is the true cryptocurrency like a new religion in town. These people are called Bitcoin Maxis or Bitcoin Maximalist. They don’t believe in the purpose of DeFi for some reasons.

DEX

Dex or Decentralized Exchange is a type of cryptocurrency exchange that operates like a stock exchange. DEX runs by what they called Smart Contracts”. Smart Contracts carry out rules that traders need to follow and execute trades.

ERC-20

ERC-20 is the set of rules and regulations that Ethereum tokens must follow.

Flash Loan / Quick Loan

Flash loan allows the borrower to take a loan without collateral but it must be repaid within the same block or the transaction will be nullified.

Flash Swaps

Like Flash Loan, Flash Swaps allow users to withdraw tokens and use it instantly before paying it.

ICO

ICO or Initial Coin Offering is the Initial Public Offering (Stock Market term) version of crypto industry.

Lending Rates

Lending Rates or Supply Rates may vary depending on the DEX, tokens and liquidity pool. It allows users to lend and earn annualized returns.

Liquidity Pools

Liquidity Pools are pools of tokens that are available to be exchanged throughout traders.

Smart Contracts

Smart Contracts are agreements between two parties. Allowing two parties to communicate directly without the help of a third-party.

Yield

Yield is an investment that generates earnings.

Yield Farming

Yield Farming is the way of investing tokens to use in a DeFi market productively.

There are some advanced terms in DeFi platforms that are quite complicated and need further research so check those terms. You can also check it inside the DeFi platforms’ website or in some reviews that are related to DeFi.

Conclusion

These are the terms that you might encounter when you enter the DeFi industry. Make yourself sure to be familiarized with these terms in order to have a safe and successful trading. There are some advanced terminologies that you might discover throughout trading in any DeFi platforms that can make you an excellent trader. You can do your own research about different terminologies that are used in DeFi platforms in order to understand what DeFi is all about and how DeFi works for our daily lives. Some DeFi platforms have the same terms but with different meaning or slightly different from one another that can cause confusion and could mislead the reader or traders. We are lucky that Yield.app educates us to know some of their terminologies that can help traders and aspiring traders to understand the pros and cons of DeFi. I can say that DeFi, especially yield.app can be more essential in future because on what is happening in our world especially right now due to the pandemic. DeFi creates a positive impact for those who want to be traders. It’s a great thing that DeFi is invented thanks to our rising technology.

Author Bio

Being a person from a non-technical field, Shreshtha has always tried to focus more on literature to deliver exceptional content from her heart. She is specialized in writing content in the fields ranging from technology to online gaming & casino. Also, she’s been associated with Cryptoknowmics for quite some time and has been delivering top-notch content on topics related to blockchain and cryptocurrencies.