Glossary

A glossary of DeFi terms

A

Alpha

A measurement of an investment strategy's ability to exceed the average growth of the wider market.

B

Beta

A measurement of the systematic risk associated with an investment strategy compared with the risk in the wider market.

Blockchain

A form of distributed ledger technology

Bond

A loan made to a borrower (typically corporate or governmental) over a fixed period in exchange for interest accrued at either a fixed or variable rate.

C

Call Option

A derivative investment contract giving the buyer the opportunity to buy an underlying asset during a specific period of time.

Capital

Financial assets. Businesses generally recognize three types: working capital, equity capital, and debt capital.

Collateralized Debt Protocol

A system governed by smart contracts deployed by MakerDAO enabling users to mint DAI stablecoins in exchange for cryptocurrency held in escrow.

D

Debt Ratio

The proportion of an organization's total debt versus its total assets.

Decentralization

The process by which power is distributed away from an intermediary authority.

Decentralized Finance (DeFi)

An field of application for distributed ledger technologies involving the development of financial products and services that mitigate reliance on central authorities.

Derivative

A financial security whose value is pegged to that of an underlying asset or basket of assets.

Digital Wallet

A piece of software used for storing electronic data.

Distributed Ledger Technology

A system for recording, replicating, and displaying synchronized digital data across a network.

Dividend

A reward distributed to a defined class of shareholders from a portion of a the earnings from a company, mutual fund, or exchange-traded fund.

E

Economics

A social science exploring the production, distribution, and consumption of goods and services from both micro and macroeconomic perspectives.

Equity

The value returned to stakeholders in the hypothetical liquidation of a business.

Exchange-Traded Fund (ETF)

A security involving a collection of securities that track an index.

F

Fiat Money

Government-issued currency backed by faith in the credibility of the issuing government.

Finance

The theory and practice of raising and managing capital for personal, corporate, and public use.

Futures

A derivative financial contract obligating the parties involved to buy or sell an asset at a predetermined price on an assigned date.

G

Game Theory

A theoretical framework for evaluating the outcomes of social situations.

H

Hedge

An investment made to reduce the downside risk associated with a related investment.

Hedge Fund

An alternative investment using pooled funds to employ defined strategies, typically only accessible to accredited investors.

I

Index

A measure of something, typically the change in a securities market.

Index Fund

A type of mutual fund with a portfolio structured to match or track a financial market index.

Inflation

The rate at which the average price of a good or service, or a set of goods and/or services, increases over time.

Interest

The rate a lender charges a borrower for use of their assets expressed as a percentage of the amount borrowed.

Insurance

A contract in which a policyholder receives financial protection or reimbursement against losses in exchange for regular payments.

J

Joint Venture

A business deal where two or more parties agree to share resources to accomplish a defined goal.

K

Keynesian

An economic theory advocating for the active use of government policy to stimulate demand and prevent or fix economic recessions.

L

Leverage

Capital borrowed to expand an investment position.

Liability

A debt owed to another person or organization.

Limit Order

A type of order to buy or sell something at the best available rate above or below a specified price.

Liquidation

The process of closing a business and distributing its assets.

Liquidity

A description of the availability for something to be bought or sold.

M

Margin

Money borrowed to expand an investment position.

Market Index

A hypothetical investment portfolio representing a given segment of the financial market.

Market Order

A type of order to buy or sell something at the best rate currently available.

Money Market

An account enabling the depositor to accrue interest on funds that are lent out to borrowers.

Mutual Fund

An organization that pools money to make investments.

N

Neoliberalism

An economic, political, and social theory favoring economic control by the private rather than public sector.

O

Option

A derivative investment contract giving the buyer the opportunity to buy or sell an underlying asset.

P

Put Option

A derivative investment contract giving the buyer the opportunity to sell an underlying asset during a specific period of time.

Q

Quantitative Easing

A monetary policy in which a central bank purchases government securities (or other securities) to increase the money supply and stimulate lending and investment.

Quantitative Trading

Speculative strategies that involves relying on mathematical computation to identify favorable opportunities.

R

Return on Investment

A measurement of the performance of an calculated by subtracting the current value of an investment from the amount invested and then dividing the total by the amount invested. (Current Value - Amount Invested)/Amount Invested

S

Security

A financial instrument with a monetary value.

Short Selling

An investment strategy that involves speculating on the decline of something.

Smart Contracts

A smart contract is a form of software that creates rules for governing digital transactions. It includes an account, a mechanism for interacting with tokens, bytecode, and data.

Smart contracts play a critical role in the development of DeFi because they help define the ways in which blockchains communicate and interact with the world.

Stop-Limit Order

A type of trade executed at the best possible price after the price has crossed a predefined threshold.

Stablecoin

A type of cryptocurrency whose value is pegged to that of an underlying asset.

T

Trust

A relationship in which one party gives another the right to hold assets for the benefit of a third party, commonly known as a "beneficiary."

U

Underlying Asset

Whatever the price of a financial derivative is based on.

V

Valuation

The process of determining how much something is or will be worth.

Variability

The extent to which a set of data points in a data set differ from the average value of the set.

Variance

A measurement of how far each number lies from every other number in a given set of numbers.

Volatility

A measurement of the variation in the price of something over a given period of time.

W

Warrant

A derivative giving an investor the opportunity to buy or sell something at a given price before the contract expires.

X

Xenocurrency

Money circulating outside of the jurisdiction it was issued in.

Y

Yield

An expression of the returns realized on an investment over a set period of time.

Yield Curve

A line comparing the interest rate of bonds of equal creditworthiness at different dates of maturity.

Z

Zero-Knowledge Proof

A cryptographic method enabling one party to prove its knowledge of something without revealing the secret.