A quick-reference glossary of the most important terms in DeFi and crypto as of 2026. Use it as a reference when reading about protocols, tokenomics, or trading strategies.
ABI (Application Binary Interface): The interface specification for a smart contract — defines function names, parameters, and return types. Used to interact with contracts programmatically.
Airdrop: Free token distribution to wallet addresses, typically as a reward for early usage or community participation.
AMM (Automated Market Maker): A DEX mechanism that prices assets using a mathematical formula (e.g., x × y = k) rather than an order book. Uniswap, Orca, and Raydium are AMMs.
APY (Annual Percentage Yield): Returns expressed as a yearly rate, accounting for compounding. Higher than APR when rewards are reinvested.
APR (Annual Percentage Rate): Returns as a yearly rate without compounding. Used in fixed-rate lending contexts.
Bonding Curve: A pricing formula where token price increases with supply. Used in pump.fun launches — buying moves price up along the curve.
Bridge: A protocol that moves assets between two different blockchains (e.g., Solana to Base).
CEX (Centralized Exchange): A trading platform operated by a company (Coinbase, Binance). Custodial — the exchange holds your funds.
CLMM (Concentrated Liquidity Market Maker): An AMM where LPs can provide liquidity in specific price ranges, earning higher fees but taking more active management.
Collateral: Assets deposited as security for a loan in a lending protocol.
Composability: The ability to combine DeFi protocols like building blocks — e.g., using an LP token as collateral on a lending protocol.
DEX (Decentralized Exchange): A non-custodial trading platform where trades happen via smart contracts. Jupiter, Uniswap, and Raydium are DEXes.
DeFi (Decentralized Finance): Financial services built on blockchains using smart contracts — lending, trading, yield farming, derivatives — without traditional intermediaries.
ERC-20: The token standard for fungible tokens on Ethereum and EVM-compatible chains (Base, Arbitrum, Polygon).
FDV (Fully Diluted Valuation): Token price × total supply. The implied market cap if all tokens were circulating.
Fiat: Government-issued currency (USD, EUR, GBP). Not crypto.
Flash Loan: An uncollateralized loan that must be repaid within the same blockchain transaction.
Fork: A copy of an existing protocol or blockchain codebase. Uniswap v2 was forked hundreds of times.
Gas: Transaction fees on EVM chains (Ethereum, Base). Paid in ETH.
Governance Token: A token that gives holders voting rights on protocol parameters.
Health Factor: A ratio in lending protocols showing how safe your collateralized position is. Below 1.0 = eligible for liquidation.
Impermanent Loss: The opportunity cost of providing AMM liquidity vs. holding assets when their price ratio changes.
KYC (Know Your Customer): Identity verification required by regulated platforms (CEXes, some DeFi). Name, address, government ID.
L1 (Layer 1): A base blockchain (Bitcoin, Ethereum, Solana). All transactions settle here.
L2 (Layer 2): A scaling solution built on top of an L1 (Base, Arbitrum, Optimism). Inherits L1 security but faster/cheaper.
Lamport: The smallest unit of SOL. 1 SOL = 1,000,000,000 lamports.
Liquidation: When a borrower's collateral value falls too low, their position is forcibly closed by liquidators.
Liquidity Pool: A smart contract holding paired assets for AMM trading. LPs deposit assets and earn trading fees.
LP Token: A receipt token given to liquidity providers representing their pool share.
LST (Liquid Staking Token): A token representing staked assets (mSOL, jitoSOL) that can be used in DeFi while still earning staking yield.
MEV (Maximal Extractable Value): Profit extracted by reordering, inserting, or censoring transactions in a block. Includes arbitrage and sandwich attacks.
Memecoin: A token with value driven purely by community sentiment and speculation, not fundamentals.
Multisig: A wallet requiring multiple private keys to authorize transactions.
NFT (Non-Fungible Token): A unique on-chain asset — each token is distinguishable from others. Used for digital art, gaming items, credentials.
Oracle: An external data feed providing real-world information (prices, weather, events) to smart contracts. Chainlink, Pyth, Switchboard.
PDAs (Program Derived Addresses): Deterministic Solana addresses derived from a program ID and seeds. Used to hold protocol state.
PnL (Profit and Loss): Your gain or loss on a position or portfolio.
Proof of Stake (PoS): Consensus mechanism where validators lock ("stake") cryptocurrency as collateral to validate transactions. Ethereum and Solana use PoS.
Proof of Work (PoW): Consensus where miners compete to solve computational puzzles. Bitcoin uses PoW.
Protocol: A set of smart contracts forming a DeFi application (e.g., Aave, Kamino, Jupiter).
Rug Pull: A scam where project creators drain liquidity or treasury after attracting user funds.
Sandwich Attack: A MEV strategy where an attacker inserts buy and sell orders around a victim's trade to profit from the price movement.
Seed Phrase: A 12–24 word recovery phrase that derives all private keys for a wallet. Must be kept secret and offline.
Slippage: The difference between the expected and actual execution price of a trade, caused by price movement during transaction processing.
Smart Contract: Self-executing code stored on a blockchain. Automatically enforces agreement terms without intermediaries.
SPL Token: The Solana token standard, equivalent to ERC-20 on Ethereum. Most Solana tokens are SPL tokens.
Staking: Locking tokens in a protocol to earn rewards — either for network security (PoS) or governance/protocol incentives.
Stablecoin: A token pegged to a stable asset (usually USD). USDC, USDT, DAI.
TVL (Total Value Locked): The total assets deposited in a DeFi protocol. A common metric for protocol size and adoption.
Validator: A node that processes and validates transactions in a PoS network. Solana has ~1,500 active validators.
Vesting: A schedule by which tokens unlock over time, preventing immediate selling by team/investors.
Wallet: Software (or hardware) that manages private keys and lets you interact with blockchains. Phantom, Metamask, Ledger.
Wrapped Token: A token representing another asset on a different chain (e.g., WBTC = Bitcoin on Ethereum).
Yield Farming: Actively moving assets across DeFi protocols to maximize returns.
Zero-Knowledge Proof (ZK): A cryptographic method to prove knowledge of information without revealing the information itself. Used in privacy protocols and ZK-rollups.