DeFi Terms Glossary

The application binary interface — a data encoding standard for interacting with smart contracts. The ABI defines how to call a contract's functions and retrieve data from it.

Trading powered by artificial intelligence. Machine-learning algorithms analyze market data to detect patterns and build predictive models.

An Automated Market Maker — a protocol used by many DEXs. Instead of an order book, an AMM uses liquidity pools to price assets based on a mathematical formula.

A set of tools that allows external programs (trading bots) to interact with an exchange.

A blockchain built for one specific application (for example, the dYdX Chain), which gives it high throughput.

The process of testing a trading strategy against historical market data to assess its potential performance.

A bi-directional AMM — a model (MYX Protocol) aimed at improving capital efficiency for liquidity providers.

A centralized exchange — a traditional trading venue (Binance, Coinbase) operated by a single company that also custodies users' assets.

A decentralized oracle network that supplies smart contracts with reliable real-world data.

A safety mechanism in a smart contract that temporarily halts operations when anomalous price deviations are detected, protecting against manipulation.

A margin trading mode in which all available funds in the account serve as collateral for every open position.

An organization governed collectively by the holders of its governance tokens, who vote on decisions.

An AsterDex feature for MEV protection. It is a hidden order book where transactions are not visible publicly until execution, making front-running impossible.

An ecosystem of blockchain-based financial applications that operate without intermediaries.

A smart-contract-based trading platform that does not custody users' funds.

A hybrid model (Drift Protocol) combining user orders, AMM pool liquidity and Just-in-Time liquidity into one order book.

A fundamental principle of the crypto industry urging you to independently analyze projects before committing funds.

A specific URL within an API to which requests are sent to perform a particular operation.

The guarantee that a blockchain transaction cannot be changed or reversed.

A type of MEV attack in which a bot detects a large trade and places its own order ahead of it to profit from the resulting price movement.

The fee paid to validators for processing a transaction on a blockchain.

The decision-making process in a decentralized protocol, usually through voting by governance token holders.

Hash-based Message Authentication Code. An API security mechanism used to verify the authenticity of requests.

A software crypto wallet permanently connected to the internet. Convenient, but more vulnerable than cold wallets.

A fundraising model in which users purchase new tokens by staking their LP tokens.

Losses experienced by liquidity providers in AMM pools when the prices of deposited assets diverge.

A margin trading mode where each position is allocated a strictly limited amount of collateral. Only that amount is at risk, not the entire balance.

A text-based data interchange format widely used in APIs, built on key-value pairs.

The identity verification process. Most DEXs do not require KYC.

L1 is the base blockchain (Ethereum). L2 is a scaling solution built "on top of" L1 (Arbitrum) that processes transactions faster and more cheaply.

The time it takes for data to be transmitted. In trading, low latency is critical for timely order execution.

A user who deposits assets into a DEX liquidity pool and receives a share of the fees in return.

A liquid staking token (asBNB). A derivative received in exchange for staked assets that can be used in other DeFi protocols.

A maker adds liquidity (places a limit order); a taker removes liquidity (executes a market order). Maker fees are usually lower.

Profit that validators can extract by manipulating the ordering of transactions within a block.

A wallet or smart contract that requires signatures from several independent keys to operate, improving security.

A blockchain's primary token (ETH on Ethereum, BNB on BNB Chain), used to pay gas fees.

On-chain refers to an operation recorded on the blockchain. Off-chain refers to an operation happening outside the blockchain (for example, on a server) for speed and cost savings.

A service that supplies smart contracts with information from the outside world (for example, asset prices).

The list of all open buy orders (bids) and sell orders (asks) for a given asset.

Realized or unrealized profit and loss on a trading position.

Liquidity owned by the protocol itself — assets held and managed by a project's treasury to ensure stable liquidity.

A consensus algorithm in which the right to produce a new block is determined by the share of staked coins.

An oracle network specializing in high-frequency market data delivered on a "pull oracle" model (data is requested on demand).

A restriction on the number of API requests allowed within a given time window to protect servers from overload.

An API type operating on a request-response basis. Suitable for fetching static data or sending commands.

An L2 scaling technology that "rolls up" many transactions into a single batch published on L1, reducing gas costs.

A secret recovery phrase of 12 or 24 words that acts as the master key to your crypto wallet.

A node in an L2 network responsible for ordering transactions before they are submitted to L1.

A penalty imposed on a Proof-of-Stake validator for malicious behavior (part of its stake is burned).

The difference between the expected price of a trade and the price at which it actually executes.

A self-executing program running on a blockchain that contains all of a protocol's rules and logic.

The process of locking tokens to support network operations in exchange for rewards.

A smart contract that introduces a delay between a governance decision on a protocol change and its enactment, giving the community time to audit it.

The total value of assets locked by users in a protocol's smart contracts.

A standard (ERC-1822) that enables upgrading smart contract logic. The upgrade logic resides in the implementation contract itself rather than the proxy.

A participant in a Proof-of-Stake network responsible for validating transactions and producing new blocks.

Smart contracts implementing automated investment strategies to generate compound returns.

A virtual AMM — an architecture where the AMM formula is used for pricing, but no actual asset swap happens inside a pool. This enables leveraged trading.

The next generation of the internet, built on the principles of decentralization, blockchain technology and tokenomics.

An API type that establishes a persistent two-way connection between client and server for receiving real-time data.