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Web3 Academy

Glossary

The glossary names the assets, claims, actors, controls, and failure paths used throughout Web3 Academy. Its definitions and links are generated from validated structured entries, so aliases remain searchable without becoming competing sources of truth.

A4 terms

Annual percentage yield

APY

Also known as Annualized percentage yield

An annualized return estimate that includes compounding under stated rate, timing, and reinvestment assumptions.

Traditional-finance analogy
Effective annual rate
Actors
Investor, Product issuer or rate reporter
Risks
  • Variable future rates presented as if they were fixed
  • Omitted fees, losses, dilution, or reinvestment assumptions
Related terminology

Arbitrage

Arbitrage trades related markets when their executable prices differ enough to cover fees, gas, latency, financing, and execution risk.

Read the canonical Arbitrage concept

Traditional-finance analogy
Cross-venue arbitrage
Where the analogy differs
  • Blockchain arbitrage must account for transaction ordering, atomic composition, reverts, gas auctions, block-building, and chain finality.
  • The activity can correct stale AMM prices while transferring value from pool inventory, so price alignment is not costless to liquidity providers.
Actors
Arbitrageur or searcher, Liquidity provider or maker, Trader on the reference venue, Validator, sequencer, or block builder, Lender when flash liquidity or leverage is used
Risks
  • Price convergence before all legs execute
  • Revert, partial fill, latency, censorship, or reorganization
  • Incorrect token, decimal, route, fee, or gas assumptions
  • Front-running and competition for transaction ordering
  • Smart-contract, flash-loan, bridge, or settlement failure
Related terminology

Asset

Also known as Economic asset

An asset is an economic resource or enforceable right that someone controls and expects to preserve, exchange, or use for value.

Read the canonical Asset concept

Traditional-finance analogy
Property or account balance
Where the analogy differs
  • On-chain control of a token may depend on a private key while legal ownership can depend on a separate issuer, custodian, or agreement.
  • Software can transfer a ledger unit without proving that an off-chain right or physical object moved with it.
Actors
Owner or controller, Issuer or obligor when the asset is a claim, Custodian when another party holds the underlying resource
Risks
  • Loss of control credentials
  • Market value loss
  • Custody or issuer failure when control is indirect
  • Legal rights that differ from the ledger representation
Related terminology

Automated market maker

AMM

An automated market maker is a trading mechanism that accepts or rejects exchanges according to a programmed rule over market state and liquidity.

Read the canonical Automated market maker concept

Traditional-finance analogy
Automated dealer or market-making rule
Where the analogy differs
  • An AMM exposes pooled inventory through a public state-transition rule instead of letting a dealer choose each quote using private inventory and risk limits.
  • Different AMMs use different curves, ranges, oracles, auctions, hooks, and fee rules; constant product is one model rather than the definition of every AMM.
Actors
Trader, Liquidity provider, Pool and pricing contracts, Arbitrageur, Governance, hook, or fee administrator
Risks
  • Incorrect invariant, fee, rounding, or reserve accounting
  • Stale pool prices and adverse selection
  • Manipulation of spot prices used by dependent protocols
  • Insufficient depth, inactive ranges, or discontinuous liquidity
  • Callback, hook, reentrancy, governance, or upgrade failure
Related terminology

B1 term

Bridge

Also known as Blockchain bridge, Cross-chain bridge

A bridge carries messages or asset representations between blockchains by verifying a source-chain event and authorizing a corresponding destination-chain action.

Read the canonical Bridge concept

Traditional-finance analogy
Cross-system settlement link and depositary
Where the analogy differs
  • A bridge must reconcile independent consensus and finality systems, and its verifier may be a light client, proof system, validator set, custodian, or other trust mechanism.
  • Destination tokens are new ledger positions or claims; assets do not literally move between isolated chains, and backing can fail independently of the source asset.
Actors
Sender and destination recipient, Source and destination bridge contracts, Relayer, validator, light client, oracle, or proof verifier, Liquidity provider, custodian, guardian, or governance authority when present
Risks
  • Forged, replayed, duplicated, reordered, or incorrectly decoded message
  • Source or destination reorganization, halt, censorship, or finality mismatch
  • Verifier, validator, custodian, guardian, governance, or upgrade compromise
  • Backing shortfall, liquidity exhaustion, delayed withdrawal, or destination depeg
Related terminology

C2 terms

Collateral

Also known as Pledged asset

Collateral is an asset or claim pledged under rules that let a creditor restrict, seize, or sell it when an obligation becomes unsafe or unpaid.

Read the canonical Collateral concept

Traditional-finance analogy
Secured-loan collateral
Where the analogy differs
  • DeFi collateral can be valued and seized by smart contracts and liquidators without a court process, but depends on oracles, liquidity, token behavior, and transaction execution.
  • Overcollateralization lowers some credit risk but does not guarantee that collateral can be sold before its value falls below debt and liquidation costs.
Actors
Borrower or collateral provider, Lender or lending pool, Oracle, Liquidator or auction participant, Governance or risk administrator
Risks
  • Collateral price decline, depeg, or correlation with the debt asset
  • Stale, manipulated, unavailable, or wrongly scaled oracle price
  • Thin liquidity, slippage, congestion, or failed liquidation
  • Custody, transfer restriction, freeze, wrapper, bridge, or issuer failure
  • Incorrect eligibility, factor, decimal, seizure, or release accounting
Related terminology

Composability

Also known as Protocol composability

The ability of protocols to call, hold, or build on one another so separate financial operations can form a larger system.

Traditional-finance analogy
Modular financial infrastructure
Actors
Protocol user, Integrator, Upstream and downstream protocol
Risks
  • Upstream failure propagating into dependent positions
  • Hidden authorization, liquidity, oracle, or upgrade dependency
Related terminology

D4 terms

Decentralized autonomous organization

DAO

Also known as On-chain organization

A group that coordinates proposals, voting, delegation, execution, and administration through on-chain and off-chain governance processes.

Traditional-finance analogy
Cooperative or corporate governance
Actors
Token holder, Delegate, Proposer, Voter, Multisig signer or administrator
Risks
  • Concentrated voting power or low participation
  • Proposal, delegation, execution, or emergency-role failure
Related terminology

Decentralized exchange

DEX

Also known as On-chain exchange

A decentralized exchange is a protocol that coordinates token trades through blockchain transactions rather than a single custodial exchange ledger.

Read the canonical Decentralized exchange concept

Traditional-finance analogy
Securities exchange or electronic trading venue
Where the analogy differs
  • A DEX can combine venue, custody, clearing, and settlement logic in smart contracts, but interfaces, relayers, solvers, sequencers, and administrators may remain off-chain or privileged.
  • DEX designs include order books, automated market makers, auctions, requests for quotes, and intent systems with different counterparties and price formation.
Actors
Trader, Liquidity provider or maker, Router, relayer, solver, or matcher, Protocol governance or administrator, Validator, sequencer, or block builder
Risks
  • Smart-contract, router, allowance, or integration failure
  • Manipulated, stale, or thin market prices
  • Front-running, sandwiching, censorship, or adverse ordering
  • Failed, partial, delayed, or unexpectedly routed execution
  • Malicious tokens, listings, interfaces, solvers, or administrators
Related terminology

Depeg

Also known as Loss of peg, Peg deviation

A stable-value asset depegs when its market or redemption value moves away from the reference price it is designed to track.

Traditional-finance analogy
Currency peg break
Actors
Stablecoin holder, Issuer or protocol, Redeemer, Market maker
Risks
  • Reserve, collateral, issuer, or redemption failure
  • Shallow liquidity and self-reinforcing liquidation
Related terminology

Derivative

Also known as Derivative position

A financial position whose value and settlement depend on another asset, price, rate, index, event, or reference value.

Traditional-finance analogy
Futures, options, and swaps
Actors
Long holder, Short holder, Trading venue or counterparty
Risks
  • Leverage, margin, liquidation, basis, and counterparty risk
  • Incorrect reference price or settlement rule
Related terminology

F3 terms

Finality

Also known as Transaction finality, Settlement finality

Settlement records a state change, while finality describes the confidence that the accepted history will not later be replaced under the network's consensus rules.

Read the canonical Finality concept

Traditional-finance analogy
Securities settlement finality
Where the analogy differs
  • Blockchain finality depends on protocol-specific consensus, validator, timing, and recovery assumptions rather than one legal settlement operator and jurisdiction.
  • Inclusion, successful execution, economic confirmation, and protocol finality can occur at different times and must not be treated as synonyms.
Actors
Transaction parties, Validator or consensus participant, Application choosing a confirmation policy, Bridge, exchange, or custodian relying on settled state
Risks
  • Chain reorganization before the assumed finality point
  • Incorrect confirmation threshold for the asset value or consensus model
  • Consensus halt, conflicting checkpoints, or social recovery
  • Downstream release before source-state finality
Related terminology

Flash loan

Also known as Atomic loan

A flash loan gives a contract temporary control of assets that must be returned with any fee before the same transaction can succeed.

Read the canonical Flash loan concept

Traditional-finance analogy
Intraday credit with delivery-versus-payment settlement
Where the analogy differs
  • The borrowing interval is one atomic transaction and failed repayment reverts state rather than creating an ordinary default collection process.
  • Flash capital can amplify an existing oracle, governance, accounting, or liquidity weakness but is not itself proof that the affected protocol was insecure.
Actors
Flash lender, Initiator, Receiver contract, Integrated exchanges or protocols, Validator, sequencer, or block builder
Risks
  • Callback authentication, initiator, token, amount, fee, or data confusion
  • Reentrancy and unsafe integration during temporary asset control
  • Incorrect repayment approval, pull-versus-push semantics, or fee accounting
  • Amplification of manipulable prices, governance, accounting, or liquidation logic
Related terminology

Funding rate

Also known as Perpetual funding rate

A funding rate determines periodic transfers between long and short perpetual positions under a venue-specific price-alignment or skew rule.

Read the canonical Funding rate concept

Traditional-finance analogy
Financing or carry payment
Where the analogy differs
  • Funding can flow in either direction between traders and is recalculated periodically rather than being a fixed loan coupon.
  • Some venues base funding on price premium, some on market skew, and some route counterparty exposure through a liquidity pool rather than purely peer to peer.
Actors
Long trader, Short trader, Perpetual venue, Oracle or index publisher, Counterparty or liquidity pool
Risks
  • Unexpected rate sign, interval, scaling, cap, or compounding
  • Oracle, index, premium, skew, or mark-price error
  • Persistent basis despite costly funding
  • Margin depletion and liquidation caused by accrued funding
  • Venue or counterparty accounting shortfall
Related terminology

H1 term

Health factor

HF

Also known as Position health factor

A health factor is a protocol-defined ratio or score that summarizes how much liquidation-adjusted collateral supports a borrower's debt.

Read the canonical Health factor concept

Traditional-finance analogy
Collateral coverage or maintenance-margin ratio
Where the analogy differs
  • There is no universal DeFi health-factor formula, threshold, weighting, or safety interpretation across protocols.
  • On-chain scores can change with oracle updates and accrued interest and can trigger permissionless liquidation immediately under configured rules.
Actors
Borrower, Lending pool or creditor, Oracle, Liquidator, Governance or risk administrator
Risks
  • Assuming one protocol's formula or threshold applies elsewhere
  • Oracle, decimal, weighting, e-mode, isolation, or aggregation error
  • Interest or price movement before the next displayed update
  • False comfort from a ratio that omits liquidity and execution risk
Related terminology

I1 term

Impermanent loss

IL

Also known as Divergence loss

Impermanent loss is the value difference between an AMM liquidity position and a stated hold benchmark after relative asset prices change.

Read the canonical Impermanent loss concept

Traditional-finance analogy
Rebalancing shortfall against a buy-and-hold benchmark
Where the analogy differs
  • Impermanent loss is benchmark-relative rather than a complete profit-and-loss measure, and fees or incentives may offset or exceed it.
  • The familiar closed-form expression assumes a full-range, two-asset, constant-product position with no fees; concentrated and other AMMs require different models.
Actors
Liquidity provider, Trader, Arbitrageur, Pool and pricing mechanism
Risks
  • Wrong benchmark, time, fee treatment, or price direction
  • Treating benchmark-relative loss as total realized profit or loss
  • Applying the full-range constant-product formula to concentrated or different curves
  • Token price collapse, inactive ranges, adverse selection, and uncollected costs
Related terminology

L5 terms

Leverage

Also known as Leveraged exposure

The use of borrowed capital or derivatives to create financial exposure larger than the capital supplied by the position owner.

Traditional-finance analogy
Margin financing
Actors
Borrower or trader, Lender or derivatives counterparty, Liquidator
Risks
  • Amplified loss and forced liquidation
  • Funding cost, price gap, and collateral shortfall
Related terminology

Liquidation

Also known as Collateral liquidation, Forced position closure

Lending liquidation repays or assumes unsafe debt and transfers or sells collateral under protocol rules to restore solvency or limit further loss.

Read the canonical Liquidation concept

Traditional-finance analogy
Margin call and collateral foreclosure
Where the analogy differs
  • DeFi liquidation is often permissionless and transaction-driven, with no discretionary cure period unless the contract explicitly provides one.
  • Oracles, DEX liquidity, close factors, bonuses, ordering, and gas determine whether the programmed protection works during stressed markets.
Actors
Borrower, Lender or lending pool, Liquidator, Oracle, Decentralized exchange or auction, Governance, reserve, or backstop provider
Risks
  • Price gaps, stale or manipulated oracles, and rapid collateral decline
  • Insufficient liquidator capital, market depth, or transaction inclusion
  • Incorrect close factor, bonus, fee, rounding, or decimal accounting
  • Over-liquidation, dust, repeated settlement, or collateral over-seizure
  • Residual debt after all recoverable collateral is exhausted
Related terminology

Liquidity

Also known as Market liquidity, Funding liquidity

The ability to trade, redeem, borrow, or withdraw a relevant amount within a required time and loss limit.

Traditional-finance analogy
Market depth and funding capacity
Actors
Trader or redeemer, Liquidity provider or market maker, Protocol or venue
Risks
  • Price impact, slippage, delay, queue, or unavailable exit
  • Liquidity disappearing during correlated demand
Related terminology

Liquidity provider

LP

Also known as Market liquidity supplier

A liquidity provider commits assets to a market-making system and receives a position whose value changes with inventory, fees, prices, and accounting rules.

Read the canonical Liquidity provider concept

Traditional-finance analogy
Market maker or investor in a market-making fund
Where the analogy differs
  • A passive LP can delegate quoting to a public formula while retaining inventory exposure that changes automatically as others trade.
  • The LP position may be a fungible share, a range-specific NFT, or internal accounting and does not guarantee principal, liquidity, or profitable market making.
Actors
Liquidity provider, Trader, Pool or position manager, Arbitrageur, Fee recipient, incentive program, or governance
Risks
  • Impermanent loss, loss-versus-rebalancing, and adverse selection
  • Token price collapse or correlated reserve loss
  • Low volume, insufficient fees, or incentive expiry
  • Range-management, rebalancing, and gas costs
  • Pool, position-manager, accounting, or custody failure
Related terminology

Loan-to-value

LTV

Also known as Loan-to-value ratio

Loan-to-value is the ratio of debt value to collateral value under a stated price, eligibility, and aggregation model.

Read the canonical Loan-to-value concept

Traditional-finance analogy
Mortgage or secured-loan LTV
Where the analogy differs
  • DeFi LTV can change continuously with oracle prices and accrued debt, and protocols may use separate maximum-borrow and liquidation thresholds.
  • Multi-asset systems can apply asset-specific factors and aggregation rules, so one displayed ratio may hide heterogeneous collateral and debt risks.
Actors
Borrower, Lending pool or creditor, Oracle, Governance or risk administrator
Risks
  • Zero or incorrectly valued collateral
  • Price, decimal, unit, eligibility, or aggregation error
  • Confusing maximum LTV with liquidation threshold
  • Interest accrual or price movement between checks and settlement
Related terminology

M2 terms

Margin

Also known as Derivative collateral

Derivatives margin is collateral assigned to support open positions, absorb losses, and satisfy initial and maintenance requirements.

Read the canonical Margin concept

Traditional-finance analogy
Futures margin account
Where the analogy differs
  • On-chain and crypto venues can update collateral value, unrealized profit and loss, and liquidation eligibility continuously from oracle or mark prices.
  • Cross, isolated, and portfolio margin allocate collateral and contagion differently, and smart-contract custody does not guarantee the margin model is complete or solvent.
Actors
Trader, Trading venue or clearing system, Oracle, Liquidator, Insurance fund or backstop, Governance or risk administrator
Risks
  • Collateral price decline and correlation
  • Cross-margin contagion
  • Mark-price or oracle error
  • Incorrect notional, equity, fee, funding, or requirement accounting
  • Withdrawal, transfer, delegation, governance, or custody failure
Related terminology

Maximal extractable value

MEV

Also known as Miner extractable value

Value obtained by choosing, inserting, excluding, or reordering transactions around users' intended blockchain execution.

Traditional-finance analogy
Order-flow and transaction-ordering value
Actors
User, Searcher, Builder, Validator or block proposer
Risks
  • Sandwiching, frontrunning, backrunning, or censorship
  • Execution value transferred away from protocol users
Related terminology

N1 term

Net asset value

NAV

Also known as Net assets

Net asset value is the value of a product's recognized assets minus its recognized liabilities at a stated valuation time and in a stated reporting unit.

Read the canonical Net asset value concept

Traditional-finance analogy
Fund net asset value
Where the analogy differs
  • On-chain NAV may update continuously, only on reports, or through manipulable spot prices rather than under a regulated periodic valuation process.
  • Contract balances alone can omit debt, pending withdrawals, accrued fees, inaccessible assets, unrealized loss, or off-chain legal and custody dependencies.
Actors
Product or vault, Shareholder or depositor, Valuation oracle or reporter, Strategy manager or accountant, Fee recipient, Auditor, governance, or risk authority
Risks
  • Stale, manipulable, missing, or inconsistent prices
  • Omitted debt, fees, pending withdrawals, impairment, or inaccessible assets
  • Unit, decimal, timestamp, rounding, or aggregation error
  • Valuation discretion, governance capture, or delayed loss recognition
  • Confusing modeled NAV, executable redemption value, and secondary-market price
Related terminology

O1 term

Oracle

Also known as Blockchain oracle, Price oracle

An oracle turns selected off-chain or cross-system observations into an on-chain value that smart contracts can read under explicit update and trust rules.

Read the canonical Oracle concept

Traditional-finance analogy
Market-data feed and valuation agent
Where the analogy differs
  • An oracle value can trigger liquidation, minting, settlement, or payout automatically in the same transaction rather than merely informing a human operator.
  • Source markets, reporters, aggregation, feed contracts, chain availability, adapters, units, and fallback authority all become one composable trust path.
Actors
Data source or venue, Reporter, publisher, or oracle network, Aggregator and feed contract, Consuming protocol, keeper, guardian, and user
Risks
  • Stale, delayed, unavailable, manipulated, or incomplete observation
  • Wrong feed, asset, chain, quote currency, decimal, sign, timestamp, or adapter
  • Unsafe aggregation, deviation threshold, fallback, sequencer, or update policy
  • Governance, reporter, publisher, access-control, or upgrade compromise
Related terminology

P3 terms

Perpetual future

Also known as Perpetual futures contract, Perpetual swap, Perp

A perpetual future is a margined derivative that gives long or short price exposure without transferring the underlying asset or having a fixed expiry.

Read the canonical Perpetual future concept

Traditional-finance analogy
Futures contract without an expiry date
Where the analogy differs
  • Funding or another convergence mechanism replaces scheduled expiry and delivery as the recurring link between perpetual and underlying prices.
  • Settlement, margin, counterparty, oracle, insurance, and auto-deleveraging designs differ by venue and can leave traders exposed without owning the referenced asset.
Actors
Long trader, Short trader, Trading venue or clearing system, Liquidity provider or counterparty pool, Oracle, Liquidator or backstop
Risks
  • Leverage and liquidation
  • Funding cost and basis divergence
  • Oracle or mark-price failure
  • Counterparty pool or insurance shortfall
  • Execution, fee, settlement, governance, or auto-deleveraging failure
Related terminology

Primitive

Also known as Financial primitive, DeFi primitive

A reusable financial operation, such as swapping, lending, borrowing, staking, or liquidating, that larger strategies can compose.

Traditional-finance analogy
Financial building block
Actors
Protocol user, Primitive provider, Integrating strategy or product
Risks
  • Incorrect state transition or accounting rule
  • Dependency risk propagated into composed products
Related terminology

Protocol

Also known as DeFi protocol, Smart-contract protocol

A set of smart contracts, financial rules, roles, and dependencies that provides a defined blockchain-based function.

Traditional-finance analogy
Financial market infrastructure
Actors
User, Developer or deployer, Governance or administrator, Integrator
Risks
  • Smart-contract, governance, oracle, liquidity, and integration failure
  • Undisclosed control or dependency boundary
Related terminology

R1 term

Real-world asset

RWA

Also known as Tokenized real-world asset

A real-world asset in DeFi is a token or position linked to an off-chain asset, payment stream, legal right, or regulated financial instrument.

Read the canonical Real-world asset concept

Traditional-finance analogy
Depositary receipt or securitized claim
Where the analogy differs
  • The on-chain token may record transfer while ownership, payment priority, custody, and enforcement remain governed by off-chain documents and law.
  • Smart-contract composability can add protocol and integration risks that the underlying traditional asset does not have by itself.
Actors
Token holder or investor, Token issuer and legal entity, Custodian, trustee, broker, or paying agent, Underlying borrower or asset issuer, Compliance administrator and legal system
Risks
  • Issuer, borrower, or counterparty default
  • Custody, servicing, or banking failure
  • Legal rights that do not follow an on-chain transfer
  • Valuation delay and market illiquidity
  • Transfer restrictions, sanctions, freezes, or forced transfers
  • Mismatch between token supply and off-chain records
Related terminology

S6 terms

Slashing

Also known as Validator slashing

Slashing destroys or confiscates stake and can force validator exit when provable behavior violates a proof-of-stake network's severe-fault rules.

Read the canonical Slashing concept

Traditional-finance analogy
Forfeiture of a performance bond
Where the analogy differs
  • Protocol evidence and deterministic state transitions can impose loss without a court or discretionary claims process.
  • Slashable conduct, penalty amount, correlation effects, whistleblower rewards, exit, and downstream delegation losses vary by network and service.
Actors
Slashed validator operator, Stake owner or delegator, Evidence submitter or whistleblower, Other validators and consensus protocol, Staking pool or liquid-staking holder, Additional service with separate slashing authority
Risks
  • Incorrect, replayed, malformed, or censored evidence
  • Duplicate signing during failover or migration
  • Correlated client, cloud, operator, or key-management failure
  • Ambiguous fault attribution or unsafe slashing authority
  • Loss propagation into pools, claim tokens, collateral positions, and restaked services
Related terminology

Slippage

Also known as Execution slippage

Slippage is the difference between a reference or expected trade price and the price at which the trade actually settles.

Read the canonical Slippage concept

Traditional-finance analogy
Implementation shortfall
Where the analogy differs
  • On-chain slippage can include deterministic curve movement and adversarial transaction ordering in addition to ordinary market movement.
  • A slippage-tolerance control is an execution bound that may cause a revert or partial fill; it is not a prediction of the final price.
Actors
Trader, Counterparty, pool, maker, or solver, Router or settlement contract, Arbitrageur or transaction-ordering actor
Risks
  • Reference price with the wrong time, direction, route, or units
  • Price movement before settlement
  • Front-running, sandwiching, or solver selection effects
  • Tolerance so tight that valid trades fail or so loose that harmful execution succeeds
Related terminology

Stablecoin

Also known as Stable-value token

A stablecoin is a token designed to track a reference value, usually a currency, through reserves, collateral, redemption, or market incentives.

Read the canonical Stablecoin concept

Traditional-finance analogy
Digital cash, deposit claim, or money-market instrument
Where the analogy differs
  • Stablecoin designs use different backing and stabilization mechanisms and do not share one legal status, redemption right, or loss allocation.
  • A secondary-market holder may not have the same direct redemption access as an eligible customer of the issuer.
Actors
Token holder, Issuer or protocol, Reserve custodian or collateral provider, Redeemer or liquidator, Governance or administrator
Risks
  • Reserve, issuer, custodian, or banking failure
  • Collateral price decline and insufficient liquidation
  • Oracle or stabilization-mechanism failure
  • Redemption suspension or ineligibility
  • Secondary-market liquidity loss and price deviation
  • Governance or administrator misuse
Related terminology

Staking

Also known as Proof-of-stake staking

The commitment of assets or stake to support a proof-of-stake network under validation, reward, withdrawal, and penalty rules.

Traditional-finance analogy
Bonded network validation
Actors
Staker or delegator, Validator, Proof-of-stake protocol
Risks
  • Slashing, validator underperformance, and withdrawal delay
  • Protocol, custody, delegation, and price risk
Related terminology

Strategy

Also known as Financial strategy, DeFi strategy

A strategy is an ordered set of financial operations, controls, and rebalancing rules intended to produce a stated outcome from underlying assets and primitives.

Read the canonical Strategy concept

Traditional-finance analogy
Investment mandate and operating playbook
Where the analogy differs
  • Smart contracts can execute parts of a strategy automatically, but keepers, governance, oracles, integrations, and upgrades can still control outcomes.
  • On-chain transparency does not make a strategy profitable, market-neutral, liquid, legally protected, or free from execution and composability risk.
Actors
Capital provider, Strategy designer or manager, Vault, fund, or product contract, Keeper, allocator, or rebalancer, Underlying protocols and counterparties, Governance, risk, or emergency authority
Risks
  • Return source is temporary, subsidized, misunderstood, or insufficient
  • Market, basis, funding, liquidity, leverage, or liquidation loss
  • Oracle, execution, slippage, routing, or rebalancing failure
  • Integration, smart-contract, governance, upgrade, or operator failure
  • Accounting that hides liabilities, fees, dilution, or stranded assets
Related terminology

Synthetic asset

Also known as Synthetic exposure

A synthetic asset is a claim or token designed to reproduce selected price exposure or payoff without giving ownership of the referenced asset.

Read the canonical Synthetic asset concept

Traditional-finance analogy
Swap-backed note or index-linked certificate
Where the analogy differs
  • The on-chain token or position depends on collateral, counterparties, oracles, issuance, redemption, and control rules rather than custody of the referenced asset.
  • Tracking a price does not reproduce voting, income, redemption, legal title, market hours, or every economic feature of the reference.
Actors
Synthetic holder, Issuer or protocol, Collateral or liquidity provider, Oracle, Redeemer, liquidator, or counterparty, Governance or administrator
Risks
  • Oracle and tracking error
  • Collateral, issuer, counterparty, or liquidity shortfall
  • Redemption, settlement, freeze, or market-hours mismatch
  • Governance, upgrade, fee, or parameter misuse
  • Mistaking exposure for ownership or legal rights
Related terminology

T3 terms

Token

Also known as Blockchain token

A token is a programmable ledger entry that represents units a blockchain system can track and transfer.

Read the canonical Token concept

Traditional-finance analogy
Account entry or security certificate
Where the analogy differs
  • A token's transfer and control rules execute through blockchain software.
  • The legal or economic right represented by a token depends on its specific design and issuer.
Actors
Holder, Issuer or protocol, Transfer-rule administrator
Risks
  • Smart-contract failure
  • Issuer or administrator misuse
  • A mismatch between the token and the asset or right it claims to represent
  • Allowance or authorization misuse
Related terminology

Tokenomics

Also known as Token economics

Tokenomics describes how a token's issuance, distribution, supply changes, utility, control rights, and sinks shape economic behavior over time.

Read the canonical Tokenomics concept

Traditional-finance analogy
Capital structure plus incentive and compensation plan
Where the analogy differs
  • One transferable token can combine payment, governance, reward, collateral, and access roles without the legal seniority or disclosure attached to traditional securities.
  • Smart contracts can issue, burn, vest, lock, or redirect supply automatically, while governance or administrator keys may retain power to change those rules.
Actors
Token holder and prospective buyer, Issuer, protocol, foundation, or treasury, Contributor, investor, user, and reward recipient, Governance, minter, vesting controller, or administrator
Risks
  • Dilution, concentrated allocation, insider unlock, or opaque effective supply
  • Utility or demand claims that do not correspond to durable economic use
  • Governance, mint, burn, vesting, bridge, or treasury authority abuse
  • Reflexive rewards that depend on continued token-price appreciation
Related terminology

Total value locked

TVL

Also known as Value locked

A reported valuation of assets deposited in or attributed to a protocol under a stated price, scope, chain, and counting method.

Traditional-finance analogy
Assets under management
Actors
Depositor, Protocol, Analytics or data provider
Risks
  • Double counting layered claims or cross-protocol positions
  • Stale prices, unclear scope, or treating size as proof of safety
Related terminology

V1 term

Vault

Also known as DeFi vault, Smart-contract vault

A vault is an on-chain asset container that accepts or controls assets, applies accounting and access rules, and may deploy capital through one or more strategies.

Read the canonical Vault concept

Traditional-finance analogy
Managed account or pooled investment vehicle
Where the analogy differs
  • A vault is contract infrastructure and does not by itself establish a regulated fund, fiduciary duty, legal ownership structure, custody protection, or investor rights.
  • Code can automate accounting and execution, but governance, keepers, oracles, integrations, upgrades, and emergency powers remain control dependencies.
Actors
Depositor or shareholder, Vault contract, Strategy manager, allocator, or keeper, Underlying protocols and counterparties, Fee recipient, Governance, guardian, or upgrade authority
Risks
  • Strategy, integration, counterparty, market, leverage, or liquidity loss
  • Share, NAV, fee, debt, queue, or rounding-accounting failure
  • Manager, keeper, governance, guardian, pause, or upgrade abuse
  • Oracle manipulation, stale valuation, slippage, or failed execution
  • Withdrawal delay, asset lock, insolvency, or loss socialization
Related terminology

W1 term

Wrapped token

Also known as Wrapped asset

A wrapped asset is a token representation designed to make another asset usable through a different token interface, contract, or blockchain.

Read the canonical Wrapped token concept

Traditional-finance analogy
Depositary receipt
Where the analogy differs
  • Some wrappers are same-chain smart contracts with deterministic conversion, while others rely on custodians, bridges, validators, or issuers.
  • The wrapper can add contract, bridge, liquidity, and governance risks even when the referenced asset itself remains unchanged.
Actors
Wrapper holder, Depositor and redeemer, Wrapper contract, custodian, or bridge, Administrator or verifier when applicable
Risks
  • Wrapper contract or accounting failure
  • Custodian, bridge, or verifier compromise
  • Insufficient or inaccessible underlying assets
  • Redemption pause, delay, or chain incompatibility
  • Wrapped-token liquidity loss
Related terminology