30 DeFi Buzzwords

Random Observation/Comment #700: If you want to feel like a part of the ecosystem, then you’ll need to learn the lingo.

Why this List?

I wrote 30 blockchain buzzwords used by enterprises back in 2016 (and also 30 Smart Cities buzzwords). Now that mainnet is the new buzz, here’s the buzzwords and their definitions of the 2021 trends.

  1. DeFi – decentralized finance (or Democratized Finance, if you’re cool) – It’s a whole set of financial applications built on blockchain (mainly on Ethereum). 
  2. Hodling (Hold On for Dear Life) – This is not a new buzzword, but I do feel like this wave is different. There’s no better long term investment than just buying early and paying yourself a salary off of long term capital gains for tax purposes.
  3. Stablecoins – This is so hot right now since the OCC issued their latest guidance paper allowing commercial banks to settle on stablecoins and blockchain tech. The stablecoin concept adds complex economic balancing mechanisms (mostly run by algorithms and bots) in order to keep a token pegged to a fiat currency value. 
  4. CeFi – Centralized Finance – It’s usually related to crypto tech-first exchanges (e.g. Coinbase, Gemini, Binance, etc) that provide market infrastructure for central order books. I have heard it refer to “traditional finance”. Maybe I’ll start the trend calling it “off-chain finance” or dealing with technical debt on “file cabinet securities”
  5. Decentralized exchanges (DEX) – In short, it’s an exchange run by a smart contract. DEXes were so 2018, but they’re going to be the main area of regulation in the coming months.
  6. Yield farming / Liquidity mining – It’s like the ICO craze all over again. In fact, it’s really just the same thing, but with some new names. As you look for more yield by diversifying over multiple meme tokens, you’ll probably see some ridiculous gains. Strategies for these distributions have been more bullish on funding protocol devs of new platforms rather than creating a token for any random thing.
  7. Automatic Market Makers (AMM) – Instead of the buyer and seller order books in CeFi, you can interact with a smart contract pool, network, or relay of funds called liquidity pools.
  8. Liquidity providers (LPs) – Those who stake in these liquidity pools are called liquidity providers. They’re likely playing multiple angles and often receive rewards from trader fees. 
  9. Non fungible tokens (NFTs) marketplaces / programmable art – NFTs have been around a long time, but collectibles have looked more and more interesting because of their scarcity and uniqueness. The new trend is creating a new wave of digital art and investing in the artists by buying their pieces that forward the ecosystem and community. The programmable side of things could be providing base terms for printing or reuse. More sophisticated art networks could give the artist additional capital if the pieces were reprinted or added to the public market. Check out nonfungible.com for a macro view of the NFT marketplaces.
  10. Gas stations – ETH is computational power and funds the processing of TXs. When it’s used to pay this global computing fee, it’s called gas. As the price of ETH increases, indirectly, so does the cost of running contracts. The latest eip1559 provides some suggestions on how to reduce gas costs by burning. 
  11. ETH2 Bonding Curves / The Internet Bond – ETH2.0 is all the rage because it not only aims to make Ethereum more sustainable and scalable, but it also provides staking benefits to early adopters. A bonding curve shows the price of return vs token supply curve (i.e. more people that stake as a validator will reduce % APR gains).
  12. Layer 2 (L2) solutions like Rollups – Layer 2 is a scaling mechanism that typically provides a separate trusted network of value that settles on top of Layer 1 (mainnet). There are a lot of different mechanisms, but currently Rollups has been promising because of the integration of Zero Knowledge Proofs (ZKPs) for saving and proving completed TXs in a formalized way. At the end of the day, the L2 solution batches TXs and commits them to L1 so they can be verified.
  13. Total value locked (TVL) in protocols – The amount of ETH (or some ETH-wrapped asset) locked in a protocol’s smart contract. I keep track of the protocol-level ETH staking on defipulse.com 
  14. Staking – The underlying design pattern is sending a TX that locks your ETH. The incentive mechanism for doing this with “Staking” is receiving a dividend upside. General gains in the cryptocurrency ecosystem could be the buying and holding of tokens that go up in value from currency pair trading. A passive income strategy like Staking would be closer to a savings account specific to the forwarding of a protocol team’s vision.
  15. DeFi Bridging – Non-Ethereum blockchains (which may have fundraised via an ERC-20 token like Filecoin or Tezos) may want to bridge into DeFi liquidity by locking up funds and creating one-to-one pegged certificates of tokens as wrapped tokens. 
  16. DeFi Gateway – The gateway between fiat and crypto has been well established with crypto exchanges. A DeFi gateway could be a number of APIs that enable traditional financial institutions access to DeFi exposure. This could include a full SaaS platform accounting for gas costs or could simplify the number of protocols and identities.
  17. Aggregators & “Aggs of aggs” – An aggregator looks across multiple liquidity pools to provide the best price for your swap. The “Aggs of aggs” strategy is one used by MetaMask Swaps, which provides a search for the best price across multiple aggregators. 
  18. Swapping & Slippage – If you’re swapping through an aggregator, you may see slippage in prices based on your volume. If you’re trying to buy a million BTC then you will buy up the Ask order book or dry out the liquidity pool forcing a price movement. 
  19. Synthetics – I love this derivative pattern. It provides exposure to assets without directly buying the asset, so you can buy a synthetic based on TSLA stock in the Ethereum ecosystem.
  20. Money Mechanics / Money Legos / Money Blocks / Financial Primitives – I think all of these terms talk about the same thing – Composability. Given the openness of these smart contracts, you can create complex token economic models that take advantage of arbitrage across multiple protocols. It’s a blessing and a curse.
  21. Flash minting or flash loans – One of these new financial primitives could be Flash Loans. This contract allows for any address to take out a loan without collateral as long as it’s repaid within the same block. In itself, the design pattern is fascinating, but there could be exposed weaknesses if you’re able to manipulate low volume markets.
  22. Impermanent loss – If you stake your tokens in a liquidity pool and the price of the deposited asset changes, then you may be exposed to a lower value of your asset when you exit the pool. It’s essentially your downside based on volatility.
  23. Governance tokens / DAO – These Decentralized Autonomous Organizations have been around for a long time (I guess 2016 is a long time in crypto-years), but it’s taken a few years of maturity to actually make them a utility rather than speculation for fundraising. I think governance tokens now have the ability to influence roadmaps and provide a level of democratic voting to the direction of the protocol.
  24. Social tokens – This was a Q4 2020 phase of creating new ways for fan engagement and monetization. The centralized Patreon platform providing subscriptions to lean teams can be rebuilt in a decentralized manner. Your social token represents a full brand and provides artists like Akon, Ja Rule, and Spencer Dinwiddie opportunities to monetize their own network. It’s powerful because it’s up to the creators and their communities to decide how the token will be used and valued. Rather than tokenizing inanimate objects like real estate, why not tokenize careers and fandom?.
  25. Fiat on-ramps – In order to participate in the crypto-verse/crypto-narnia of activities, you’ll need to convert your dollars into the cryptocurrency. You can do this by starting an account with an exchange, going through KYC checks, and connecting your bank account. You can also buy directly in your wallet from a credit card. It has even been made available directly on apps like Square and PayPal.
  26. Rug pulling – If you invest in the smaller / lesser known tokens, there may be some teams that abandon the project or withdraw their funds. A rug pull event would destroy the value of the token and take down all the investors with the exit. Since it’s not a standard investment vehicle governed by KYC or holding periods, the investors are not given any liberty to buy-backs.
  27. Crypto Civilization / Bankless Nation / Crypto Narnia – I am a big fan of this movement. It’s showing how you can start to disconnect yourself from some major entities. Once you can pay your bills and utilities with cryptocurrency, you won’t need to switch back to fiat.
  28. Bull runs / Crypto waves / ALT season / DeFi season – It doesn’t matter what you call it. The hype is real. These waves typically move between BTC-based and ETH-based integrations. ALTcoins often have ERC20 tokens and benefit from the upswing. I often watch the BTC:ETH conversions.
  29. SFYL (Sorry For Your Loss) – A 2018 term coined for those who really lost big. This is inevitable with every cyclic market. Rebalance if you’re over exposed. Invest in experiences.
  30. Shilling – Always Be Shilling. Always be buidling. 

~See Lemons Love DeFi