🔤DeFi Glossary

Automated Market Maker (AMM): A type of algorithm used by DEXs to determine the price of a token based on the ratio of tokens in a liquidity pool. AMMs automatically adjust the price based on supply and demand and do not require a traditional order book.

Liquidity Pool: A pool of tokens that are locked in a smart contract and used to facilitate trading on decentralized exchanges (DEXs). Liquidity providers (LPs) earn a share of the trading fees generated by the DEX in exchange for contributing their tokens to the pool.

Swap: A transaction that involves exchanging one token for another on a DEX. Swaps are facilitated by liquidity pools and are typically executed using an automated market maker (AMM) algorithm.

Yield Farming: A process where users earn rewards in the form of tokens for providing liquidity to a pool or participating in other activities on a DeFi platform. Yield farming is often used to incentivize users to provide liquidity and increase the adoption of a platform.

Decentralized Autonomous Organization (DAO): An organization that operates through a set of rules encoded as a smart contract on a blockchain. DAOs are typically governed by token holders who vote on proposals and make decisions on behalf of the organization.

Impermanent Loss: A type of loss that occurs when the value of tokens in a liquidity pool changes relative to each other. Impermanent loss is a risk that liquidity providers face and is more likely to occur in volatile markets.

Automated Yield Optimization (AYO): A strategy used by DeFi platforms to optimize the yield earned by users on their assets. AYO platforms automatically move user funds between different yield-generating protocols to maximize returns.