[Glossary] DeFi & Yield Farming Terms

CryptoKas

Below is a concise yet comprehensive glossary of key terms you’ll encounter in DeFi & Yield Farming discussions. Definitions are clear and practical—ideal for anyone optimizing on-chain income strategies.

DeFi & Yield Farming Basics

DeFi (Decentralized Finance): Financial services—lending, borrowing, trading—powered by smart contracts rather than banks.
Yield Farming: Earning rewards by staking or locking up tokens in DeFi protocols.
APY (Annual Percentage Yield): The effective yearly rate of return including compounding.
APR (Annual Percentage Rate): The simple annual rate of return without compounding.
Liquidity Pool: A smart contract holding pairs of tokens to facilitate trades; providers earn fees.
LP (Liquidity Provider) Token: A receipt token representing your share of a pool’s assets and accrued fees.

Protocol Types

Lending Protocol: Platforms (e.g., Aave, Compound) where you can lend crypto to earn interest or borrow against collateral.
Automated Market Maker (AMM): Algorithms (e.g., Uniswap, Curve) that price assets via constant-product or weighted formulas, not order books.
Yield Aggregator: Services (e.g., Yearn, Autofarm) that automatically move your funds between pools to chase the highest APYs.
Stablecoin Pool: Specialized AMMs for pegged assets (e.g., USDC/USDT) offering lower slippage and steadier returns.
Flash Loan: Unsecured, same-transaction loans that must be repaid before the block ends—enables arbitrage but carries risk.

Yield Metrics & Mechanics

Impermanent Loss: Temporary loss in value compared to holding tokens outright, caused by price divergence in a pool.
Collateralization Ratio: The value of your collateral vs. the value of your loan, usually expressed as a percentage (e.g., 150%).
Liquidation Threshold: The collateral ratio below which your position can be liquidated to repay lenders.
Reward Token: Native or governance tokens paid out as incentives (e.g., COMP, SUSHI, CRV).
Boosting / veTokens: Voting-escrow models (e.g., Curve’s veCRV) that lock tokens to increase your share of rewards.

Risks & Security

Smart-Contract Risk: Potential bugs or exploits in protocol code.
Rug Pull: Malicious withdrawal of liquidity by protocol creators, crashing the pool.
Oracle Risk: Incorrect or manipulated price feeds that a protocol relies on for valuations.
Protocol Hack: Unauthorized exploit draining funds due to vulnerability.
Governance Attack: Malicious governance proposals or vote manipulation that can steal or lock funds.

Tools & Platforms

DeFi Dashboard: Aggregators (e.g., Zapper, Zerion) that show your pool positions, APYs, and earned rewards in one place.
Risk Explorer: Tools (e.g., DeFi Safety, Immunefi) that rate protocol security and audit status.
Gas Tracker: Services (e.g., GasNow, Etherscan Gas Tracker) showing real-time network fees to optimize transaction timing.
Yield Optimizer UI: Interfaces provided by yield aggregators to deposit, harvest, and compound rewards automatically.
On-Chain Explorer: Websites (e.g., Etherscan, BscScan) where you can inspect pool contracts, transactions, and token flows.

Pin this thread as your go-to reference for all things DeFi. Spot a missing term or want real-world examples? Drop a comment below!