--- title: "DeFi Glossary: 60 Essential Terms" description: "A DeFi glossary covering essential terms including AMM, APY, collateral, health factor, liquidity, oracle, slippage, vault, and yield farming basics." canonical: https://www.getswoopr.com/learn/defi-and-yield-farming/glossary/ source: "Swoopr Investment: https://www.getswoopr.com" --- ## Direct Answer > This DeFi glossary defines the terms that appear in decentralized finance interfaces and documentation, from AMM and APY to health factor, oracle, slippage, vault, and yield farming. The entries are educational summaries, and protocols can use the same term differently, so the exact meaning should be confirmed in that protocol's current primary documentation. A term is only useful once it can be connected to a position: which contract calculates or enforces it, which asset it affects, whether governance can change it, and what happens when it crosses a threshold. # DeFi Glossary: Essential Terms Definitions for key decentralized finance terms, from AMM and APY to health factor, oracle, slippage, vault, and yield farming, to support understanding of the DeFi curriculum. ![Open vintage book with eyeglasses resting on a wooden surface, evoking a sense of nostalgia.](https://www.getswoopr.com/images/hero/learn-defi-and-yield-farming-glossary.webp) *Photo by [Melike B](https://www.pexels.com/@mlkbnl/) via [Pexels](https://www.pexels.com/photo/a-black-framed-eyeglasses-on-book-page-12009574/)* ## How to use this glossary Use this glossary to decode common DeFi interfaces and documentation. Definitions are educational summaries. Protocols can use terms differently, so confirm the exact meaning in current primary documentation. A term should not be treated as understood until it can be connected to the position: - Which contract calculates or enforces it? - Which asset or account does it affect? - Can governance change it? - What data source does it use? - What happens when it crosses a threshold? - How does the user monitor and exit? ## A Allowance Permission recorded by a token contract that lets a specified spender transfer up to a defined amount from an owner. AMM Automated market maker; a contract-based market that quotes trades from pool state and a pricing rule. APR Annual percentage rate; a simple annualized rate that normally excludes intra-year compounding. APY Annual percentage yield; an annualized rate that includes an assumed compounding frequency. Arbitrage Trading that seeks to profit from price differences and often moves AMM prices toward external markets. ## B Borrow APY The annualized cost applied to outstanding debt under a protocol's current rate model. Bridge A system that transfers, locks, mints, burns, or communicates asset state between blockchain networks. ## C Collateral An asset pledged to support borrowing or another obligation. Collateral factor A protocol parameter limiting how much borrowing value an asset can support. Concentrated liquidity Liquidity allocated to a selected price range rather than the full possible range. Contract approval A transaction or signature that authorizes a contract to spend tokens under specified terms. ## D DeFi Decentralized finance; blockchain-based applications that perform financial functions through smart contracts and related systems. Depeg A departure from an asset's intended reference value. DEX Decentralized exchange; an exchange protocol that lets users trade through smart contracts without a conventional custodial order-book operator. ## E Emission Creation and distribution of tokens over time, often used as an incentive. ## F Fee tier The swap fee setting applied by a pool or position. Finality The degree of confidence that a blockchain transaction will not be reversed under the network's rules. Front end A website or application that reads data and constructs calls to smart contracts. ## G Gas The unit and fee mechanism used to pay for computation and state changes on certain blockchain networks. Governance The process and authority used to change protocol parameters, contracts, treasury use, or other rules. ## H Health factor A protocol-specific measure comparing liquidation-adjusted collateral with debt. ## I Impermanent loss LP underperformance versus a stated hold benchmark after relative prices change, before adding fees and other effects. Incentive token A token distributed to encourage deposits, borrowing, trading, staking, or another behavior. Invariant The mathematical relationship an AMM attempts to preserve while processing trades. ## K Keeper An external actor or service that triggers contract operations such as harvesting, rebalancing, or liquidations. ## L Liquidation A process that reduces eligible debt by transferring or selling collateral under protocol rules. Liquidation bonus The discount or additional collateral value awarded to a liquidator for repaying debt. Liquidation threshold The collateral ratio or adjusted-value boundary at which a position can become eligible for liquidation. Liquidity The ability to transact or withdraw a quantity without unacceptable delay or price impact. Liquidity pool Assets held by smart contracts and used to support trading, lending, or other protocol activity. Liquidity provider A participant who deposits assets into a pool and receives a claim on its current reserves or a specified range. Loan-to-value Debt value divided by collateral value, often abbreviated LTV. LP token A token representing a liquidity claim in pool designs that use fungible shares. ## M MEV Maximal extractable value; value captured through transaction ordering, inclusion, or exclusion. Multisignature A wallet or control scheme requiring a threshold of multiple signers. ## O Oracle A data system that provides prices or other external information to smart contracts. ## P Permit A signed message that can authorize token spending without a separate approval transaction in supported designs. Position token A token or record representing a protocol claim, debt, vault share, or liquidity position. Price impact The price change caused by a trade consuming finite liquidity. Protocol A set of smart contracts, rules, interfaces, governance, and supporting systems that provides a service. Proxy A contract pattern that delegates calls to changeable implementation logic. ## R Receipt token A token representing supplied assets or another protocol claim. Rebase A token-balance adjustment mechanism that changes balances or supply according to defined rules. Reserve factor The portion of lending interest or other revenue retained by a protocol rather than distributed to suppliers. Reward token A token paid to users for protocol participation. ## S Sequencer A system that orders transactions for certain layer-2 networks. Slashing A penalty that can reduce staked assets for specified validator or protocol failures. Slippage The difference between an expected trade result and final execution. Slippage tolerance The user-defined worst acceptable execution boundary. Smart contract Code deployed to a blockchain that executes state changes under defined rules. Stablecoin A token designed to track a reference asset or unit, using reserves, collateral, algorithms, or combinations. Supply APY The annualized return displayed for supplying assets to a lending market under current assumptions. ## T Timelock A delay between authorizing and executing a governance or administrative action. Tokenomics The supply, distribution, incentives, utility, governance, and value-flow design of a token system. TVL Total value locked; an aggregate estimate of value deposited in a protocol or category. ## U Utilization The share of supplied lending liquidity currently borrowed under a protocol's accounting. ## V Vault A smart-contract strategy that pools deposits and automates operations such as lending, harvesting, or rebalancing. ## W Wallet Software or hardware that manages keys and constructs or signs messages and transactions. Wrapped asset A tokenized representation of another asset, often adding issuer, custody, bridge, or contract dependencies. ## Y Yield Return generated from interest, fees, incentives, staking-related rewards, credit, basis, leverage, or another economic source. Yield farming Combining or moving DeFi positions to earn fees, interest, incentives, or other rewards. ## References - [Ethereum.org: Decentralized Finance (DeFi)](https://ethereum.org/defi/) - [Ethereum.org: Ethereum Wallets](https://ethereum.org/wallets/) - [Ethereum.org: Introduction to Smart Contracts](https://ethereum.org/smart-contracts/) - [Uniswap: Developer Documentation](https://developers.uniswap.org/) - [Aave: Protocol Documentation](https://aave.com/docs) - [SEC Division of Corporation Finance: Offerings and Registrations of Securities in the Crypto Asset Markets](https://www.sec.gov/newsroom/speeches-statements/cf-crypto-securities-041025-offerings-registrations-securities-crypto-asset-markets) - [CFTC: Digital Assets](https://www.cftc.gov/digitalassets/index.htm) ## Educational disclaimer Educational information only; not investment, tax, legal, or personalized financial advice. ## Related Reading - [DeFi & Yield: Free Learning Path](https://www.getswoopr.com/learn/defi-and-yield-farming/) the section this guide belongs to - [DeFi Foundations](https://www.getswoopr.com/learn/defi-and-yield-farming/foundations/) a companion guide in this cluster - [DeFi Lending & Borrowing](https://www.getswoopr.com/learn/defi-and-yield-farming/lending-and-borrowing/) a companion guide in this cluster - [Liquidity Pools & AMMs](https://www.getswoopr.com/learn/defi-and-yield-farming/liquidity-pools-and-amms/) a companion guide in this cluster - [DeFi Risk & Due Diligence](https://www.getswoopr.com/learn/defi-and-yield-farming/risk-and-due-diligence/) a companion guide in this cluster - [Yield Farming & Vaults](https://www.getswoopr.com/learn/defi-and-yield-farming/yield-farming-and-vaults/) a companion guide in this cluster