ReferenceDeFi Glossary
Plain-language definitions of the terms behind liquidity provision and self-custodial social investing on Base.
- Impermanent lossis the difference in value between providing two tokens to a liquidity pool and simply holding them, which appears when the tokens prices diverge.
- Concentrated liquidityis a model where liquidity providers commit their capital to a chosen price range instead of the full price curve, earning more fees on the same capital while the price stays in range.
- Self-custodymeans you alone hold the private keys to your crypto, so no exchange or third party can move or freeze your funds.
- Liquidity poolis a smart contract holding a pair of tokens that traders swap against, replacing the traditional order book.
- Liquidity provideris anyone who deposits a pair of tokens into a liquidity pool to enable trading, earning a pro-rata share of the swap fees in return.
- Automated market maker (AMM)is the algorithm a decentralized exchange uses to price swaps from a liquidity pool, commonly the constant-product formula x*y=k, instead of matching orders on an order book.
- Performance feeis a share of the profits a strategy generates, paid to its creator or manager, which aligns their incentives with the investors who follow them.
- DeFi vaultis a smart contract that automates an investment strategy: you deposit, the contract allocates, harvests and compounds, and you withdraw by burning your vault shares.
- Copy tradingis automatically mirroring the trades of another investor in your own account, in proportion to your capital.
- Social investingis investing alongside a community by browsing strategies, following creators, and funding them, rather than picking every position alone.
- Yield farmingis earning rewards by supplying assets to DeFi protocols, typically a mix of trading fees and a protocol governance token.
- Stakingis locking tokens to help secure a proof-of-stake network in exchange for rewards.
- Total value locked (TVL)is the total value of assets deposited in a DeFi protocol or pool, a common gauge of its size and adoption.
- Slippageis the difference between the expected price of a swap and the price actually executed, caused by the trade itself moving the pool price.
- Rebalancingis adjusting a liquidity position price range or asset mix to keep it earning as the market moves.
- Permissionlessmeans anyone can use a protocol directly from their wallet, with no account, approval, or KYC gatekeeper.