A super brief summary of the chapter
Centralized exchanges (CEXs) are platforms that allow users to buy and sell cryptocurrencies, operating as trustworthy brokers and custodians, keeping and safeguarding your cash
Decentralized exchanges (DEXs) are an alternative to traditional centralized exchanges in which no single entity is in charge of the assets; instead, smart contracts and decentralized apps are used to automate transactions and trades
CeFi vs DeFi
Centralized finance (CeFi) enacts traditional financial services that are facilitated by centralized authorities, whereas decentralized finance (DeFi) operates on a trustless network that's enforced through smart contract technology
Algorithmic Stablecoins
Algorithmic stablecoins are a form of stablecoin that is backed by an on-chain algorithm that facilitates a change in supply and demand between them (the stablecoin) and another cryptocurrency that props them up
An airdrop, as it pertains to cryptocurrency, is a marketing stunt that involves sending coins or tokens to wallet addresses in order to promote awareness of a new virtual currency
Liquidity Pool
Liquidity pools are a collection of tokens or digital assets locked in a smart contract that provide essential liquidity to decentralized exchanges.
Impermanent Loss
Impermanent loss is when the price of assets locked up in a liquidity pool changes after being deposited and creates an unrealized loss (in dollar terms) versus if the liquidity provider had simply held the assets in a crypto wallet
Swapping is an automated mechanism in DeFi for transferring assets by exchanging their existing tokens for new ones
Wrapped Token
Wrapped tokens are assets that allow the value of a native asset from one blockchain to transfer to another blockchain
Arbitrage Opportunities
Crypto arbitrage exploits temporary inefficiencies in asset prices during short intervals when a currency is available at different prices at the same time
The currency is bought on the exchange where the price is lower and sold on exchanges where the price is higher to generate a profit.
Staking is the process of locking crypto assets into a smart contract in exchange for rewards and generating passive income
Yield Farming
Yield farming is a passive income opportunity in which participants, known as liquidity providers, provide liquidity to cryptocurrency exchanges in exchange for rewards generated by transaction fees on a decentralized exhange
Total Value Locked (TVL)
Total value locked (TVL) is the amount of user funds deposited in a decentralized finance (DeFi) protocol
These funds could be vested in the project for several functions, such as staking, liquidity pools or lending
Gas Fee
Gas fees are the charges levied by developers to process transactions on a blockchain –– where the vast majority of DeFi transactions happen
Lending & Borrowing
DeFi lending and borrowing offers innovations in efficiency, access and transparency compared to CeFi
Lenders provide borrowers with funds with the expectation that the borrowed amount is paid back with additional interest for providing immediate access to funds