We’ve put together a basic list of terms in this post to help you understand DeFi-protocols such as: Uniswap, PancakeSwap, 1inch and the like.
Let’s explain them in plain language!
Most of the platforms are in English, so we’ll write several variations of the same terms at once:
- Slippage Tolerance, slippage – if you exchange one token for another via the DeFi protocol, the exchange may not occur at the rate you saw at the time you confirmed the transaction. Slippage is the difference in price between the price at the time of confirmation and the actual transaction price.
- Approve, Enable or Confirm – When you make an exchange or some transaction with tokens (other than ETH, BNB, SOL, MATIC and the like), you need to give the contract permission to use your tokens. For example, if you exchange 10 UNIs for ETH, you can give the protocol permission to exchange all of your UNIs or just some of them.
- Liquidity Pool is a storage of several cryptocurrencies in a smart contract. Some users “stack” certain tokens in the vault so that other users can exchange them using this smart contract. Those who exchange tokens through the pool pay a commission, which is sent to the liquidity providers (the tokens).
- Farms, farming, staking – users who have tokens can send them “to work” and get rewarded for it. It can be compared to a bank deposit: people temporarily freeze their tokens in the protocol and get rewarded for it.
- Claim, Harvest, stigmatize – if you do “farming”, you have to “harvest”. The bounty is not automatically accrued, you have to ask for it. So you have to “brand it” in a separate transaction to pick up the “harvest”.
- Minting is the process of creating new tokens against collateral. In the Maker protocol, for example, you can mint DAI Stablecoins against collateral in ETH. The term is often used synonymously with “branding”, but that’s not true!
- APR and APY – In DeFi, these acronyms stand for approximate annual rate and annual yield. APY is the annual rate including compound interest, APR is the same but without it.
- Automatically compounded (reinvested) – Some protocols, such as Yearn Finance, PancakeSwap, Autofarm, support pools with automatic reinvestment. The user puts their tokens in there > the protocol automatically collects rewards and reinvests them into the same pool. This allows you to automate farming, increase APY.
- Tx deadline, transaction deadline – users can set a transaction deadline after which it is automatically cancelled. This is relevant in the Ethereum blockchain, where some transactions can be severely delayed.