Key concepts and terms

We know that the "Lingo" can be hard to keep up with, so we figured we'd help shed some light on some common terms we use in DeFi!

Yield Bearing Token (YBT): A token that accrues interest or returns over time, providing holders with passive income. YBTs are commonly used in DeFi platforms to earn yields from lending, staking, or other financial activities without the need to actively manage the underlying assets.

Liquid Staking Token (LST): A token representing a staked asset that remains liquid, allowing holders to participate in DeFi activities without unstaking.

APY (Annual Percentage Yield): The annualized rate of return earned on an investment, taking into account the effect of compounding interest. In the context of lending protocols, it represents the interest rate earned by lenders on their deposited assets.

Yield Source: A mechanism in DeFi that generates returns on staked or deposited assets, such as lending protocols, liquidity pools, and staking rewards from various projects.

DeFi Strategy: A planned approach to maximize returns on crypto assets using DeFi protocols, involving activities like yield farming, liquidity mining, and leveraging different DeFi products.

Lending Protocol: A DeFi platform that allows users to lend their crypto assets for interest, enabling borrowers to obtain loans with collateral through smart contracts.

Liquidation: The process of selling off collateral assets to cover a loan that is in default. Liquidation occurs when the value of the collateral falls below a certain threshold relative to the loan amount.

Utilization Rate: The percentage of total available funds in a liquidity pool that are currently being borrowed. High utilization rates can lead to higher interest rates for borrowers and lenders.

Borrow Rate: The interest rate that borrowers must pay to take out a loan on a lending platform. This rate can fluctuate based on supply and demand dynamics within the platform.

Rebalancing: Adjusting the composition of a portfolio to maintain a desired allocation or risk level. In DeFi, this involves moving assets between protocols, yield sources, or tokens to optimize performance and manage risk.

Multi-token Approach: An investment strategy involving holding and using multiple types of tokens, like USDC and USDT, to diversify risk and optimize returns. This enhances portfolio stability and provides exposure to various DeFi opportunities.

Collateral: Assets pledged by a borrower to secure a loan. If the borrower fails to repay the loan, the collateral can be seized by the lender.

Deposit: The act of placing assets into a staking or restaking protocol to earn rewards and participate in network security.

Withdrawal: The process of withdrawing assets from a yield-bearing position, typically involving the conversion of liquid staking tokens or other yield-bearing tokens back into the original asset.

Yield Optimisation: A system maximizing return on staked funds by using an automated service that actively compares market rates to optimize yield

Total value locked (TVL): A metric used in the cryptocurrency sector to determine the total U.S. dollar value of digital assets locked, or staked, on a particular blockchain network via decentralized finance (DeFi) platforms or decentralized applications (dApps).

Decentralized Finance (DeFi): Decentralized finance offers financial instruments without relying on intermediaries such as brokerages, exchanges, or banks by using smart contracts on a blockchain.