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15 Popular DeFi Terms Explained

The recent popularity of Decentralized finance has led to an increase in demand for knowledge about it. This article provides 15 useful terms that will help you in that journey.

1. Smart contracts

These are programmed contracts that execute on their own when conditions are met for a transaction. A smart contract contains encrypted data and is impossible to lose or alter the data it stores on the blockchain. They are not legally binding contracts.

2. Liquidity pool

Liquidity in finance means the availability of funds that are ready for any transaction. A liquidity pool is a collection of funds from liquidity providers or investors. These funds are stored in a smart contract and will be used to execute trades and other financial services.

3. Decentralized Exchange (DEX)

A DEx is a peer-to-peer trading platform, which differentiates itself from a Centralized Exchange (CEx). The transactions are executed via automated smart contracts. It is said to be cheaper to transact on it than on a centralized exchange and provides anonymity because it doesn’t require identity verification.

4. Stablecoins

Stablecoins are cryptocurrencies that are pegged to a currency like the US Dollar. It is favored in crypto because of its stable value (e.g 1 USDT = 1 USD) versus other highly volatile altcoins. Examples of stablecoins are Tether (USDT), USD Coin (USDC), and Binance Coin (BUSD).

5. DeFi Aggregator

A DeFi aggregator is a platform that compiles various products from DeFi platforms in one location to allow its users to choose t