An audit is either an internal or independent comprehensive review of a concept, system, process, company, or product. A comprehensive audit includes a thoughtful and in-depth look at the structure, strengths, weaknesses, and vulnerabilities of the thing or process being audited.
Audits may be either informal or formal audits, and are meant to be a tool to find and analyze weaknesses, so that issues and problems discovered during an audit may be remediated, mitigated, or corrected.
Annual Percentage Yield, a time-based measurement of the Return On Investment (ROI) on an asset. For example, $100 invested at 2% APY would yield $102 after one year, if there is no compounding of any interest earned on that $100 through the year. Assuming a static APY rate, the Monthly ROI would be 0.16%, in this case
An Automated Market Maker (AMM) is a decentralized asset trading pool that enables market participants to buy or sell cryptocurrencies. AMMs are non-custodial and permissionless in nature. Most AMMs utilize either a constant product, constant mean, or constant sum market making formula; however, the most common is a constant product market maker, most notably Uniswap.
Gas fees are rewards paid to Proof Of Work miners to incentivize them to support the network's transactions which become written to the blockchain. In Ethereum, this gas fee unit amount is expressed in gwei. Withdrawals or transfers to or from CEXs, DEXs Liquidity Pools, and Wallets all incur a gas fee. The amount of this gas fee will vary in cost depending on supply and demand. As currently designed: when demand on Ethereum or an ERC-20 network is at its highest, gas fees are at also their highest.
Governance refers to the control and use of a Governance coin, token, and/or project through various measures in order to grow the ecosystem or product, and to maximize gains for governance token holders.
A token used to govern the operations and influence the direction of a coin, token and/or project controlled by the Governance Token. Holding these tokens are often profitable through direct price appreciation of popular governance tokens, but may come with other benefits that are only available to governance token holders and voters. Examples of governance tokens are MKR and YFI.
A program or set of smart contracts that automatically seeks the best lending rates for depositors loaning coins for returns on their investment or ROI.
A Lending Provider is a person or group who provides cryptocurrency capital in exchange for a share of rewards and fees gained by lending out and providing liquidity for various cryptocurrency coins and their respective networks. Loans are provided to traders, investors, exchanges, cryptocurrency networks, DAOs, and CIIs to take advantage of arbitrage opportunities and business opportunities by actors within the CeFi and DeFi space.
An energy efficient form cryptocurrency mining that supports work and transactions on a blockchain usually without expensive application or hardware specific equipment required by older forms of cryptocurrency mining.
Rewards are provided to liquidity providers as a means to incentivize liquidity mining providers, in addition to growing and supporting a blockchain's user base.
In the realm of cryptocurrency and DeFi, this refers to investors who deposit an asset to provide liquidity on an exchange and/or network(s) to gain an ROI on their investment. Investors deposit one or more of their digital assets into decentralized Liquidity Pools (LPs) to provide liquid capital to exchanges and smart contracts. Liquidity Providers often provide two or more types of assets, in which Impermanent Loss is sometimes seen.
A pool of cryptocurrency miners that provides mining services to a cryptocurrency network. Mining Pool operators and contributors are incentivized by a coin or token's programmed mining rewards to support transactions and provide liquidity on a coin's network.
A multiple signature wallet is a cryptocurrency wallet that controls access and changes to one or more Smart Contracts. Community governed projects like a DAO often require multiple signers to approve a transaction before it will be executed. For community based efforts, Multisig wallets for DAOs and DeFi projects are often implemented as 6 of 9 wallets, where 6 of 9 community wallet signers must agree to sign a transaction before a Smart Contract can be implemented.
A non-fungible token (NFT), also known as a nifty, is a special type of cryptographic token which represents something unique; non-fungible tokens are thus not mutually interchangeable by their individual specification. This is in contrast to cryptocurrencies like Zcash, and many network or utility tokens that are fungible in nature.
Return On Investment. The gains or losses on an investment. For example, doubling your investment in an asset would be a 100% gain, or 100% ROI. Losing all of your investment would be a 100% loss, or -100% ROI.
In a trade, there is almost always a spread between the price that a buyer will pay and the price that a seller will sell an asset at. When an order is made, this difference in price between buyer and seller expectations results in price slippage. This slippage in price is usually 1-3%, but can be even more for coins with limited liquidity. This slippage can lead to a final sale price of the asset that is either more or less than the requested transaction amount.
A digital contract that is programmed in a language that is considered Turing complete, meaning that with enough processing power and time, a properly programmed Smart Contract should be able to use its code base and logical algorithms to perform almost any digital task or process. Ethereum's programming languages, such as Solidity and Vyper, are Turing complete.
The act of depositing a cryptocurrency coin or token into a yield farming project and/or protocol, whether the access to the project is either through CeFi or DeFi methods.
Stakers hope to gain interest on their deposits into these yield farming projects and offerings. CeFi is considered safer for a number of reasons - including strict rules, permitting, and regulations. However, DeFi tends to give much high rewards, while being accompanied with much higher risks, the earlier the investor participates in the project's lifecycle, testing, and development.
The act of staking a cryptocurrency deposit to yield farm additional cryptocurrency via CeFi or DeFi staking offerings, programs, or projects.
In investing, a measure of how rapid changes are seen to the price of an asset or market. Newer early stage technology companies and projects in the explosive growth stage tend to see very high volatility in the price of their assets in their early days. Should the company or project behind the volatile asset see their venture survive over time, this volatility tends to be much reduced as the company's market cap grows and matures.
The manual or automatic lending and/or arbitrage of digital assets in order to provide an ROI for lending out or depositing digital assets in CeFi or DeFi. Yield Farming can provide an additional income stream over and above any potential increase in the value of an underlying asset. For a number of reasons - including the ability to make rapid changes, much lower overhead costs, and no regulatory costs - DeFi tends to provide much higher yields when compared to CeFi options.
A programmatically adjusted lending aggregator, arbitrageur, and optimized yield farmer. Yearn smart contracts are considered simpler and lower risk than their yVault counterparts. In comparison, yVault smart contracts are considered more complex and higher risk, but in return tend to yield higher ROI.
An example of a complex strategy that can be accomplished by a yVault using a Turing complete program and Smart Contract is the yETH strategy, described as:
Lending - Where assets are lent out via lenders such as Aave, Compound, and dYdX.
Trading - Assets provided to Uniswap, Balancer, and Curve earn trading fees.
Liquidity incentives - Protocols and markets such as Compound, Balancer, and Curve provide liquidity incentives.
By applying the voting power of governance tokens, the power of delegated funds are used to vote for additional incentive rewards for providing liquidity, which can sometimes be reward multipliers for volume users. These multipliers can greatly enhance the ROI of deposited funds.