DeFi glossary

DeFi is a new battlefield of finance where familiar words wear new armor and many voices argue over the same truth. It begins with decentralized exchanges, or DEXs, which let users trade tokens without a central gatekeeper. Some DEXs use automated market makers, or AMMs, which replace order books with smart contracts that hold liquidity pools. Liquidity pools are reserves of token pairs supplied by liquidity providers, or LPs, who stake equal value of two assets to make markets run. In return LPs receive LP tokens that prove their share and let them reclaim funds later. Those LP tokens can also be moved like units of leverage into other parts of the system to chase higher yields. That practice is called liquidity mining or yield farming. Composability is the reason this works; DeFi pieces fit together like building blocks so one action can feed another action. Yet the terrain bears risks too. Impermanent loss happens when token prices move and a withdrawn position is worth less than simply holding the assets. Slippage is the visible friction when a trade settles at a different price than the one sent to the network. TVL, or total value locked, is the simple headcount of assets pledged across protocols and it helps measure the size and confidence in the field. Governance takes form in DAOs, decentralized autonomous organizations that let token holders vote on rules and changes. dApps are the applications that run these rules and present them to users without a single owner. Lending in this world often requires collateral, which is locked until loans are repaid, while flash loans let borrowers use funds without collateral so long as they return them within the same transaction. Aggregators scan many protocols to find better yields and they move funds to capture efficiency automatically. Arbitrage traders hunt price mismatches between venues and tighten the gaps that appear. All these terms are tools and warnings at once. Learn them slowly. Practice with small sums. Watch transactions and gas costs, and understand how smart contracts mediate every action. Keep custody practices strict and prefer noncustodial wallets where you control keys. Remember that composability is powerful and fragile; a fault in one contract can echo through many. In this new financial theatre the rules are code and the chorus is global, and learning the glossary is the first clear step from confusion to cautious participation.