Tokenomics Dictionary

129 terms, alphabetically.

51% Attack

A 51% attack occurs when a malicious actor or group gains control of more than 50% of a blockchain network's mining or validating power, allowing them to double-spend tokens or disrupt the network by reversing transactions.

Example. If a miner acquired 51% of Bitcoin's hash rate, they could potentially double-spend coins by reversing their own transactions.

Airdrop

An airdrop refers to the distribution of free tokens to a certain group of people, often to raise awareness, reward early supporters, or incentivize network participation. Tokens are distributed to qualifying wallet addresses.

Example. ABC project conducted an airdrop, distributing 100 tokens to all users who had interacted with the platform before a specific date.

Algorithmic stablecoins

Algorithmic stablecoins are cryptocurrencies designed to maintain a stable value relative to a reference asset (often the US dollar) through algorithmic mechanisms rather than being backed by traditional collateral. These mechanisms typically involve automatically adjusting the supply of the stablecoin based on demand.

Example. An algorithmic stablecoin might mint new tokens when the price rises above $1 and buy back tokens when the price falls below $1, aiming to maintain a stable $1 value.

Atomic swaps

Atomic swaps allow two parties to exchange cryptocurrencies directly across different blockchains without needing a trusted third party or intermediary, using smart contracts to ensure the trade happens securely.

Example. Alice could use an atomic swap to trade her Bitcoin directly for Bob's Litecoin without using an exchange, with the transaction either completing fully for both or not at all.

Automated market makers (AMM)

Automated Market Makers (AMMs) are smart contracts that create liquidity pools of tokens, allowing users to trade against these pools rather than traditional order books. They use mathematical formulas to determine prices based on the ratio of tokens in the pool.

Example. Uniswap, a popular AMM, allows users to swap ETH for DAI by interacting with a smart contract that adjusts prices based on the constant product formula x \* y = k.

Block Confirmation Time

Block confirmation time is the duration required for a transaction to be considered sufficiently final. It often involves waiting for several blocks to be built on top of the block containing the transaction.

Example. Bitcoin transactions are often considered confirmed after 6 block confirmations, which takes about an hour on average.

Block Gas Limit

The block gas limit is the maximum amount of gas (computational power) that can be used in a single block of transactions on a blockchain like Ethereum. It determines the block's capacity to include transactions.

Example. Ethereum's block gas limit as of 2021 is around 15 million gas, allowing for a certain number of transactions or smart contract operations per block.

Block Producer

A block producer is responsible for creating and adding new blocks to a blockchain in systems like Proof of Stake. They validate transactions and receive rewards in exchange for securing the network.

Example. In the EOS blockchain, 21 elected block producers are responsible for creating blocks and maintaining the network.

Block Propagation

Block propagation is the process of distributing newly created blocks to all nodes in a blockchain network. Fast block propagation is essential for maintaining synchronization and preventing forks.

Example. When a Bitcoin miner finds a new block, they quickly propagate it to their connected nodes, who then pass it on to their connections, spreading the new block across the entire network.

Block rewards / Block Subsidy

Block rewards or block subsidy are the incentives given to miners or validators for successfully creating or validating a new block in the blockchain. Block subsidy typically refers newly minted tokens. Block subsidy together with transaction fees make up the entire block reward.

Example. Bitcoin miners receive block rewards every 10 minutes for solving complex cryptographic puzzles and adding new blocks to the chain.

Block Time

Block time is the average time it takes for a new block to be added to a blockchain. Shorter block times mean faster transactions and confirmations, while longer block times slow down the network.

Example. Bitcoin has an average block time of 10 minutes, while Ethereum's block time is around 13-15 seconds.

Bonding Curve

A bonding curve is a mathematical model used to determine the price of a token based on its supply. As more tokens are issued, the price increases along the curve, encouraging early participants to invest.

Example. In a bonding curve, each new token minted might cost 0.1% more than the previous one, creating a predictable price increase as supply grows.

Circulating supply

Circulating supply refers to the total number of tokens currently available and circulating in the market. It excludes tokens that are locked, reserved, or otherwise inaccessible.

Example. If a cryptocurrency has a total supply of 1 million tokens, but 200,000 are locked in team wallets and 100,000 haven't been minted yet, the circulating supply would be 700,000 tokens.

Collateral ratio

Collateral ratio refers to the proportion of collateral required to secure a loan in decentralized finance (DeFi). A high collateral ratio means more collateral is required relative to the borrowed amount to reduce the risk of liquidation.

Example. The lending protocol requires a 150% collateral ratio, meaning users must lock up $150 worth of assets to borrow $100.

Collateralized debt positions (CDPs)

CDPs are a type of loan used in decentralized finance (DeFi) where users lock up cryptocurrency as collateral to borrow other assets, typically stablecoins. If the collateral value falls below a certain threshold, it is liquidated.

Example. Using MakerDAO, Bob locks up $150 worth of ETH as collateral to generate 100 DAI (worth $100), maintaining a 150% collateralization ratio.

Convex voting

Convex voting is a governance mechanism where the voting power increases non-linearly with the number of tokens held or staked. This can give more influence to smaller token holders while still rewarding larger stakeholders.

Example. In a convex voting system, holding 100 tokens might give 100 votes, but 1000 tokens might give 800 votes, reducing the dominance of whale accounts.

Cross-Chain Bridge

A cross-chain bridge allows assets and data to be transferred between two different blockchain networks. These bridges enable interoperability and liquidity movement across multiple chains.

Example. Maria used a cross-chain bridge to move her tokens from the Ethereum network to the Binance Smart Chain without needing to sell and rebuy the assets.

Crypto Derivatives

Crypto derivatives are financial contracts whose value is derived from the performance of underlying cryptocurrencies. Common types of derivatives include futures, options, and perpetual swaps.

Example. A Bitcoin futures contract on CME allows traders to speculate on or hedge against future BTC price movements without holding the actual cryptocurrency.

Crypto Lending

Crypto lending is a service where users can lend their cryptocurrencies to others in exchange for interest payments. Borrowers often provide collateral in the form of other cryptocurrencies to secure the loan.

Example. Using the Aave protocol, Alice might lend 10 ETH and earn 5% APY in interest, while Bob borrows 5 ETH by providing collateral and pays 7% APY.

Decentralized Exchange (DEX) Aggregator

A DEX aggregator is a platform that sources liquidity from multiple decentralized exchanges (DEXs) to offer users the best possible price for their trades by automatically routing them through the most efficient exchange.

Example. 1inch aggregates liquidity from Uniswap, SushiSwap, and other DEXes to offer users the best possible exchange rates for their trades.

Deflationary Pressure

Deflationary pressure refers to market conditions that decrease the circulating supply of a cryptocurrency, potentially leading to an increase in the token's value. Mechanisms like token burning can create deflationary pressure.

Example. Ethereum's EIP-1559 introduces deflationary pressure by burning a portion of transaction fees, potentially reducing ETH's total supply over time if network usage is high.

Delegated Proof of Stake (DPoS)

Delegated Proof of Stake (DPoS) is a consensus mechanism where token holders vote for a small group of trusted validators to secure the network. The chosen validators are responsible for creating new blocks and validating transactions.

Example. In the EOS blockchain, token holders elect 21 block producers who are responsible for creating blocks and maintaining the network.

Delegation

In crypto governance, delegation allows token holders to assign their voting power to another address. This can increase participation in governance by allowing less active holders to have their tokens represented.

Example. Alice, holding 1000 UNI tokens but not actively following governance, might delegate her voting power to a respected community member who regularly participates in Uniswap governance.

Delegator Rewards

Delegator rewards refer to the incentives given to users who delegate their tokens to validators in a Proof of Stake network. Delegators earn a portion of the rewards earned by the validator they support.

Example. In Cosmos, a delegator might receive 90% of the rewards generated by their delegated ATOM tokens, with the validator keeping 10% as a commission.

Dutch auctions

Dutch auctions in crypto start with a high price that gradually decreases until all tokens are sold or a reserve price is met. This mechanism can help find a fair market price and prevent large buyers from dominating the sale.

Example. A new DeFi project might launch its token through a Dutch auction starting at $10 per token, with the price decreasing by $0.10 every minute until all tokens are sold or the price reaches $1.

Economic Majority Attack

An economic majority attack occurs when a malicious actor gains control of the majority of a network's economic power, such as through ownership of tokens or mining power, allowing them to manipulate the network to their advantage.

Example. By acquiring 70% of the tokens in circulation, the attacker carried out an economic majority attack and took control of the network’s governance.

EIP-1559

EIP-1559 is an Ethereum upgrade that introduced a new fee structure, where a portion of transaction fees is burned, reducing ETH supply over time. It also aims to make gas fees more predictable by splitting them into base fees and tips.

Example. Under EIP-1559, when Alice sends an ETH transaction, she pays a base fee that is burned plus a small tip to the miner, making the overall fee more predictable.

Emission Rate

The emission rate refers to the speed at which new tokens are created and distributed into circulation in a cryptocurrency or blockchain network. It influences the inflation and long-term value of the asset.

Example. The emission rate of the XYZ token is set at 1% per year, meaning 1% more tokens are minted annually to incentivize staking.

Exit Scams

Exit scams occur when the creators of a cryptocurrency or DeFi project raise funds through a token sale or liquidity pool and then disappear, taking the investors' funds without delivering on the project's promises.

Example. The founders of a crypto project might claim their wallets were hacked and all funds stolen, when in reality they transferred the funds to their personal wallets.

Fair launch

A fair launch is a token distribution method where all participants have equal opportunity to acquire tokens, without pre-mines, pre-sales, or special allocations. It aims to create a level playing field for all investors.

Example. The cryptocurrency YFI had a fair launch where all tokens were distributed to users who provided liquidity to specific pools, with no tokens reserved for the founders or investors.

Fan token

Fan tokens are cryptocurrencies created by sports teams or entertainment companies, giving holders special privileges like voting on decisions, access to exclusive content, or discounts on merchandise.

Example. Holders of a football club's fan token might be able to vote on the design of the team's jersey or get priority access to ticket sales.

Fee distribution

Fee distribution refers to how transaction or protocol fees collected by a decentralized platform are distributed among participants, often including liquidity providers, stakers, or governance token holders.

Example. A DEX might distribute 0.25% of each trade to liquidity providers, 0.05% to token stakers, and 0.05% to the protocol treasury.

Finality

Finality refers to the point at which a transaction on the blockchain becomes irreversible and fully confirmed. In blockchains with fast finality, transactions cannot be altered or reversed once completed.

Example. Bitcoin has a finality time of six confirmations, meaning a transaction is considered final and irreversible after six blocks have been added to the chain.

Flash Crash

A flash crash is a sudden, deep, and often brief drop in asset prices. In crypto markets, it can be caused by large sell orders, cascading liquidations, or technical glitches.

Example. A large sell order of 100,000 ETH on a major exchange might trigger a flash crash, causing the ETH price to drop 20% in minutes before recovering.

Flash Loan Attack

A flash loan attack exploits the ability to borrow large sums of funds in a single transaction without collateral. Attackers use these loans to manipulate markets or exploit vulnerabilities in DeFi protocols to steal funds.

Example. An attacker might borrow millions in a flash loan, use it to manipulate a price oracle, exploit a DeFi protocol, and repay the loan, all in one transaction.

Flash Loans

Flash loans are uncollateralized loans in decentralized finance (DeFi) that must be borrowed and repaid within a single transaction. If the loan is not repaid in time, the transaction is reversed, and no funds are lost.

Example. Using a flash loan, John borrowed $1 million in a single transaction, executed a profitable arbitrage trade, and repaid the loan, all without needing collateral.

Fractional NFT ownership

Fractional NFT ownership allows multiple users to own a percentage of a non-fungible token (NFT), making high-value NFTs more accessible by dividing ownership into smaller, tradable parts.

Example. A $1 million art NFT could be fractionalized into 1000 shares, each worth $1000, allowing smaller investors to own a piece of the valuable artwork.

Front-running Attacks

Front-running attacks occur when a malicious actor observes a pending transaction and places their own transaction ahead of it in the blockchain to benefit from price changes. These attacks are common in decentralized exchanges.

Example. A miner might see a large buy order for a token in the mempool and insert their own buy order first, then immediately sell at a profit after the large order executes.

Funding rates

Funding rates are periodic payments made between long and short traders in perpetual futures markets. These rates are used to keep the futures contract price close to the underlying asset's price.

Example. If the ETH perpetual future is trading above the spot price, long positions might pay a 0.01% funding rate to short positions every 8 hours until the prices converge.

Gas Token

Gas tokens are cryptocurrencies used to pay for transaction fees on blockchain networks. On Ethereum, ETH is used as gas to pay for the computational power required to execute transactions.

Example. Users need to hold ETH as a gas token to pay for transaction fees when sending funds or interacting with smart contracts on the Ethereum network.

Governance attack vectors

Governance attack vectors refer to strategies used to exploit weaknesses in a blockchain's governance model, allowing malicious actors to take over decision-making processes, often by acquiring a large number of governance tokens.

Example. A malicious actor might take out a flash loan to temporarily acquire a large number of governance tokens, vote on a proposal that benefits them, and then return the loan, all in a single transaction.

Governance Proposal

A governance proposal is a formal suggestion put forward by token holders or community members for changes or improvements to a decentralized protocol. These proposals are voted on by the community using governance tokens.

Example. A MakerDAO governance proposal might suggest adjusting the stability fee for DAI to maintain its peg to the US dollar.

Governance Token

A governance token gives holders voting rights and influence over the decisions that shape the direction of a decentralized platform or protocol. The more tokens one holds, the more voting power they typically have.

Example. ABC token holders use their governance tokens to vote on proposals, such as adjusting protocol fees or adding new features to the platform.

Governance Voting Period

Governance voting period refers to the time window during which token holders can vote on proposals that impact the protocol. After this period ends, the votes are tallied, and the result is implemented.

Example. The governance voting period for the proposal to reduce transaction fees lasted 7 days, allowing all token holders ample time to cast their vote.

Hard Cap

A hard cap refers to the maximum amount of funds that a cryptocurrency project will accept during a fundraising event such as an ICO or token sale. Once the hard cap is reached, no more funds are collected.

Example. The ICO had a hard cap of $10 million, and once that limit was reached, the token sale was closed to further investors.

Impermanent loss

Impermanent loss occurs when the price ratio of tokens in an AMM liquidity pool changes, causing the dollar value of the deposited assets to be less than if they were held separately. It's called "impermanent" because the loss can be reversed if prices return to their original ratio.

Example. Alice provides ETH and DAI to a 50/50 Uniswap pool. If ETH price doubles relative to DAI, she would have been better off holding the assets separately due to impermanent loss.

Initial DEX offering (IDO)

An Initial DEX Offering (IDO) is a token offering conducted on a decentralized exchange (DEX). It allows projects to launch tokens and raise funds in a decentralized manner, often with lower barriers to entry compared to centralized exchanges.

Example. The ABC project launched its IDO on a DEX, allowing users to purchase tokens and immediately trade them in a decentralized manner.

Initial exchange offering (IEO)

An IEO is a fundraising event where tokens are sold directly on a cryptocurrency exchange. The exchange acts as a middleman, ensuring compliance and providing a secure platform for investors to purchase tokens.

Example. XYZ project raised $2 million through an IEO on a popular cryptocurrency exchange, allowing users to purchase tokens directly through the platform.

Initial liquidity offerings (ILOs)

Initial liquidity offerings are a token launch mechanism where projects provide their own liquidity to decentralized exchanges, often paired with another asset. This can help establish initial trading and price discovery.

Example. A new DeFi project might conduct an ILO by providing $1 million worth of their new token paired with $1 million worth of ETH to a Uniswap pool, allowing immediate trading after launch.

Liquid Staking

Liquid staking allows users to stake their assets and still maintain liquidity by receiving tokenized versions of their staked assets. These tokens can be traded or used in DeFi while earning staking rewards.

Example. When staking ETH in Ethereum 2.0 through Lido, users receive stETH tokens that represent their staked ETH and can be used in DeFi protocols.

Liquidation cascades

A liquidation cascade occurs when multiple positions are liquidated in quick succession, often due to a sharp drop in asset prices. This can lead to further price declines and trigger more liquidations.

Example. A sudden 10% drop in ETH price might trigger liquidations, further driving down the price and causing a cascade of liquidations across various DeFi lending platforms.

Liquidation mechanisms

Liquidation mechanisms refer to the processes by which a protocol automatically sells or liquidates collateralized assets when certain conditions, such as loan-to-value thresholds, are breached.

Example. When the price of Ethereum drops and the collateral in a DeFi loan falls below the required ratio, the protocol’s liquidation mechanisms sell off the collateral to repay the loan.

Liquidation thresholds

Liquidation thresholds are predetermined levels at which a DeFi protocol will forcibly close a user's position to protect the system from insolvency. When the collateral value falls below this threshold, the position is liquidated.

Example. A lending protocol might set a liquidation threshold at 120% collateralization, meaning any loan that falls below this ratio will be automatically liquidated.

Liquidity bootstrapping pools (LBPs)

LBPs are a method of launching a token sale where the token price starts high and gradually decreases over time. This encourages fairer participation by allowing users to wait for a more favorable price before purchasing.

Example. A new project might launch its token through an LBP, starting with a 96:4 project token to stable coin ratio, which adjusts to 50:50 over 72 hours as the price discovers its market equilibrium.

Liquidity fragmentation

Liquidity fragmentation occurs when trading of an asset is spread across multiple platforms or pools, potentially leading to less efficient pricing and higher slippage. It can be a challenge in decentralized finance due to the proliferation of DEXes and AMMs.

Example. If trading for the ETH/USDC pair is split between Uniswap, SushiSwap, and Balancer, each pool may have less depth, potentially leading to higher slippage for large trades.

Liquidity Incentives

Liquidity incentives are rewards given to users who provide liquidity to decentralized exchanges or other DeFi protocols. These rewards often come in the form of tokens or a share of transaction fees.

Example. A new DEX might offer 100 tokens per day, distributed proportionally among liquidity providers, to encourage users to deposit assets into its trading pools.

Liquidity pools

Liquidity pools are smart-contract-based token reserves used in decentralized exchanges and lending protocols. Users deposit assets into these pools to facilitate trading or borrowing, often earning fees or rewards in return.

Example. A Uniswap ETH/USDC pool might contain $10 million worth of ETH and $10 million worth of USDC, allowing users to trade between these tokens.

Market Capitalization

Market capitalization (market cap) is the total value of all circulating tokens of a cryptocurrency. It is calculated by multiplying the current price of the token by its circulating supply.

Example. If Bitcoin has a circulating supply of 19 million BTC and each BTC is worth $50,000, its market capitalization would be $950 billion.

Maximum supply / Max supply

Maximum supply refers to the highest number of coins or tokens that will ever exist for a particular cryptocurrency. This is often hard-coded into the protocol and cannot be exceeded.

Example. Bitcoin has a maximum supply of 21 million coins, meaning that no more than this amount will ever exist.

Miner Extractable Value (MEV)

MEV refers to the maximum value that miners or validators can extract from users by manipulating the order and inclusion of transactions within a block. It includes activities like front-running and arbitrage.

Example. A miner might reorganize transactions in a block to capture arbitrage opportunities between decentralized exchanges, extracting value that would otherwise go to regular traders.

Minimum Staking Requirement

Minimum staking requirement is the smallest amount of tokens a participant must lock up to become a validator or participate in staking on a Proof of Stake blockchain.

Example. Ethereum 2.0 requires a minimum of 32 ETH to become a validator, while Cardano allows staking with no minimum through stake pools.

Multi-sig Wallet

A multi-sig (multi-signature) wallet requires multiple private keys to authorize a transaction. It is often used for enhanced security, requiring approval from multiple parties to move funds.

Example. A DeFi protocol's treasury might use a 4-of-7 multi-sig wallet, requiring agreement from at least 4 out of 7 designated key holders to move funds.

Network Congestion

Network congestion occurs when a blockchain network becomes overloaded with transactions, leading to slower confirmation times and higher transaction fees as users compete to get their transactions processed.

Example. During a popular NFT mint on Ethereum, network congestion might cause gas prices to spike to 1000 gwei, making simple transactions prohibitively expensive.

Off-chain Governance

Off-chain governance refers to decision-making processes that occur outside of the blockchain. These discussions and decisions are made by community members, developers, or teams, and the changes are later implemented on-chain.

Example. Ethereum's governance often involves off-chain discussions on forums and GitHub, with core developers implementing agreed-upon changes.

On-chain Governance

On-chain governance refers to decision-making processes that occur directly on the blockchain, typically through voting mechanisms encoded in smart contracts. It allows for transparent and verifiable protocol upgrades.

Example. Tezos uses on-chain governance where XTZ holders can vote on protocol upgrade proposals, with successful proposals automatically implemented.

Open interest in crypto derivatives

Open interest refers to the total number of outstanding derivative contracts, such as options or futures, that have not yet been settled. High open interest indicates significant market activity and interest in the underlying asset.

Example. If the open interest for Bitcoin futures on a platform suddenly doubles, it might indicate increased speculative activity and potential for larger price swings.

Oracles

Oracles are services that provide external, real-world data to blockchain smart contracts. They enable smart contracts to interact with off-chain data like price feeds, weather conditions, or election results.

Example. Chainlink oracles might provide the current ETH/USD price to a DeFi lending protocol, allowing it to accurately value collateral and determine if loans need to be liquidated.

Order Book Depth

Order book depth refers to the number of buy and sell orders at various price levels in a market. A deeper order book means more liquidity, making it easier to execute large trades without significant price slippage.

Example. A Bitcoin exchange with many orders clustered near the current price and significant volume up to 5% above and below the current price would be considered to have good order book depth.

Perpetual futures in DeFi

Perpetual futures are financial contracts that allow traders to speculate on the future price of assets without having an expiry date. In DeFi, perpetual futures are commonly traded on decentralized platforms.

Example. On a decentralized derivatives platform, Alice opens a long position on ETH perpetual futures with 10x leverage, paying or receiving a funding rate every 8 hours to maintain her position.

Ponzinomics

Ponzinomics is a pejorative term used to describe tokenomic models that rely heavily on continuous new investment to sustain returns for earlier investors, similar to a Ponzi scheme. It often involves unsustainable high yields or token valuations.

Example. A DeFi protocol offering 1000% APY through token emissions, where the token's value is primarily derived from new users buying in to earn the high yields, might be accused of Ponzinomics.

Prediction markets

Prediction markets are platforms where participants can buy and sell contracts based on the outcome of future events. Prices in these markets represent the collective probability of an event occurring.

Example. On the ABC prediction market, users can bet on the outcome of a political election, with the market price reflecting the odds of a particular candidate winning.

Price Discovery

Price discovery is the process through which the market determines the fair value of an asset based on supply and demand. It happens in real-time on exchanges where buyers and sellers interact.

Example. When a new token is listed on a decentralized exchange, traders buy and sell based on their valuations, eventually reaching a market consensus on the token's price.

Proof of Authority (PoA)

Proof of Authority (PoA) is a consensus mechanism where a small number of trusted validators are pre-approved to validate transactions, ensuring fast block creation while maintaining centralization.

Example. The private blockchain used Proof of Authority, allowing a few authorized validators to approve transactions quickly and efficiently.

Proof of Stake (PoS)

Proof of Stake (PoS) is a consensus mechanism where validators are selected to create new blocks based on the number of tokens they have staked. Validators earn rewards for securing the network without needing energy-intensive mining.

Example. In Ethereum 2.0's PoS system, validators must stake 32 ETH to have a chance of being selected to propose and validate new blocks.

Proof of Work (PoW)

Proof of Work (PoW) is a consensus mechanism where miners compete to solve complex mathematical puzzles to validate transactions and secure the blockchain. The winner is rewarded with newly minted tokens and transaction fees.

Example. Bitcoin uses Proof of Work, where miners solve cryptographic puzzles to create new blocks and earn rewards in BTC.

Protocol-owned liquidity

Protocol-owned liquidity refers to liquidity pools or assets that are owned and controlled by a DeFi protocol itself, rather than external liquidity providers. This can provide more stable liquidity and generate revenue for the protocol.

Example. The Olympus DAO uses bond sales to accumulate protocol-owned liquidity, which it then uses to back its OHM token and generate yield for the treasury.

Quadratic funding

Quadratic funding is a method for allocating funds to public goods or community projects. Contributions are matched by a central pool, with the matching amount increasing quadratically based on the number of individual contributors.

Example. In a quadratic funding round, a project receiving 100 contributions of $1 each might receive more matching funds than a project receiving a single $100 contribution.

Quadratic voting

Quadratic voting is a governance mechanism where the voting power of participants increases non-linearly with the number of tokens they hold, giving smaller stakeholders more influence compared to traditional voting systems.

Example. In a quadratic voting system, casting 1 vote costs 1 token, 2 votes cost 4 tokens, 3 votes cost 9 tokens, and so on, allowing users to concentrate their voting power on issues they care most about.

Real-world assets (RWA)

Real-world assets in crypto refer to tokenized versions of physical or traditional financial assets. This can include real estate, commodities, stocks, or bonds represented on a blockchain.

Example. Tokenized real estate allows investors to buy and trade fractional ownership of a property, using blockchain technology to ensure transparency.

Rebasing

Rebasing is the process of adjusting a cryptocurrency’s supply to maintain its price peg. In a rebase, the total supply of the token is expanded or contracted, but the value of each token remains stable relative to a target price.

Example. If an algorithmic stablecoin is trading at $1.10, a rebase might increase everyone's token balance by 10%, aiming to bring the price back to $1.

Reflexivity in crypto markets

Reflexivity in crypto markets refers to the phenomenon where market participants’ expectations can influence the value of a cryptocurrency, creating feedback loops where price movements become self-fulfilling.

Example. As Bitcoin's price rises, more investors may buy in due to fear of missing out, further driving up the price and attracting even more buyers in a reflexive cycle.

Revenue sharing models

Revenue sharing models in crypto involve distributing a portion of a protocol's or project's income, such as transaction fees or earnings, to token holders or participants in the ecosystem.

Example. A DeFi lending protocol might distribute 50% of its interest revenue to holders of its governance token who have staked their tokens.

Reward Halving

Reward halving is a pre-programmed event in some cryptocurrencies where the block reward is cut in half at regular intervals. This reduces the rate of new coin issuance over time.

Example. Bitcoin undergoes a halving event every four years, reducing the mining rewards from 12.5 BTC to 6.25 BTC.

Risk-adjusted yields

Risk-adjusted yields take into account the potential risks associated with earning a particular yield, not just the nominal return. This metric helps investors compare opportunities with different risk profiles.

Example. While protocol A offers 20% APY and protocol B offers 10% APY, the risk-adjusted yield of B might be higher if it has significantly lower smart contract and market risks.

Rug pull

A rug pull is a type of scam where developers of a cryptocurrency or DeFi project abruptly withdraw all the funds from liquidity pools or contracts, leaving investors with worthless tokens.

Example. The developers of a new DeFi project might drain the liquidity pool of $10 million worth of ETH and disappear, leaving investors with worthless tokens.

Security tokens

Security tokens represent ownership or rights to a financial asset, similar to traditional securities like stocks or bonds, but in a tokenized form on the blockchain. These tokens are subject to regulatory oversight.

Example. The XYZ token is a security token because it represents shares in the XYZ company and pays out dividends to token holders.

Seigniorage

Seigniorage refers to the profit made by issuing a currency, especially when the cost to produce a token is lower than its market value. In crypto, seigniorage is often associated with algorithmic stablecoins that create tokens at a cost and sell them at market value.

Example. If an algorithmic stablecoin is trading at $1.10, the protocol might mint new tokens and sell them for $1.10 each, earning $0.10 per token as seigniorage profit.

Slashing

Slashing is a mechanism in Proof of Stake (PoS) blockchains where validators lose part of their staked tokens as a penalty for malicious behavior or failing to perform their duties, like double-signing or being offline.

Example. If a validator on the Ethereum 2.0 network signs two different blocks for the same slot, they might face slashing and lose 1 ETH from their stake.

Soft Cap

A soft cap is the minimum amount of funds a project aims to raise during a fundraising event. If the soft cap is not met, the project may not proceed, and investors could be refunded.

Example. The project set a soft cap of $2 million, which they needed to raise to start development. If they didn't meet this goal, the funds would be returned to investors.

Staking

Staking involves locking up cryptocurrency tokens to support network operations, often in proof-of-stake systems. Some protocols allow staking even outside of the context of network security. Stakers typically earn rewards for their participation in securing the network.

Example. By staking 1000 ADA tokens in the Cardano network, Bob earns a 5% annual yield while helping to validate transactions and secure the blockchain.

Staking derivatives

Staking derivatives are tokenized representations of staked assets, allowing users to earn staking rewards while still being able to trade or use their staked assets in other decentralized finance (DeFi) protocols.

Example. Alice stakes 10 ETH in Ethereum 2.0 and receives 10 stETH (staked ETH) tokens, which she can then use in DeFi protocols while her original ETH remains staked.

Staking Pools

Staking pools are collective groups where multiple participants combine their tokens to increase their chances of being selected as validators in a Proof of Stake network. Rewards are distributed proportionally among participants.

Example. A Cardano staking pool might allow ADA holders with less than the required amount to stake individually to pool their tokens and share rewards.

Staking ratio

The staking ratio refers to the percentage of the total token supply that is currently being staked in a network. A high staking ratio indicates more tokens are locked up, reducing the circulating supply.

Example. If 60 million out of 100 million total tokens are staked in a proof-of-stake network, the staking ratio would be 60%.

Staking rewards / Staking Yield

Staking rewards or yield refer to the returns earned by cryptocurrency holders for locking up (staking) their tokens. They are typically distributed as additional tokens or coins and are calculated based on the staked amount over a given period.

Example. Let's say Ivan stakes 1000 tokens of cryptocurrency XYZ for one year with an annual yield of 5%. At the end of the year, Ivan would receive 50 additional XYZ tokens as his staking reward.

Sybil Attack

In a Sybil attack, an attacker creates multiple identities to gain disproportionate influence over a network. This can potentially manipulate consensus mechanisms or governance systems.

Example. An attacker might create thousands of nodes on a blockchain network to try to influence the consensus process or spam the network with transactions.

Synthetic assets

Synthetic assets are tokenized representations of real-world assets, such as stocks or commodities, that are created on a blockchain. They allow users to gain exposure to these assets without actually owning them.

Example. A synthetic gold token might be created on Ethereum, allowing users to gain exposure to gold price movements without owning physical gold or leaving the blockchain ecosystem.

Synthetic Stablecoins

Synthetic stablecoins are algorithmically controlled cryptocurrencies designed to maintain price stability without being backed by physical assets. Instead, they rely on financial incentives or smart contracts to maintain their peg.

Example. XYZ protocol’s synthetic stablecoin maintains its $1 peg through a rebase mechanism, where the supply is adjusted based on demand.

Time-locked governance

Time-locked governance refers to the practice of locking governance proposals for a certain period before they can be executed. This gives token holders enough time to review and, if needed, counter the proposal.

Example. A DeFi protocol might require that all passed governance proposals wait for 48 hours before execution, allowing users time to review and respond to upcoming changes.

Time-weighted average price (TWAP)

TWAP is a pricing mechanism that calculates the average price of an asset over a specified time period. It's often used in DeFi to provide manipulation-resistant price feeds.

Example. A decentralized exchange might use a 24-hour TWAP for the ETH/USDC pair to determine the exchange rate for a large trade, mitigating the impact of short-term price volatility.

Token Auction

A token auction is a fundraising mechanism where tokens are sold to participants through an auction process. Prices can vary based on demand, and tokens are often allocated to the highest bidders.

Example. The Gnosis protocol used a Dutch auction for its token sale, where the price started high and gradually decreased until all tokens were sold.

Token burning

Token burning is the process of permanently removing a certain number of tokens from circulation by sending them to an inaccessible address, thereby reducing the total supply. This is often done to create scarcity and drive up the value of remaining tokens.

Example. A cryptocurrency project may burn 1 million tokens after reaching certain milestones, making the remaining tokens more scarce and potentially increasing their value.

Token deflation

Token deflation refers to a decrease in the circulating supply of a cryptocurrency over time. This can be achieved through mechanisms like token burning, where tokens are permanently removed from circulation.

Example. A DeFi protocol might burn 0.1% of all tokens used in transactions, gradually reducing the total supply over time.

Token distribution / Token Issuance

Token distribution or issuance refers to the process of allocating newly created tokens to various stakeholders in a cryptocurrency ecosystem. This includes initial allocations to founders, investors, and community members, as well as ongoing issuance through mechanisms like mining or staking rewards.

Example. A new blockchain project might distribute its initial token supply as follows: 20% to founders (vested over 4 years), 30% to early investors, 30% for community incentives, and 20% reserved for future development.

Token engineering

Token engineering is the process of designing and optimizing the economic model of a cryptocurrency token, including its distribution, incentives, supply dynamics, and overall ecosystem.

Example. A token engineer might design a system where users stake tokens to earn voting rights, with rewards for consistent participation to encourage long-term engagement.

Token inflation

Token inflation refers to the increase in the circulating supply of a cryptocurrency over time. This can occur through various mechanisms such as mining rewards, staking rewards, or programmed token releases.

Example. If a cryptocurrency mints 1 million new tokens each year and its current supply is 10 million, it has an annual inflation rate of 10%.

Token lockups / Token cliff

Token lockups refer to a period during which certain tokens are restricted from being sold or transferred. This is often implemented to prevent large token holders from selling their tokens and causing price volatility.

Example. Early investors in a cryptocurrency project might have their tokens locked for 12 months after the initial coin offering, after which they can sell 25% of their holdings every 3 months.

Token Price Peg

Token price peg refers to a mechanism where the value of a token is linked to another asset, such as a fiat currency or commodity, to maintain price stability. Stablecoins often use a price peg to stay close to $1.

Example. Tether (USDT) aims to maintain a price peg of 1:1 with the US dollar through a reserve of assets.

Token Reserve

Token reserves are a portion of a cryptocurrency’s total supply that is set aside for specific purposes, such as future development, governance rewards, or liquidity provision.

Example. The XYZ protocol holds 20% of its total token supply in reserve to fund future development and protocol improvements.

Token sale

A token sale is an event where a project offers its tokens to investors, usually to raise capital for development. Token sales can take place in various forms, such as IEOs, IDOs, or private sales.

Example. A blockchain gaming project might hold a token sale, offering 20% of its total token supply to the public at a fixed price of $0.10 per token.

Token swaps

Token swaps refer to the direct exchange of one cryptocurrency for another, either through centralized exchanges, decentralized exchanges (DEXs), or specialized token swap platforms.

Example. Using Uniswap, Alice swaps 1 ETH for 1800 DAI based on the current exchange rate in the ETH/DAI liquidity pool.

Token Utility

Token utility refers to the specific use case or function of a token within its ecosystem. Utility tokens give users access to services, voting rights, or participation in the network, depending on the protocol's design.

Example. The LINK token in the Chainlink network is used to pay node operators for providing oracle services, giving it a clear utility within the ecosystem.

Token velocity

Token velocity measures how frequently a token changes hands within a given timeframe. High velocity can indicate active use but may negatively impact long-term value retention, while low velocity might suggest hoarding or lack of utility.

Example. If a token is used 10 times in a year to purchase goods or services, its velocity would be 10. This could be compared to a similar token with a velocity of 5 to assess relative economic activity.

Token vesting

Token vesting refers to a process where tokens are locked and gradually released over time according to a predetermined schedule. This is often used to align long-term incentives for team members and early investors.

Example. A blockchain project might vest team tokens over 4 years, with 25% unlocking each year, to ensure the team remains committed to the project's long-term success.

Tokenomics

Tokenomics refers to the study of the economic system and models behind a cryptocurrency token, including its distribution, supply, demand, and utility. It covers aspects like incentives, governance, and value creation within the ecosystem.

Example. The tokenomics of cryptocurrency ABC ensures that a fixed supply of 10 million tokens is distributed over 5 years with a staking incentive to encourage long-term holding.

Total supply

Total supply refers to the number of coins or tokens that currently exist and are either in circulation or locked somehow. This includes the circulating supply plus tokens that are locked, reserved, or held in company treasuries, but excludes tokens that have been verifiably burned.

Example. If a cryptocurrency has 800,000 tokens in circulation and 200,000 tokens locked in team wallets, its total supply would be 1 million tokens.

Total Value Locked (TVL)

Total Value Locked (TVL) is the total value of assets that are locked or staked in decentralized finance (DeFi) protocols. It is a key metric used to measure the health and popularity of a DeFi platform.

Example. If users have deposited $1 billion worth of assets into Uniswap liquidity pools, Uniswap's TVL would be $1 billion.

Transaction Fees

Transaction fees are the costs users pay to send transactions on a blockchain network. These fees incentivize miners or validators to process transactions and secure the network.

Example. Alice might pay 0.001 ETH as a transaction fee to send 1 ETH to Bob during a period of moderate network activity.

Transaction Throughput

Transaction throughput refers to the number of transactions a blockchain can process in a given amount of time, typically measured in transactions per second (TPS). Higher throughput indicates better network performance.

Example. Ethereum’s transaction throughput is lower compared to other blockchains like Solana, which can process thousands of transactions per second.

Treasury System

A treasury system in blockchain governance is a pool of funds controlled by the community or token holders. It is used to fund the development and maintenance of the project or protocol.

Example. The Decred blockchain allocates 10% of each block reward to its treasury, which is then used to fund projects voted on by DCR holders.

TVL tourists

TVL tourists refer to users who quickly move their funds between different DeFi protocols to chase the highest yields, often without long-term commitment to any single platform. This behavior can lead to volatility in a protocol's Total Value Locked (TVL).

Example. Alice might move her $100,000 in stablecoins between three different lending protocols in a single week, chasing the highest interest rates and contributing to TVL fluctuations.

Utility tokens

Utility tokens are digital assets that provide access to a product or service within a specific blockchain ecosystem. They are not intended as investments but to be used as currency within the platform.

Example. Users need the ABC utility token to pay transaction fees and access premium features on the ABC blockchain platform.

Validator Collusion

Validator collusion occurs when multiple validators in a Proof of Stake network collaborate to manipulate the blockchain, potentially undermining the integrity of the system for personal gain.

Example. A group of top validators might collude to vote for proposals that increase their rewards at the expense of smaller participants.

Validator Nomination

Validator nomination is the process where token holders in a Proof of Stake network nominate or vote for validators who will secure the network and validate transactions.

Example. In Polkadot, DOT holders can nominate up to 16 validators, spreading their stake and potentially earning rewards from multiple validators.

ve token models

ve token models (vote escrow) are governance mechanisms where tokens are locked for a specific period to give users voting power. The longer the tokens are locked, the greater the voting power or rewards the holder receives.

Example. In the Curve Finance protocol, users can lock CRV tokens for up to 4 years to receive veCRV, which grants higher voting power and more rewards the longer the lock-up period.

Weighted voting

Weighted voting in the context of crypto refers to voting mechanisms where the power of a vote is determined by the amount of tokens held by a voter. Those with more tokens have more influence in governance decisions.

Example. In a weighted voting system, a user with 1000 governance tokens would have 10 times the voting power of a user with 100 tokens when voting on protocol upgrades.

Wrapped asset

A wrapped asset is a tokenized version of another asset on a different blockchain. It allows assets from one blockchain to be used on another, maintaining price parity with the original asset.

Example. Wrapped Bitcoin (WBTC) is an ERC-20 token on the Ethereum blockchain that represents Bitcoin, allowing BTC to be used in Ethereum's DeFi ecosystem.

X-to-earn

X-to-earn is a concept where users earn rewards, usually in tokens, for performing certain activities. These models include play-to-earn, move-to-earn, and learn-to-earn, incentivizing participation in different ecosystems.

Example. In a play-to-earn game like Axie Infinity, players can earn cryptocurrency tokens by battling digital creatures and completing in-game quests.

Yield farming / Liquidity mining

Yield farming or liquidity mining refers to the practice of staking or lending crypto assets to generate high returns. Participants provide liquidity to decentralized platforms in exchange for rewards, often in the form of the platform's native tokens.

Example. Maria participates in yield farming by supplying liquidity to a DeFi protocol. In return, she earns governance tokens along with trading fees.

Yield tranches

Yield tranches divide the risks and returns of a yield-generating strategy into different segments or "tranches". Higher risk tranches typically offer higher potential returns, while lower risk tranches offer more stability.

Example. In a yield tranche product, the senior tranche might offer a stable 5% yield with first priority on returns, while the junior tranche takes on more risk for the potential of higher yields.