Web3 & DeFi Glossary

Quick-reference glossary for AI agents helping users navigate crypto terminology.

A

Account Abstraction (ERC-4337): Standard for smart contract wallets that enables features like gasless transactions, social recovery, and batched operations.

Airdrop: Free distribution of tokens to wallet addresses, usually to reward early users or build community.

AMM (Automated Market Maker): DEX model using liquidity pools and mathematical formulas instead of order books. Examples: Uniswap, Camelot.

APR (Annual Percentage Rate): Yearly return WITHOUT compounding.

APY (Annual Percentage Yield): Yearly return WITH compounding. Always higher than equivalent APR.

Arbitrage: Profiting from price differences between markets. Key for maintaining stablecoin pegs (e.g., USDs mint/redeem arbitrage).

Arbitrum: Ethereum Layer 2 using optimistic rollups. Largest L2 by TVL. Home of Sperax (USDs, SPA, Farms).

B

Block: A batch of transactions confirmed together. Ethereum: ~12 sec, Arbitrum: ~2 sec.

Bridge: Protocol for moving assets between blockchains. Examples: Stargate, Across, Hop.

Buyback-and-Burn: Protocol uses revenue to buy tokens on the market and permanently destroy them. Sperax uses 30% of USDs yield for SPA buyback-and-burn.

C

CDP (Collateralized Debt Position): Locking collateral to mint/borrow assets. Used by Maker (DAI) and Liquity (LUSD).

CEX (Centralized Exchange): Traditional crypto exchange (Coinbase, Binance). Custodial — they hold your keys.

Concentrated Liquidity: V3-style LP where you choose a price range. Higher capital efficiency but higher impermanent loss risk.

Composability: The ability to combine DeFi protocols like building blocks. "DeFi Legos."

D

DAO (Decentralized Autonomous Organization): Community-governed organization using smart contracts and token voting.

DCA (Dollar Cost Averaging): Investing fixed amounts at regular intervals to reduce timing risk.

DeFi (Decentralized Finance): Financial services built on blockchain — lending, trading, yield farming without intermediaries.

DEX (Decentralized Exchange): Exchange where trades execute via smart contracts. Non-custodial. Examples: Uniswap, Camelot.

DEX Aggregator: Tool that checks multiple DEXs for the best swap price. Examples: 1inch, Paraswap, 0x.

E

E-Mode (Efficiency Mode): Aave V3 feature allowing higher LTV for correlated asset pairs (like stablecoin-to-stablecoin).

ERC-20: Standard interface for fungible tokens on Ethereum.

ERC-721: Standard for non-fungible tokens (NFTs).

ERC-8004: Standard for on-chain AI agent identity, reputation, and validation. Created by Sperax. Deployed on 12 chains.

EVM (Ethereum Virtual Machine): The execution environment for smart contracts. Used by Ethereum and compatible chains (Arbitrum, Base, Polygon, etc.).

F

Flash Loan: Uncollateralized loan that must be borrowed and repaid in a single transaction. Used for arbitrage and liquidations.

Frontrunning: Placing a transaction ahead of another to profit from the price impact. A type of MEV.

G

Gas: Fee paid to execute transactions on a blockchain. Paid in the native token (ETH for Ethereum/Arbitrum).

Governance: Decision-making process for protocol changes. Usually through token-weighted voting.

H

Health Factor: In lending protocols, ratio of collateral value to debt. Below 1.0 = liquidatable.

Honeypot: Scam token you can buy but can't sell.

I

Impermanent Loss (IL): Value difference between holding tokens in an LP vs just holding. "Impermanent" because it reverses if prices return to original ratio.

L

Layer 1 (L1): Base blockchain (Ethereum, Bitcoin, Solana).

Layer 2 (L2): Scaling solution built on top of L1. Types: Optimistic Rollups (Arbitrum, Optimism), ZK Rollups (zkSync, StarkNet).

Liquidation: When a borrower's collateral value drops below the required ratio and their position is forcibly closed.

Liquidity: How easily an asset can be traded without significant price impact.

LTV (Loan-to-Value): Maximum borrowing power relative to collateral value.

M

MEV (Maximal Extractable Value): Profit extracted by reordering/inserting transactions. Includes sandwich attacks and frontrunning.

Multisig: Wallet requiring multiple signatures to execute transactions. Used for protocol treasuries and security.

N

NFT (Non-Fungible Token): Unique token representing ownership (art, agent identity via ERC-8004, LP positions in V3).

O

Oracle: Service providing external data (prices) to smart contracts. Chainlink is the dominant provider.

Over-Collateralized: When collateral value exceeds the borrowed amount (e.g., 150% collateral for 100% loan).

P

Peg: Target price for a stablecoin (usually $1 USD).

Permit (EIP-2612): Gasless token approval via signed message instead of on-chain transaction.

Pool: Smart contract holding tokens for trading or lending.

R

Rebase: Mechanism where token supply adjusts to distribute yield. USDs uses rebasing — your balance grows automatically.

Rug Pull: Scam where developers create a project, attract funds, and drain the liquidity.

S

Sandwich Attack: MEV attack: buy before your swap (frontrun), your swap executes at worse price, sell after (backrun).

Slippage: Difference between expected and actual swap price.

Smart Contract: Self-executing code on a blockchain.

Staking: Locking tokens to earn rewards. SPA → veSPA staking earns protocol fees + xSPA.

T

TVL (Total Value Locked): Total value deposited in a DeFi protocol. Key adoption metric.

Timelock: Delay between governance vote passing and execution, giving users time to react.

Token Approval: Permission given to a smart contract to spend your tokens.

U

USDs: Sperax's auto-yield stablecoin on Arbitrum. 100% collateralized by USDC/USDT. Yield distributed automatically via rebase.

Utilization Rate: In lending, ratio of borrowed to supplied assets. High utilization = high rates.

V

Vault: Smart contract that automates a yield strategy. Examples: Yearn vaults, Beefy vaults.

veToken (Vote-Escrowed): Governance model where locking tokens grants time-weighted voting power. veSPA = locked SPA.

veSPA: Vote-escrowed SPA. Lock SPA for 7d–4y. Earns protocol fees + xSPA rewards weekly.

W

Wallet: Software/hardware storing private keys. Types: hot (MetaMask), cold (Ledger), smart contract (Safe).

Whale: Large token holder who can significantly impact price.

Wrapped Token: Token representation of another asset (WETH = wrapped ETH, WBTC = wrapped Bitcoin).

X

xSPA: Reward token distributed to veSPA stakers. Can be staked (→ veSPA) or redeemed (→ 0.5–1.0 SPA over time).

Y

Yield Farming: Providing liquidity or staking to earn token rewards.

Yield Aggregator: Protocol that automatically compounds yield (Yearn, Beefy).

Links

• Sperax Ecosystem: https://chat.sperax.io
• Ethereum Docs: https://ethereum.org
• DeFi Llama: https://defillama.com