Blockchain Glossary — DeFi Protocol Terms for Builders and Investors

Basis Trade

An arbitrage strategy capturing the spread between spot and futures prices, used in DeFi by protocols like Ethena to generate yield from the funding rate differential between long spot and short perpetuals positions.

Bribing (Gauge Bribing)

Paying veToken holders to vote their governance weight toward a specific liquidity pool's gauge, incentivizing emissions to that pool. A legitimate mechanism in the Curve/Convex ecosystem.

Carry Trade

Borrowing a low-interest-rate asset to invest in a higher-yielding asset, capturing the spread. Common in DeFi: borrow stablecoins at 3%, deploy in a 12% yield strategy.

Delta Neutral

A portfolio position designed to have near-zero sensitivity to the price of the underlying asset, typically combining long spot exposure with short derivatives exposure.

Fee Switch

A governance-controlled mechanism enabling a protocol to direct a portion of trading fees to token holders or treasury, rather than exclusively to liquidity providers.

Funding Rate

In perpetual futures markets, the periodic payment between long and short positions that keeps the perpetuals price anchored to the spot price. Positive funding = longs pay shorts; negative = shorts pay longs.

Gauge (Curve/Balancer)

A smart contract measuring liquidity provision in a specific pool and determining what percentage of protocol token emissions that pool receives, based on governance votes.

Health Factor

In lending protocols, the ratio of collateral value (adjusted for LTV) to borrowed value. A health factor below 1.0 triggers liquidation.

Impermanent Loss (IL)

The temporary difference between holding tokens in an AMM pool vs holding them in a wallet, arising from the pool's rebalancing mechanism as prices move.

Interest Rate Model

The formula determining borrow and supply rates in a lending protocol, typically a kinked-curve model where rates increase sharply past an optimal utilization rate.

Peg Stability Module (PSM)

A mechanism allowing 1:1 exchange between a decentralized stablecoin and external stablecoins (USDC), providing a stability floor and preventing depeg.

Price Impact

The effect a trade has on the market price, determined by trade size relative to pool liquidity. Larger trades relative to pool depth have higher price impact.

Real Yield

Protocol revenue distributed to token holders from actual fee income, as opposed to inflationary token emissions that dilute value. Protocols advertising 'real yield' claim their distributions are backed by genuine revenue.

Reserve Factor

The percentage of interest accrued that flows to a protocol's reserve fund rather than to depositors, providing a buffer for potential bad debt.

Slippage Tolerance

The maximum price deviation from the expected execution price a trader is willing to accept, set as a percentage in DEX interfaces.

Soft Liquidation

A partial liquidation mode (used in some Curve lending markets) that gradually sells collateral into the protocol's AMM range rather than triggering full liquidation, reducing the severity of liquidation events for borrowers.

Total Value Locked (TVL)

The total value of assets deposited in a DeFi protocol, a common (though imperfect) metric for protocol size and usage.

Vampire Attack

A strategy where one protocol attempts to attract liquidity providers away from a competitor by offering higher rewards, famously executed by SushiSwap against Uniswap.

veToken (Vote-Escrowed Token)

A token locked for a specified period that grants enhanced voting rights and sometimes boosted yield — the longer the lock, the more veTokens received.