Getting Past The Jargon
I hate jargon. And Web3 is full of it.
If you’re on Twitter, you know exactly what I am talking about. My first night on Web3 Twitter was overwhelming. My entire timeline was filled with words I didn’t know. Within the first 10 minutes of scrolling, I was already asking myself: What’s Solana? AAVE? Terra? Tokenomics? Layer 1? And what the hell does WAGMI mean?
Long story short, I now know the answers to those questions — and you will too after reading this.
Let’s begin.
What is Decentralized Finance (DeFi)?
Many argue the future of finance is decentralized. Decentralized finance is a peer-to-peer (P2P) system that is not controlled by one centralized entity. The term DeFi represents financial services that are accessible to anyone with an internet connection. There are DeFi protocols that allow for people to borrow, lend, short, earn interest, and more. Let’s explore the different types of cryptocurrency used in DeFi, and then dive into the protocols built on those chains.
Is All Crypto Created Equal?
You likely have heard of Bitcoin (BTC) and Ethereum (ETH). Before I began learning about DeFi, I could not understand why there were so many different types of digital currency. However, there are key distinctions between many cryptocurrencies, but let’s start with these.
The fundamental difference between BTC and ETH can be summed up by their functionalities. Bitcoin functions as an alternative asset (think “digital gold”), whereas Ethereum goes beyond that and provides utility — it is essentially a world computer.
Ethereum is the backbone of DeFi.
So — if Ethereum is the platform that all stuff is built on (DeFi, NFTs, DAOs) — then why are there literally thousands of different cryptocurrencies?
Because Ethereum is crowded. Demand exceeds supply. So, let’s discuss some alternative layer 1 chains and their main functions.
Stablecoins:
A coin whose value is pegged to a less volatile asset (fiat, commodity, etc.)
Examples: Tether ($USDT), USD Coin ($USDC), DAI ($DAI)
Memecoins:
You know what a meme is, right? Like, it’s a meme to buy these. It’s all hype. It’s about the online community and clout from that. So, yeah, you can imagine they’re very volatile.
Examples: Dogecoin ($DOGE), Shina Inu ($SHIB), Dogelon Mars ($ELON)
Governance Tokens:
A coin that gives access to voting privileges. Remember my DAO article from last week? Well, DAO’s often use governance tokens to allow people to participate in polls and vote on decisions.
Examples: Maker ($MKR), Uniswap ($UNI), Index ($INDEX)
DeFi Protocols:
The last concept I wanna touch on is protocols. These protocols were created to solve issues that the traditional finance industry is failing to address.
We can divide the key players into a few different categories, such as trading, lending, etc. I will quickly describe a few below — but I highly recommend checking out the Defi Pulse list as it gives great one sentence overviews.
Uniswap: Trading
Uniswap is a decentralized crypto exchange (DEX) that runs on Ethereum. This is different from something like Coinbase, which is a centralized exchange. Essentially, Uniswap allows anyone to become a market maker. Users can trade crypto without an intermediary. It is safe, permissionless, and anonymous.
Compound: Lending
Compound is a DeFi lending protocol. It allows users to lend or borrow cryptocurrencies. It is an algorithmic money market protocol.
Yearn: Asset Management
Yearn is a yield aggregator. There are a lot of vaults you can put tokens into and earn yield.
Closing:
If you got this far, thanks for reading. As a treat — I decided to attach a little mind map I made of crypto jargon that may be helpful. Thanks for being here, thanks for being you. Talk again soon, crypto newbs.
