📖Definitions

Collateral

Collateral are digital assets provided by a borrower to secure a loan. These assets, typically cryptocurrencies, NFTs or other tokens, act as a safeguard for the lender or platform. If the borrower fails to repay, the lender can seize and liquidate the collateral. The valuation of the collateral, crucial for loan approval, is based on its current market value in the crypto market.

Liquidate/Liquidation

In the context of collateral, to liquidate means to convert the digital assets (such as cryptocurrencies, NFTs, or other tokens) provided as security for a loan into cash or a more liquid form of asset. This process is typically initiated when the borrower fails to repay the loan. The lender or platform, holding these digital assets as collateral, will sell or exchange them in the market to recover the loan amount. The act of liquidation is a key mechanism to mitigate financial risk, ensuring that the lender can recoup their funds even in cases of default. The effectiveness of liquidation largely depends on the current market value and liquidity of the collateralized assets.

APY (Annual Percentage Yield)

This is the rate of return earned on an investment over a year, accounting for the effects of compounding interest. Unlike simple interest (APR - annual percentage rate), APY considers interest earned on both the principal and the accumulated interest from previous periods. It's a key metric in finance, used to compare the profitability of savings accounts, investments, and other financial products. The higher the APY, the more lucrative the investment.

Decentralized Exchange (DEX)

A DEX is a blockchain-based platform allowing direct cryptocurrency and token trading without intermediaries. It's transparent, and non-custodial, meaning users control their funds. DEXs typically use smart contracts for trade automation and liquidity pools for facilitating trades. They provide anonymity and reduce central failure risks but may have slower transactions and less intuitive interfaces compared to centralized exchanges.

Automated Market Maker (AMM)

An (AMM) is a type of protocol used in decentralized finance (DeFi) to facilitate automatic and permissionless trading of digital assets. Instead of using traditional order books, AMMs rely on mathematical formulas to set the price of assets based on their supply and demand in liquidity pools. These pools are funded by users who deposit assets and earn trading fees in return. This system allows for continuous and decentralized trading, eliminating the need for a traditional market maker or counterparty in trades. An AMM is always a DEX, but not every DEX is based on an AMM model.

Impermanent Loss

Impermanent loss occurs in DeFi liquidity pools, especially those using AMM. It happens when the price of assets in a pool changes from the time they were deposited. If asset prices diverge significantly, and a liquidity provider withdraws their assets, they might find the value of their withdrawal less than if they held the assets outside the pool. This loss is 'impermanent' because it's not realized until withdrawal. The extent of the loss depends on the magnitude of price changes and can be mitigated by transaction fees earned in the pool. Understanding this risk is essential for anyone participating as a liquidity provider in AMM pools.

Arbitrage

Arbitrage in the financial context, particularly in cryptocurrency, refers to the practice of capitalizing on a price difference of an asset across different markets or exchanges. Traders engaging in arbitrage buy an asset where it's cheaper and simultaneously sell it where it's more expensive, profiting from the price discrepancy. This process is often automated and executed rapidly to take advantage of often fleeting arbitrage opportunities. Effective arbitrage requires a keen understanding of market dynamics and access to multiple trading platforms. It's a risk mitigation and profit strategy that relies on market inefficiencies.

Dollar Cost Averaging (DCA)

DCA is an investment strategy used to reduce the impact of volatility on large purchases of financial assets, including cryptocurrencies and stocks. This strategy involves dividing the total amount to be invested across periodic (automatic) purchases of a target asset at regular intervals, regardless of the asset's price at each interval. By spreading the investment over time, DCA reduces the risk of investing a large amount in a single market condition. This approach can potentially lower the average cost per share of the asset, as it buys more shares when prices are low and fewer when prices are high. DCA is especially favored by long-term investors seeking to mitigate the risks associated with market fluctuations.

Spot Price

The spot price, or also known as the current market price is the price at which an asset, like a cryptocurrency, commodity, NFT or security, can be bought or sold for immediate delivery. Unlike future prices, which are based on expectations of future supply and demand, the spot price reflects real-time market conditions and is constantly changing due to factors like trading activity, market news, and broader economic indicators. In the crypto market, the spot price of a digital asset (such as coins, tokens and NFTs) is determined by the latest trades executed on exchanges, providing a live snapshot of its value. It's essential for traders and investors to track spot prices for timely decision-making in buying or selling assets.

Unstaking/Unbonding NFTs

Unstaking/Unbonding NFTs are basically a receipt, given out by the liquid staking provider. They proof that you have started to unstake a token from a staking protocol.

To claim the asset after the unbonding period (usually 10 epochs/10 days), you need to send the NFT back to the protocol. The protocol burns the NFT (the receipt) and you receive the asset.

This system allows users to trade their NFTs, perhaps sell it to someone at a slightly lower price, which allows them to immediatelly access most of their money without having to wait 10 days. The NFTs can also be used on loan patforms to take out a loan against the NFTs value, to immediatelly access the majority of the assets, without having to wait a long time and paying high fees.

Epoch

For many networks, 1 epoch is usually around 1 day (24 hours) long. But this is not the case for all networks.

MultiversX: 1 epoch is usually 1 day (24 hours) Solana: 1 epoch is usually 2-3 days SUI: 1 epoch is usually 1 day (24 hours) Radix: 1 epoch can be between 30-90 minutes, is dynamically adjusted by the protocol

An epoch in blockchain networks is a specific time period or interval during which certain network activities and processes are grouped together. This concept is particularly important in Proof of Stake (PoS) and its variants, where it plays a crucial role in network operations.

In other words, it is a typically fixed, but sometimes variable time period typically found on Proof-of-Stake networks. Usually the native staking reward distribution is tied to an epoch, or other aspects of the network, such as inflation, protocol upgrades, validator selection etc.

Bonding curve

In short: The bonding curve defines how much the price changes when buys or sells occur.

A bonding curve is a mathematical formula used in token economics that governs the relationship between the price of a token and its available supply. The bonding curve defines a price function that automatically adjusts the price of the token based on its supply, increasing the price as the supply grows and decreasing it as the supply decreases. This creates a continuous and automated market for the token, allowing users to buy and sell the token at any time, while also providing liquidity to the market. The bonding curve concept is often used in decentralized finance (DeFi) applications, such as Automated Market Makers (AMMs) and token distribution mechanisms.

Delta (in Trading)

Delta, in the context of trading, particularly in automated market makers (AMMs) like JewelSwap, refers to the amount or percentage by which the price of an asset (such as an NFT) increases or decreases after each trade.

• The exponential delta is based on percentage movements. If the delta is 5%, then after each buy, the price will increase by 5%, leading to exponential growth.

• The linear delta on the other hand ensures that the price changes by a fixed amount, for example 0.05 EGLD.

Delta is a crucial parameter that influences the price volatility of assets within a liquidity pool. A higher delta means larger price adjustments after each transaction, leading to more significant price fluctuations. Conversely, a lower delta results in smaller price changes, offering more stability in asset prices. This mechanism plays a key role in managing the liquidity and pricing dynamics of assets in AMM platforms, affecting both the market maker's strategy and the traders' willingness to engage in buying or selling activities.

Soft-Peg

A soft-peg cryptocurrency or token aims to maintain a stable value relative to another asset, but allows for some fluctuation around the target price. The peg is defined through it's open market trading price.

Hard-Peg

A hard-peg cryptocurrency or token is designed to maintain a fixed exchange rate with another asset. This is usually achieved through full collateralization, where each token is backed 1:1 by the pegged asset held in reserve and redeemable for it's backing. Hard-pegged tokens aim for minimal price deviation from their target value.