Collateralization is the use of one asset to back the value of another asset. With crypto, the process requires the storing and locking of the collateralized assets within a blockchain protocol.
Bridges allow independent blockchains to communicate with each other. Nodes communicate via a bridge to connect to external blockchain networks.
Yield farming, also referred to as liquidity mining, is a way to generate rewards with your cryptocurrency assets. Basically, it means locking up cryptocurrency assets and getting rewards for doing so. With Bao this means that users need to become liquidity providers (LP) by adding a pair of assets to liquidity pools.
APR represents the annual rate for earning based on the available assets. An annual percentage rate (APR) on a loan is the amount of interest a borrower must pay each year. The APR is expressed as an annual percentage of the outstanding loan balance, and represents the annual cost of borrowing. APY takes into account compounding, but APR does not. The annual percentage yield (APY) refers to the rate of return earned on a deposit over one year. APY takes into account compounding interest, which is calculated on a periodic basis and added to the balance.
An asset is anything of monetary value that can be owned or purchased. Within the context of investing, assets can refer to a variety of financial and physical instruments, from stocks to real estate to gold to dollars. A bitcoin is a particular form of crypto or digital asset.
An automated market maker (AMM) is a fully automated decentralized exchange where trades are made against a pool of tokens called a liquidity pool. An algorithm regulates the values and prices of the tokens in the liquidity pool. Since AMMs do not rely on an active market of buyers and sellers, trades can occur at any time. The most popular AMMs are Uniswap, Curve, and Balancer.
On a blockchain, a block is the data record of all transaction information made during a specific timeframe on its network. Blocks are added sequentially to a network's chain of data, which in turn make up the public ledger known as blockchain. For example: A Bitcoin block contains information about the date, time, and amount of transactions, as well as signature information regarding the origin and destination of the transfer. Blocks must be confirmed by the network via a process of consensus before a chain can continue transacting and creating new blocks. Block delta refers to the current block and the block where a user last took a certain action, for example, a deposit or withdrawal. This difference of blocks of current - start block is the block delta.
Cryptocurrency tokens or coins are burned when they are permanently removed from the circulating supply on purpose — as opposed to assets that are lost on accident, like by being unintentionally sent to an address with no owner or via the loss of access to the wallet where they are stored.
Compounding is the ability of an asset to generate earnings, which are then reinvested or remain invested with the goal of generating their own earnings. In other words, compounding refers to generating earnings from previous earnings.
Cross-chain is the interoperability between two chains of relatively independent blocks. In other words, it allows blockchains to communicate with each other because they are built in a standardized way. Cross-chain implementation is represented mainly by asset exchange and asset transfer, which is an important part of the blockchain world. With crossed chains, the limitations of a single chain can be avoided.
Decentralized finance (DeFi) is a major growth sector in blockchain that offers peer-to-peer financial services and technologies built on Ethereum. DeFi exchanges, loans, investments, and tokens are significantly more transparent, permissionless, trustless, and interoperable than traditional financial services, and trend towards decentralized governance organizational methods that foster equitable stakeholder ownership. Platform composability in DeFi has resulted in unlocking value through interoperability with innovations like yield farming and liquidity tokens.
A decentralized exchange (DEX) is a financial services platform or apparatus for buying, trading, and selling digital assets. On a DEX, users transact directly and peer-to-peer on the blockchain without a centralized intermediary. DEXs do not serve as custodians of users' funds and are often democratically managed by decentralized governance organizations. Without a central authority charging fees for services, DEXs tend to be cheaper than their centralized counterparts.
Dilution is an economic term referring to the issuance of new assets which decrease existing shareholders' percentage of ownership. Dilution can occur with assets ranging from stocks to cryptocurrencies. In the case of cryptocurrency, dilution refers to the reduction in value of a single unit of currency, or the market capitalization of a cryptocurrency protocol overall, because of the creation of new tokens.
The emission plan describes the distribution schedule of the tokens for a protocol.
The Ethereum Virtual Machine (EVM) is a development interface accessible through a web browser. The EVM enables developers to deploy dApps more effectively by providing a suite of development kits, application templates, and other tools. The EVM improves accessibility by eliminating the need for developers to purchase costly hardware, and allowing developers to launch a dApp regardless of the underlying coding language. The EVM is a primary driver of the trend that decentralized applications (dApps) exist almost exclusively on the Ethereum blockchain thus far.
A block explorer is a software interface that enables users to access real-time blockchain information like transactions, blocks, addresses, nodes, and balances on a particular network. Operating as web browsers for blockchains, the many free-to-use and open-source block explorers are essential in providing for global transparency and democratized access to blockchain networks.
Flash loans are a type of DeFi loan that is rapidly executed — borrowed and paid back in quick succession — without the need for collateral. An experimental technology offered by the Aave platform, flash loans are made possible because of how data is recorded on the Ethereum network. If the principal and interest are not repaid within one Ethereum transaction, the flash loan is effectively reversed.
Impermanent loss occurs when the value of tokens held in an algorithmically balanced liquidity pool loses value relative to like assets in the open market due to price volatility. The loss is 'impermanent' because the original value of the tokens can be restored if the liquidity pool restores balance.
An index fund is an investment product made up of a collection of investments designed to track an industry segment of the financial market or a basket of investments accumulated for a particular strategy or risk profile.
Layer 2 refers to a secondary framework or protocol that is built on top of an existing blockchain system. The main goal of these protocols is to solve the transaction speed and scaling difficulties that are being faced by the major cryptocurrency networks.
Forced liquidation refers to an involuntary conversion of assets into cash or cash equivalents (such as stablecoins). It is a mechanism that creates market orders to exit leveraged positions. The term liquidation simply means selling assets for cash. Forced liquidation means that this selling happens automatically when certain conditions are met. In the context of cryptocurrencies, forced liquidation happens when the investor or trader is unable to fulfill the margin requirements for a leveraged position. The concept of liquidation applies to both futures and margin trading.
A liquidity provider is a user who deposits tokens into a liquidity pool. In return for supplying liquidity, users are typically awarded liquidity provider (LP) tokens that represent the share of the liquidity pool user owns. A liquidity pool is a crowdsourced pool of cryptocurrencies or tokens locked in a smart contract that is used to facilitate trades between those assets on a decentralized exchange.
Liquidity provider tokens (LP tokens) are created and awarded to a user that deposits assets into a liquidity pool. LP tokens represent the share of the liquidity pool that the liquidity provider owns. LP tokens are ERC-20 tokens that can be transferred, exchanged, and staked.
Multi-chain means operating your crypto ecosystem on more than one blockchain.
Oracles are third-party information service providers that send external real-world data to a blockchain protocol (often to a smart contract or numerous smart contracts). Oracles give blockchain network protocols significantly more power because they are able to exponentially secure, verify, and strengthen the validity of data that a blockchain network receives and makes use of (because blockchains and smart contracts are often closed systems). Oracles can be decentralized and rely on numerous data sets or centralized and controlled by a single entity. Currently, one of the main uses of blockchain-based oracles is to provide price and data feeds needed for the trustless execution of smart contracts used by financial mechanisms in the DeFi sector.
Within a cybersecurity context, a sandbox is a security mechanism that is designed to mitigate the potential impact of system failures and/or software vulnerabilities by allowing programs to run independently of and separately from the device/network's primary operating system. Sandboxes are often used to test out new implementations and code bases or audit untested programs to ensure that they behave as planned prior to deployment. Sandboxes are also commonly deployed while testing the performance and features of a Virtual Machine (VM). For Bao we deployed it on an actual LIVE blockchain BSC with PandaSwap
Synthetic tokens are collateral-backed tokens whose value fluctuates depending on the tokens' reference index. Synthetic tokens blend features of prediction markets, futures markets, and collateralized loans. Some examples of synthetic tokens include: Synthetic real-world assets (eg: gold or Tesla stock price).
Tokenomics, a portmanteau of “token” and “economics,” refers to the underlying attributes of a cryptocurrency token that incentivize users to adopt the token’s project ecosystem. Among cryptocurrency investors, the term is commonly referred to in terms of how the token is utilized within the project ecosystem, or how the token will follow a monetary policy as the project develops. Therefore, the term tokenomics encapsulates a variety of processes and concepts, some of which are hard-coded into a blockchain's protocol, and others which are more speculative in nature.
Total Value Locked (TVL) measures how much crypto assets and in Bao's case LP pairs are locked within its protocol. TVL is a useful indicator to measure the health of the protocol but it’s also an effective metric to compare the “market share” of different DeFi protocols.
When a system is trustless within a peer-to-peer (P2P) blockchain network, it means that all participants in the network do not need to know or rely upon verification from one another or a third party. This means that the system is run autonomously by the underlying technical architecture and consensus mechanism of the blockchain protocol itself. Transacting on a shared, trustless network is not beholden to a central organization to ensure trust, and is a key value proposition of blockchain technology. A number of innovations underlay the trustless nature of blockchain networks, including immutability, decentralization, transparency, censorship resistance, and neutrality.
Within the context of blockchain technology, a validator is an entity responsible for verifying and approving transactions submitted by users and/or blockchain clients. Each blockchain protocol has its own parameters for what constitutes an acceptable validator and how these validators operate. Most decentralized blockchain networks rely on some form of validator node to process on-chain transactions in a permissionless and distributed manner.
Within the context of blockchain technology, vesting is the process of releasing tokens that have been set aside for a specified period of time. These tokens are typically designated for a blockchain project's team, partners, and other contributors who are actively helping develop the project. Funds that have been set aside for this purpose are usually locked for a certain period of time by smart contracts, which effectively seal off access to the tokens until pre-set conditions are met.