DeFi has evolved over the past three years, and with it comes a range of new terms and concepts. It's crucial to stay updated to navigate this sector! At Sushi, we've updated our DeFi Glossary for 2025 to provide you with clear and concise definitions, with a touch of Sushi.
Check out the Sushi DeFi Glossary 2025 below!
Sushi/SushiSwap
Sushi, also known as SushiSwap, is the most multi-chain decentralized exchange (DEX) with the widest liquidity aggregation stack in DeFi. It operates across 40+ chains, aggregating liquidity sources across all these networks through its RouteProcessor 6 (RP6), ensuring users get the best swap prices across supported networks.
Aggregators
Aggregators are platforms or tools that compile and display trading, liquidity, and yield data from multiple DeFi sources.
They help users find the best swap prices, liquidity pools, and yield farming opportunities across decentralized exchanges (DEXs).
Sushi's aggregator is integrated into its swap interface and automatically searches for the most competitive prices, ensuring users receive the best execution.
AMM (Automated Market Maker)
An AMM is a key component of DeFi, replacing order book-based trading with algorithmic liquidity pools. AMMs allow users to trade assets directly against a smart contract, rather than relying on market makers.
Key Elements of AMMs:
Decentralized Liquidity: Liquidity providers (LPs) deposit tokens into pools, making assets available for trading.
x*y=k Formula: AMMs use mathematical pricing models such as x*y=k, where:
x = Quantity of Token A
y = Quantity of Token B
k = Constant product (ensuring price adjustment based on supply and demand).
Participants in an AMM:
Liquidity Providers: Contribute tokens to pools and earn a share of trading fees or incentive rewards.
Traders: Swap assets at AMM-determined prices without relying on a centralized exchange.
Overall, AMMs automate liquidity provisioning and price discovery, enabling permissionless decentralized trading across DeFi protocols.
ALM (Automated Liquidity Management)
ALM refers to automated protocols that optimize liquidity management in DeFi, helping liquidity providers maximize returns while minimizing losses.
Traditional LPs must manually manage their positions, rebalance assets, and monitor impermanent loss—ALM automates these processes.
Sushi integrates Steer, Gamma, and DeFiEdge as ALM partners, with Steer natively built into Sushi’s UI, allowing seamless automated liquidity strategies for users.
APR (Annual Percentage Rate)
APR is the annualized return on an investment without factoring in compounding.
Used to measure interest rates on lending, borrowing, staking, and liquidity provision in DeFi.
Unlike APY, APR does not include compounding interest effects.
APY (Annual Percentage Yield)
APY represents the actual return on an investment over a year, accounting for compounding interest.
DeFi staking and yield farming platforms typically advertise APY rather than APR, as earnings are reinvested periodically to maximize returns.
Arbitrage
A trading strategy that exploits price differences for the same asset across different exchanges.
Crypto arbitrageurs use bots to automate trading between DEXs and centralized exchanges (CEXs), profiting from market inefficiencies.
Arbitrage helps stabilize prices across markets and improve liquidity distribution.
Bridging
Bridging allows users to transfer assets between different blockchains, enabling interoperability and access to DeFi protocols across multiple networks.
Bridges operate by either locking assets on one chain and minting wrapped versions on another or using liquidity pools to facilitate direct transfers.
Sushi integrates cross-chain bridging solutions to enable seamless multi-chain trading.
Blockchain Explorer
A web-based tool that provides real-time visibility into blockchain transactions, smart contracts, wallet balances, and block data.
Used for transaction tracking, auditing smart contracts, and verifying wallet activity.
Concentrated Liquidity
A liquidity model where LPs specify a price range in which their liquidity is actively used.
Traditional AMMs spread liquidity evenly across all price ranges, which can be inefficient.
Concentrated liquidity improves capital efficiency and allows LPs to earn higher fees by focusing liquidity where trading is most frequent.
Sushi v3 uses concentrated liquidity models.
Capital Efficiency
Capital efficiency measures how effectively liquidity is deployed within DeFi protocols.
Higher capital efficiency = More trading volume and yield generated per unit of capital.
Optimized liquidity pools (such as concentrated liquidity models) increase efficiency by allowing more trades per dollar of liquidity provided.
Cross-Chain
Cross-chain functionality refers to the ability to move assets and data between different blockchain networks.
Cross-chain swaps enable users to swap assets seamlessly between blockchains without centralized intermediaries.
SushiXSwap supports cross-chain swaps across 25+ blockchains, including Ethereum, Arbitrum, Optimism, Polygon, Avalanche, BNB Chain, and Base.
DAO (Decentralized Autonomous Organization)
A blockchain-based governance model where decisions are made by token holders through voting mechanisms rather than centralized control.
DAOs govern DeFi platforms, treasury funds, and protocol upgrades.
SushiSwap’s governance occurs on Discourse, Snapshot, and Tally, where token holders propose and vote on protocol changes.
DAPP (Decentralized Application)
DApps are software applications that run on blockchain networks, enabling decentralized financial services, gaming, and governance without intermediaries.
Examples of DApps:
DeFi platforms (SushiSwap, Aave)
NFT marketplaces (OpenSea, LooksRare)
Decentralized social media (Lens Protocol)
Decentralized Exchange (DEX)
A non-custodial, peer-to-peer exchange that facilitates cryptocurrency trading without intermediaries.
SushiSwap operates as a multi-chain DEX across 40+ blockchains.
Unlike centralized exchanges (CEXs), DEXs use liquidity pools and AMMs for price discovery and trade execution.
DeFi (Decentralized Finance)
DeFi is a blockchain-based financial ecosystem that replaces traditional banking services with decentralized applications (DApps).
DeFi includes lending, borrowing, staking, yield farming, and automated market-making (AMM) trading.
Users interact with DeFi protocols directly from self-custodial wallets like MetaMask or Ledger.
Ethereum
Ethereum is a leading smart contract blockchain used for DeFi, NFTs, and Web3 applications.
SushiSwap and many other DeFi protocols are deployed on Ethereum and its Layer 2 scaling solutions like Arbitrum and Optimism.
Flash Loan
A loan in DeFi that requires no collateral and must be repaid within the same transaction.
Often used for arbitrage, collateral swapping, and liquidations.
Platforms like Aave and dYdX offer flash loan functionality.
Gas Fees
Gas fees are transaction fees paid to blockchain validators to process transactions and execute smart contracts.
On Ethereum and other blockchains, gas fees compensate miners (Proof-of-Work) or validators (Proof-of-Stake) for securing the network and processing transactions.
Gas fees fluctuate based on network congestion, transaction complexity, and priority settings.
Layer 2 solutions like Arbitrum and Optimism aim to reduce gas costs by bundling transactions before submitting them to Ethereum’s mainnet.
GM/GN
"GM" (Good Morning) and "GN" (Good Night) are commonly used greetings in the crypto community.
These terms symbolize engagement and camaraderie among crypto and Web3 enthusiasts.
"GM" is often associated with optimism and bullish sentiment in crypto markets.
Halving
Halving events are programmed reductions in the rate at which new cryptocurrency tokens are created.
Occurs at fixed intervals in blockchain protocols to reduce inflation.
Bitcoin halvings take place approximately every four years, reducing the block reward by 50%.
Halving events are considered bullish as they reduce supply issuance, historically leading to price appreciation.
Hard Fork
A hard fork is a major, irreversible change to a blockchain’s protocol, creating a new chain that is not backward compatible with the old version.
Examples:
Ethereum Classic (ETC) was created due to a hard fork from Ethereum (ETH) after the DAO hack.
Bitcoin Cash (BCH) split from Bitcoin (BTC) due to differences in scaling approaches.
Unlike a soft fork, which introduces backward-compatible upgrades, a hard fork creates two separate blockchains.
HODL
HODL is a misspelled version of "hold" that became a meme in the crypto community, encouraging long-term holding of assets.
It is sometimes interpreted as "Hold On for Dear Life," symbolizing resilience against market volatility.
HODLers believe in the long-term value of their assets, avoiding panic selling during market downturns.
Impermanent Loss
Impermanent loss refers to the temporary loss liquidity providers experience due to price fluctuations in an AMM-based liquidity pool.
Occurs when an LP’s assets in a pool become imbalanced due to market movements.
If an LP withdraws funds while price divergence exists, they receive fewer assets than if they had held them separately.
Protocol like Sushi is developing "Blade", a No-impermanent loss DEX to combine this DeFi risk.
Interchain Token
Interchain tokens, powered by Axelar and other interoperability protocols, enable seamless transfers of digital assets between different blockchains.
Unlike bridged assets, interchain tokens can be used natively on multiple blockchains.
This technology improves interoperability and allows tokens to maintain consistency across chains.
JSON (JavaScript Object Notation)
JSON is a lightweight data format used for structuring and exchanging data in blockchain applications.
While not specific to DeFi, JSON is widely used for API responses, smart contract interactions, and blockchain explorers.
Smart contracts and dApps rely on JSON to communicate between different systems.
KYC (Know Your Customer)
KYC refers to identity verification procedures required by centralized exchanges and some DeFi services to comply with regulatory frameworks.
KYC processes require users to submit identification documents to verify their identity.
Decentralized platforms typically do not enforce KYC, but regulators are pushing for stricter compliance in DeFi.
Kek
Kek is a slang term originating from gaming culture, often used as an alternative to "LOL" or "haha."
The term comes from World of Warcraft, where the Horde faction's "LOL" appears as "KEK" to Alliance players.
In crypto, "KEK" is often used humorously in trading discussions and memes.
Layer 1
Layer 1 refers to the base layer of a blockchain network, responsible for transaction validation and security.
Layer 1 networks prioritize security and decentralization but may struggle with scalability, leading to the rise of Layer 2 solutions.
Layer 2
Layer 2 refers to a secondary layer built on top of Layer 1 blockchains to improve scalability and reduce transaction costs.
Layer 2s process transactions off-chain and then submit finalized data to Layer 1 for security.
Popular Layer 2 solutions:
Arbitrum and Optimism (Ethereum Layer 2s using Optimistic Rollups).
Polygon (a sidechain with faster transactions and lower fees).
zkSync and StarkNet (Zero-Knowledge Rollups for Ethereum scalability).
Liquidity Mining
Liquidity mining is the process of earning token rewards by providing liquidity to decentralized exchanges or lending protocols.
Liquidity providers deposit assets into pools and receive LP tokens, along with yield rewards in governance tokens.
Protocols like SushiSwap, Aave, and Compound incentivize liquidity mining to attract liquidity.
Liquidity Pool
A liquidity pool is a smart contract-based pool containing pairs of tokens used for automated trading and yield generation.
LPs contribute assets to pools and earn fees from traders who swap tokens.
AMM-based DEXs like SushiSwap and Curve rely on liquidity pools instead of traditional order books.
Messaging Layer
A blockchain interoperability layer that enables secure communication and data exchange between different blockchain networks.
Messaging layers allow applications to interact seamlessly across multiple blockchains, facilitating cross-chain transactions, data sharing, and interoperability.
Used in DeFi, gaming, and multi-chain smart contract interactions.
Multi-Chain
A DeFi concept referring to the ability to operate on multiple blockchains simultaneously.
Sushi is a multi-chain DEX, meaning that users can access, trade, and provide liquidity across 40+ blockchains within the Sushi UI.
Multi-chain functionality allows for greater liquidity access, cross-chain trading, and expanded DeFi opportunities.
MEV Protection (Miner/Maximal Extractable Value Protection)
A mechanism designed to prevent transaction manipulation by miners or validators, which can maximize their profits at the expense of traders.
Common MEV Strategies:
Front-running: Placing a transaction ahead of another to benefit from price changes.
Sandwich Attacks: Exploiting AMMs by inserting buy and sell orders around a trader’s transaction.
Arbitrage Exploits: Manipulating DEX liquidity to extract profit.
SushiSwap and other DeFi platforms implement MEV protection to ensure fairer trade execution and reduce the risk of traders being exploited by bots or validators.
Non-Fungible Token (NFT)
A unique digital asset that represents ownership of a specific item, such as:
Digital art, collectibles, music, in-game assets, and tokenized real-world assets.
NFT Characteristics:
Non-interchangeable: Unlike fungible tokens like ETH or USDT, NFTs have unique metadata stored on the blockchain.
Blockchain Standards:
Ethereum (ERC-721 and ERC-1155)
Solana (SPL tokens)
Polygon, Tezos, and other NFT-compatible blockchains.
Oracles
Data providers that connect blockchain smart contracts with external real-world data.
Blockchains are self-contained and cannot access off-chain data, so oracles act as intermediaries.
They supply price feeds, weather data, stock market information, and other external inputs for smart contracts.
Chainlink and Band Protocol are leading decentralized oracle networks.
Price Impact
The direct effect a trade has on an asset’s price, caused by a large trade size relative to available liquidity.
High price impact occurs when the liquidity pool cannot absorb a trade without significantly shifting the price.
Traders must monitor price impact to avoid unfavorable execution, especially in low-liquidity pools.
Pool Token
A token received when providing liquidity to a decentralized exchange (DEX) liquidity pool.
Represents a user’s share of the pool, entitling them to a proportional amount of trading fees generated.
LP tokens can be redeemed for the original deposited assets plus any earned yield.
Private Keys
A cryptographic key that provides access to and control over a cryptocurrency wallet.
Must be kept secure, as losing private keys results in permanent loss of funds.
Unlike passwords, private keys cannot be recovered if lost.
Quorum
The minimum number of votes required for a governance proposal to be valid and pass in a DAO or blockchain governance system.
Ensures that decisions are made with broad community participation rather than by a small group of voters.
Rug Pull
A DeFi scam where developers remove liquidity from a project, leading to significant losses for investors and liquidity providers.
Common in new, unaudited DeFi projects promising high returns.
One of the most frequent scams in the crypto space.
Slippage
The difference between the expected price of a trade and the actual executed price, often due to market volatility or insufficient liquidity.
High slippage occurs in low-liquidity pools or volatile market conditions, leading to worse execution prices for traders.
DEXs allow traders to set a slippage tolerance to minimize losses.
Smart Contracts
Self-executing blockchain-based contracts that automatically trigger transactions or agreements when predefined conditions are met.
Used in DeFi, NFTs, DAOs, and automated transactions.
SushiSwap relies on smart contracts to enable decentralized financial services.
Sandwich Attack
A front-running exploit where an attacker places two transactions around a target trade to manipulate execution price.
The attacker profits by buying before the victim's trade and selling at a higher price afterward.
Sandwich attacks exploit MEV and impact unsuspecting traders on DEXs.
DeFi protocols implement safeguards, like MEV protection, to counter these attacks.
Tax Tokens
Cryptocurrencies that apply a built-in transaction tax ("tax fee") on every buy, sell, or transfer.
The tax is often used for liquidity provisioning, redistribution to holders, or funding development.
Found mostly on EVM-compatible chains, tax tokens require traders to adjust slippage settings for accurate transactions.
Total Value Locked (TVL)
A key metric in DeFi representing the total amount of assets locked in a protocol, indicating its adoption and liquidity depth.
TVL includes:
Liquidity in decentralized exchanges (SushiSwap).
Collateral in lending platforms (Aave, Compound).
Assets staked in yield farming programs.
v2 AMM
The second version of AMM protocols, using constant product market-making ("x*y=k") for liquidity pools.
SushiSwap v2 follows this model, where LPs earn passive income from fees.
v3 AMM
The third-generation AMM design, introducing concentrated liquidity, allowing LPs to allocate liquidity within specific price ranges rather than across the entire spectrum.
This model improves capital efficiency and fee earnings for LPs.
Sushi v3 use this system to optimize liquidity provision.
Vampire Attack
A DeFi strategy where one protocol drains liquidity from a competitor by offering better incentives.
The most famous vampire attack was SushiSwap draining liquidity from Uniswap in 2020, migrating over $1 billion in liquidity by rewarding LPs with SUSHI tokens.
Wallet
A software or hardware tool that stores, manages, and enables cryptocurrency transactions.
Wallets store private keys, allowing users to send and receive assets.
Types of Wallets:
Software wallets (MetaMask, Trust Wallet).
Hardware wallets (Ledger, Trezor).
Paper wallets (physical copies of private keys).
Wallet Address
A unique identifier representing a user's cryptocurrency wallet on a blockchain.
Used to send and receive crypto transactions.
A hashed representation of a user’s public key.
Wrapped Tokens
Tokens that represent assets from one blockchain on another blockchain, improving interoperability and liquidity.
Example: Wrapped Bitcoin (WBTC) is Bitcoin tokenized on Ethereum, allowing BTC to be used in DeFi applications.
Zero-Knowledge Proofs (ZKPs)
A cryptographic method that allows proving knowledge of information without revealing the actual data.
ZKPs enhance privacy, security, and scalability in blockchain transactions.
Sushi is deployed on Polygon zkEVM, which uses Zero-Knowledge Rollups for efficient DeFi transactions.
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