Tokenomics Hub Glossary
- Automated Market Maker(AMM): AMM model uses liquidity pools, or collections of crypto tokens, to make trading possible via an algorithm that sets the token prices based on the changing ratio of tokens supplied.
- Airdrop: A crypto airdrop is a marketing strategy used by blockchain-based projects that involves delivering tokens to the wallets of current cryptocurrency traders, either for free or in exchange for a small promotional service. The airdrop is meant to spread awareness and increase ownership of the currency start-up.
- Altcoin: Altcoin refers to all cryptocurrencies other than Bitcoin(BTC) and Ethereum (ETH).
- Bridge: Blockchain bridges allow different blockchains to connect and transfer funds from one to another.
- Burning Mechanism: In a digital economy, the mechanism used to reduce token supply is called burning. Tokens are digital, so they cannot physically burn. Instead, they are sent to a zero-wallet - a wallet without private keys.
- Centralized Exchange(CEX): CEXs refer to exchanges that are not blockchain-based and controlled by an organization or entity.
- Circulating Supply: Circulating Supply is a metric that defines the number of tokens released in the market, unlocked, and ready to be traded.
- Coin: Coins are cryptocurrencies that have their own blockchain.
- Cold Wallet: Cold wallets are a way of holding cryptocurrency tokens offline. By using this type of wallet, cryptocurrency investors aim to prevent hackers from being able to access their holdings via traditional means, such as those to which hot wallets are subject.
- Consensus Mechanism: A consensus mechanism refers to any number of methodologies used to achieve agreement (authenticity of the transaction), trust, and security across a decentralized computer network. It is useful in record-keeping, among other things. In the context of blockchains and cryptocurrencies, proof-of-work (PoW) and proof-of-stake (PoS) are two of the most prevalent consensus mechanisms.
- Composability: Composability is combining distinct components to create new systems or outputs. In software development, composability means developers can reuse existing software components to build new applications. A good way to understand composability is to think of composable elements as Lego blocks. Each Lego can be combined with another, allowing you to build complex structures by combining different Legos.
- DApp: DApp or decentralized app is a term used for applications coded on blockchains. DeFi, GameFi, and other smart contracts are DApps.
- Data Availability: Data is secured and maintained by nodes where all transaction-related data is guaranteed to be available, called data availability.
- Decentralized Autonomous Organization(DAO): A DAO is an emerging form of legal structure with no central governing body and whose members (token holders) share a common goal to act in the entity's best interest. Popularized through cryptocurrency enthusiasts and blockchain technology, which allows visibility of all user actions, DAOs make decisions in a bottom-up management approach.
- Decentralized Finance(DeFi): Decentralized finance is an emerging financial technology based on secure distributed ledgers like those used by cryptocurrencies. Individuals hold money in a secure digital wallet, can transfer funds in minutes, and anyone with an internet connection can use it. DeFi eliminates the fees banks and other financial third parties charge for using their services.
- Decentralized Exchange(DEX): A decentralized exchange is a digital currency exchange that allows users to buy crypto through direct, peer-to-peer transactions all over an online platform without an intermediary. It differs from a traditional centralized exchange (CEX), where a typical transaction involves a third-party entity (e.g., bank, trading platform, government institution) that takes custody of user funds and oversees the security and transfer of assets between two parties.
- Emission: When new tokens are minted in a digital economy in the form of cryptocurrencies, adding to the supply.
- Epoch: An epoch is a period of time when the blockchain produces a fixed number of blocks.
- Ethereum Improvement Proposals (EIPs): Ethereum Improvement Proposals (EIPs) describe standards for the Ethereum platform, including core protocol specifications, client APIs, and contract standards.
- Ethereum Virtual Machine (EVM): EVM is a computation engine that acts like a master decentralized computer with millions of executable projects. It's the environment where all Ethereum accounts and smart contracts live and acts as the bedrock of Ethereum’s entire operating structure. At any given block in the chain, Ethereum has one and only one 'canonical' state, and the EVM is what defines the rules for computing a new valid state from block to block.
Fork: A hard fork refers to a radical change to the protocol of a blockchain network that effectively results in two branches, one that follows the previous protocol and one that follows the new version. A hard fork requires all nodes or users to upgrade to the latest version of the protocol software. Forks may be initiated by developers or members of a crypto community who grow dissatisfied with functionalities offered by existing blockchain implementations.
A soft fork instead is a change to the software protocol where only previously valid transaction blocks are made invalid. Because old nodes will recognize the new blocks as valid, a soft fork is backward-compatible. This kind of fork requires only a majority of the miners to upgrade to enforce the new rules.
Fully Diluted Market Cap(FDMC): The fully diluted market cap (FDMC) is the maximum supply of tokens multiplied by the token price. It assumed that all tokens were in circulation.
- GameFi: GameFi refers to play-to-earn blockchain games that offer economic incentives to players. Typically, players can earn cryptocurrency and NFT rewards by completing tasks, battling other players, and progressing through the different game levels. Unlike traditional video games, most blockchain games let players transfer the gaming items out of the game’s virtual world. This allows players to trade their items on NFT marketplaces and their crypto earnings on crypto exchanges.
- Gas Fee: A gas fee is a blockchain transaction fee paid to network validators for their services to the blockchain. Without the fees, users would not be incentivized to stake their ETH and help secure the network.
- Gwei: Gwei is a denomination of the cryptocurrency ether (ETH), the digital coin used on the Ethereum network. Similar to fiat currencies like the U.S. dollar, ether is broken into denominations. However, wei is the smallest denomination of ether, like cents are to the U.S. dollar. A gwei is one-billionth of one ETH.
- Hash: A hash takes arbitrary length data as input and converts it to fixed-length encrypted data as output via complex mathematical operation.
- Hot Wallet: Hot wallets are cryptocurrency wallets that are always connected to the internet, which allows users to transact their funds and interact with smart contracts.
- Initial Coin Offering(ICO): ICO refers to raising capital for start-ups/companies by selling their proportion of coin/token in exchange for fiat or cryptocurrency.
- Initial DEX Offering(IDO): IDO is a crowdfunding technique like ICO, but the difference comes from the place of offering. IDO allows cryptocurrency projects to launch their native token or coin through a decentralized exchange (DEX)
- Interoperability: Blockchain interoperability refers to the ability of blockchains to communicate with other blockchains. The foundation of blockchain interoperability is cross-chain messaging protocols, which enable blockchains to read data from and/or write data to other blockchains.
- Layer One(L1): Layer 1 refers to a base network, such as Bitcoin, BNB Chain, or Ethereum, and its underlying infrastructure. Layer-1 blockchains can validate and finalize transactions without the need for another network. They also have their own native token, used to pay transaction fees.
- Layer Two(L2): Layer 2 refers to a secondary framework or protocol that is built on top of an existing blockchain system (L1) inheriting its security guarantees. The main goal of these protocols is to solve the transaction speed and scaling difficulties that are being faced by the major cryptocurrency networks.
- Liquidity Pool: A liquidity pool is a collection of funds (crypto pairs) locked in a smart contract. They are used to facilitate decentralized trading, lending, and many other DeFi functions. Liquidity pools are the backbone of many decentralized exchanges (DEX), such as Uniswap.
- Liquidity Mining (LM): Liquidity mining is a process in which crypto holders lend assets to a decentralized exchange in return for rewards. These rewards commonly stem from trading fees that are accrued from traders swapping tokens. Fees average at 0.3% per swap and the total reward differs based on one’s proportional share in a liquidity pool.
- Market Cap(MC): The market cap is the circulating supply of tokens multiplied by the token price. It is similar to the free-float capitalization in the stock market. The market cap is the total value of all coins that have been minted.
- Merkle Tree:
- Miner Extractable Value(MEV):
- Mining: Mining is the process of verifying blocks and transactions on a decentralized network that uses a Proof-of-work(PoW) consensus mechanism.
- Multi-Sig Wallet:
- Non-Custodial Wallet:
- Non-Fungible Token(NFT):
- Off-chain: Transactions or processes that happens outside of the blockchain.
- On-chain: Transactions or processes that are executed in blockchain.
- Oracle: Oracles are data providers to blockchains. Blockchains cannot retrieve real-world data alone, and oracles are bridging real-world data to blockchains.
- Peg: Pegging refers to backing a cryptocurrency to a real-world or digital asset’s value. These assets could be fiat money, commodities, or digital assets like coins and tokens.
- Private Key:
- Public Key:
- Sandwich Attack: A sandwich attack is a form of front-running that primarily targets decentralized finance protocols and services. In a sandwich attack, a nefarious trader looks for a pending transaction on the network of their choice. In essence, the attacker will front-run and back-run simultaneously, with the original pending transaction sandwiched in between. -*** Satoshi:*** The satoshi represents one hundred millionths of a Bitcoin.
- Seed Phrase: A group of random phrases that stores data to require access to a wallet.
- Sharding: Sharding is a database partitioning technique used by blockchain companies with the purpose of scalability, enabling them to process more transactions per second. Sharding splits a blockchain company's entire network into smaller partitions, known as "shards." Each shard is comprised of its own data, making it distinctive and independent when compared to other shards.
- Sidechain: A sidechain is a separate blockchain that runs independent of the related layer 1 and is connected to it by a two-way bridge. Sidechains can have separate block parameters and consensus algorithms, which are often designed for efficient processing of transactions. Sidechains also sacrifice some measure of decentralization or security to achieve high throughput.
- Slippage: Slippage happens when traders have to settle for a different price than what they initially requested due to a movement in price between the time the order enters the market and the execution of a trade. Common pain points that the vast majority of altcoins suffer from such as low volume and liquidity may also contribute to slippage.
- Smart Contract: A smart contract is a self-executing contract with the terms of the agreement between buyer and seller being directly written into lines of code. The code and the agreements contained therein exist across a distributed, decentralized blockchain network. The code controls the execution, and transactions are trackable and irreversible. Smart contracts permit trusted transactions and agreements to be carried out among disparate, anonymous parties without the need for a central authority, legal system, or external enforcement mechanism. -*** Software Development Kit (SDK):*** SDKs are integrated bundles of software tools that help programmers develop blockchain solutions. They are great for speeding up blockchain development. Many SDKs include one or more crypto APIs.
- Solidity: Solidity is a high-level object-oriented programming language that is principally used for the Ethereum blockchain. Solidity is a useful tool to write smart contracts, which are self-executing code that enable complex automated functions. The programming language interacts with the Ethereum Virtual Machine (EVM), which is the abstraction layer between the executing code and execution machine.
- Stable Coin: Stablecoins are cryptocurrencies whose value is pegged, or tied, to that of another currency (e.g. USD), commodity (e.g. gold), or financial instrument. Stablecoins are more useful than more-volatile cryptocurrencies as a medium of exchange.
- Traditional Finance (TradFi): Traditional finance includes financial methods such as getting loans, bond/stock issuance, and creating accounts in ‘bricks and mortar’ banking institutions. An example of traditional finance is walking into a bank to get a loan or using a cheque to withdraw cash from a bank.
- Trustless: A trustless system means that the participants involved do not need to know or trust each other or a third party for the system to function. In a trustless environment, there is no single entity that has authority over the system, and consensus is achieved without participants having to know or trust anything but the system itself.
- Tokens: Tokens are cryptocurrencies that live within the smart contracts of another blockchain.
- Tokenomics: Tokenomics studies token supply & demand dynamics, behavioral mechanisms, and incentive design. All characteristics can be programmed, and the behavioral outcomes can be observed as all transactions happen transparently on-chain.
- Total Supply: Total Supply refers to the maximum amount of coins or tokens of a specific cryptocurrency that have been created or mined in circulation, including those that are locked or reserved.
- Total Value Locked(TVL): TVL is the total value (in dollars or another fiat currency) of crypto assets locked in a smart contract or protocol.
- Validator Node (Validator): Validators are computers dedicated to maintaining a blockchain's integrity. A validator node is a special type of full node that participates in consensus. By participating in consensus, validator nodes become responsible for verifying, voting on, and maintaining a record of transactions. Validator nodes underpin the security of any blockchain or DLT network.
- Vesting: The vesting schedule, or unlock schedule, is the plan for distributing tokens to specific parts of the ecosystem within a defined period.
- Whitelist: The term whitelist refers to a list of allowed and identified individuals, institutions, computer programs, or even cryptocurrency addresses. It is used to ensure that only those with the necessary qualifications are able to participate. Whitelists are mostly used in the context of ICOs or in terms of withdrawal addresses. It is a list of cryptocurrency addresses that are deemed trustworthy. Only addresses that appear on such lists can withdraw funds from exchange accounts.
- Wrapped Token: A wrapped token is a cryptocurrency token pegged to the value of another crypto. It’s called a wrapped token because the original asset is put in a wrapper, a kind of digital vault that allows the wrapped version to be created on another blockchain.
- Zero-Knowledge Proof: A zero-knowledge proof is a way of proving the validity of a statement without revealing the statement itself. The ‘prover’ is the party trying to prove a claim, while the ‘verifier’ is responsible for validating the claim.
- ZK-Rollup: A rollup is a Layer-2 scaling solution built on top of a “classic” Layer-1 smart contract blockchain network like Ethereum. Rollups solve the dilemma of high gas fees and low throughput, thereby empowering users to pay less gas fees and blockchains to validate transactions quicker. A ZK-rollup is a Layer-2 blockchain protocol that processes transactions, performs computations, and stores data off-chain while holding assets in an on-chain smart contract.
- ZK-SNARK: Zk-SNARK is an acronym that stands for “Zero-Knowledge Succinct Non-Interactive Argument of Knowledge.” A zk-SNARK is a cryptographic proof that allows one party to prove it possesses certain information without revealing that information. This proof is made possible using a secret key created before the transaction takes place. It is used as part of the protocol for the cryptocurrency, Zcash.