Updated 6/3/25
Asymmetric Cryptography
Also known as public-key cryptography, is a cryptographic method that uses pairs of mathematically related keys (public and private) to enable secure communication and authentication. In blockchain networks, the private key is used to sign transactions, creating digital signatures that the public key can verify. This method enables secure peer-to-peer transactions without requiring trust between parties, ensuring transaction integrity and sender authentication.
Attestation
A validation mechanism in blockchain networks that employ a Proof-of-Stake consensus mechanism, where a selected validator node proposes a block and other validators (i.e., attesters) vote to confirm its correctness. The network reaches consensus when a block receives a threshold of attestations, with the weight of these votes proportional to the amount of cryptocurrency staked by the validators. This process helps maintain network synchronization and determines which chain the network recognizes as valid.
Attesters
Participants in a proof-of-stake blockchain network who vote on the validity of blocks proposed by the network’s selected validator. After a validator proposes a block, attesters examine and vote on its correctness. Once a block receives a threshold of attestations (votes), it can be added to the chain. Successful attesters receive rewards in the form of newly minted network tokens for their role in verifying transactions and maintaining network integrity.
Automated Market Maker (AMM)
A type of decentralized exchange that uses smart contracts and mathematical formulas to automatically price a pool of crypto assets. Instead of using traditional order books, AMMs often determine prices based on the supply and demand of each asset, where the ratio of the two assets’ quantities must remain constant. By using this formula, the system is more resistant to certain types of price manipulation.
Auxiliary Functions
Features and operations within a DeFi protocol that support its main functionality but are not central to its core mechanics. These functions may be implemented in upgradeable smart contracts since changes to them pose less risk to the protocol’s fundamental security and operations.
Bit-String
A finite sequence of binary digits (bits), where each digit is a 1 or 0.
Block Hash
A unique string of alphanumeric characters that represents the bit-string (i.e., hash value) generated by applying a cryptographic hash function to a block’s data (including transactions, timestamp, previous block hash, and other relevant block data). The block hash serves to identify the block and link it to the previous block in the chain through inclusion of the previous block’s hash. If any data within a block is altered, it would generate a completely different hash value, thereby helping maintain the blockchain’s immutability and chronological order.
Block Production
The process of creating new blocks in a blockchain. In Proof-of-Work networks, miners compete to solve a cryptographic puzzle to create blocks and the network checks that the miner’s solution and the block’s transactions are correct. In Proof-of-Stake networks, competing validators provide collateral in order to be randomly selected and once selected, the validator proposes a new block that must be verified and attested to by other validators before being added to the chain. In both types of networks, block production serves to authenticate and record new transactions while maintaining network consensus.
Block Validation
The process by which nodes in a blockchain network verify and confirm the authenticity of new blocks before adding them to the chain. This typically involves checking that the block’s data, transactions, and reference to the previous block meet the network’s rules.
Blockchain
A distributed digital ledger technology that stores and records transactions in a chain of cryptographically linked blocks. The blockchain is maintained by a peer-to-peer network of nodes, where each node locally runs a software application that enables it to communicate with other nodes in the network, validate and hold a copy of the ledger, and receive the opportunity to create new blocks. Importantly, blockchains are not controlled by any single authority, and instead distribute authority to anyone who participates.
Blockchain Address
A unique identifier mathematically derived from a public-key that serves as a destination for receiving digital assets on a blockchain. Displayed as a shorter string of characters, it functions as a more practical and user-friendly representation of a public-key.
Blockchain Developer
A software developer who writes and deploys the code for a blockchain protocol. As compared to traditional financial intermediaries, DeFi developers do not control user funds, intermediate transactions, or have the ability to collect or access users’ personal information. Instead, DeFi developers build decentralized, neutral software technology that enables users to engage in peer-to-peer transactions while self-custodying their funds.
Blockchain Participant
Any individual or entity that engages with blockchain technology through a peer-to-peer network, including developers who create DeFi protocols, validators and miners who maintain the network, users who conduct transactions, and service providers who broadcast network communications or provide related tools. These participants interact with or contribute to the operation of blockchain networks and decentralized systems without intermediating transactions.
Blockchain Protocol
The fundamental set of rules and standards that govern communication and operations between nodes in a blockchain network, including consensus mechanisms, transaction validation, and data propagation. A blockchain protocol can be permissionless, allowing anyone to operate nodes and participate, or permissioned, requiring authorization from a central authority.
Blocks
Sets of data within a blockchain that store transactions, a timestamp, and other relevant information. Each block includes a unique hash value and references the previous block’s hash, creating a chronological chain of information. Once validated by network nodes through a consensus mechanism and added to the blockchain, blocks cannot be altered without disrupting the entire sequence and being detected by the network.
Bytecode
Source code translated to low-level instructions designed for the Ethereum Virtual Machine—the software that runs on every node in the Ethereum blockchain—that is deployed as a smart contract and stored on the blockchain. It contains both the contract’s programming instructions and initialization parameters needed for execution.
Centralization
A system architecture where control and authority are concentrated in a single entity or small group of entities under common control. This central authority may exercise control over rules and operations of the system, maintain custody of user assets and data, and control who can access the system and its applications. This contrasts with decentralized systems where control is distributed among many independent entities or individuals.
Chain Selection
The process by which nodes in a blockchain network determine which version of the blockchain to adopt when multiple chains exist. In Proof-of-Work networks, nodes typically select the longest chain with as it represents the most accumulated computational work. In Proof-of-Stake networks, nodes select the chain with the most stake-weighted attestation votes. These selection criteria help maintain network consensus and synchronization.
Client-Server Model
A centralized network architecture where users’ devices (clients) request and receive services from a centralized server that stores, manages, and protects the data. For example, when a user’s device interacts with Facebook, it sends requests to Facebook’s servers, which then retrieve and control access to the requested data. This differs from peer-to-peer networks as it gives a single entity (like Meta) complete control over data access and applications.
Code
The underlying software instructions that define how smart contracts and blockchain protocols operate. In DeFi, a smart contract’s code is typically open-source, allowing anyone to view, modify, or distribute it without obligations to those who developed it. Once deployed on a blockchain, a smart contract’s code becomes immutable. A smart contract’s code executes upon a user’s instructions and according to its programmed logic, with all operations verified by the blockchain network rather than requiring trust in third parties.
Consensus Mechanism
The process by which nodes in a blockchain network agree on the validity of transactions and the current state of the blockchain. Before transactions reach consensus, they undergo initial verification by network nodes for completion and correctness. Once verified, transactions enter a memory pool awaiting inclusion in a block. When a block is proposed, nodes independently validate its authenticity and add it to their copy of the blockchain, ensuring network synchronization. Common consensus mechanisms include Proof-of-Work (PoW) and Proof-of-Stake (PoS).
Constant Product Value
A mathematical parameter (represented as ‘k’) used in automated market maker (AMM) protocols that maintains the relationship between paired assets in a liquidity pool through the formula x * y = k, where x and y represent the quantities of each asset. As one asset’s supply increases, its price decreases to maintain the constant product value, enabling automated price determination based on supply and demand.
Core Mechanics
The essential operations and fundamental processes of a DeFi protocol that are critical to its primary function and security. These mechanics, such as privacy pools or token transfer logic, are typically implemented through smart contracts that cannot be upgraded within the protocol to ensure maximum security and protect the protocol’s integrity.
Cryptocurrency Transaction
A digital transfer of value executed and authenticated through asymmetric cryptography (public and private keys) and recorded on a blockchain network. The transaction represents ownership transfers of data packets containing value, where the sender uses their private key to create a digital signature authorizing the transfer. The transaction is then verified by the network’s nodes and permanently recorded on the blockchain.
Cryptographic Hashing
Cryptographic hashing is a mathematical process that takes the transactions in a block, the hash value of the previous block in the chain, and other relevant block data as inputs into a hash function, and generates a unique string of alphanumeric characters that serve as a representation of that data—i.e., the hash value. Importantly, if that data were altered in the slightest way, the hash function would generate a completely different hash value, making any tampering immediately evident.
Cryptographic Keys
Alphanumeric strings—known as a private and public key—that act as mathematical proofs of ownership and authority over digital assets on a blockchain. The private key is used to create digital signatures that authorize transactions, while the public key is used to generate receiving addresses and verify digital signatures.
Cybersecurity
Processes, technologies, and standards for protecting systems, networks, software, and data from unauthorized access, disruption, or manipulation, and to ensure the confidentiality, integrity, and availability of information and the systems that process it. Effective cybersecurity involves continuous risk management, monitoring, and resilience measures to defend against both malicious and accidental threats in digital environments. In DeFi, open-source code enhances cybersecurity by allowing anyone to audit and patch vulnerabilities transparently.
Data Contract
A specialized smart contract employed in the data separation pattern commonly used in DeFi protocols. These smart contracts store and manage data (i.e., state), containing functions that allow other contracts to access and modify the stored information. Unlike logic contracts, data contracts remain persistent during protocol upgrades and serve as the protocol’s permanent data storage layer.
Data Field
A component of blockchain transactions that contains instructions for smart contract execution, consisting of two essential parts: a function identifier that signals to the smart contract which function to execute (such as borrowing funds or token swapping), and a function argument that provides the specific parameters needed for proper execution (such as amount of tokens or voter choice).
Data Packets
Units of data and control information (i.e., source and destination) that are transmitted over a computer network. In blockchain transactions it represents ownership over a certain value of cryptocurrency and that can be transferred between users on a blockchain network. These are not physical objects and are not stored in wallets; instead, they are recorded on the blockchain. Access and control of data packets are only through cryptographic keys.
Data Separation Pattern
One kind of software design pattern employed in DeFi protocols that splits functionality between two smart contracts: one for storing data (i.e., state) and another for operational logic (i.e., how software behaves). Under this design, only the logic contract is upgradable, meaning it can be replaced with a new logic contract, while the state contract is not.
Decentralization
A system architecture where authority and control are distributed among multiple entities rather than concentrated in a single entity. In blockchain networks, this means the network is transparent and fully automated, decision-making power is shared across the network’s participants (i.e., nodes), users self-custody assets, and no entity or group of entities under common control has the ability to unilaterally exclude, block, or approve persons or entities from using or modifying the network, participating in consensus mechanisms, building software that provides access to the network, or otherwise interacting with the network, its underlying technology, or the associated digital asset.
Decentralized Finance
A financial system built on public blockchains that allows users to engage in self-directed, peer-to-peer financial transactions without relying on intermediaries and while maintaining custody and control over their own funds.
DeFi Protocol
A system of interrelated smart contracts and their governing arrangement that enables peer-to-peer financial transactions in a decentralized manner. A DeFi protocol provides communication, connectivity, or software services that users employ to communicate trading interests without including or relying on intermediaries. While protocols may originate from individual developers, authority and control in a DeFi protocol is decentralized among unrelated entities in the governance structure. DeFi protocols can be accessed through front-ends user interfaces or directly/locally from a computer for more technical users.
Deployment transaction
A blockchain transaction used to incorporate smart contract software on a blockchain. It contains the contract’s bytecode (machine-readable instructions) and initialization parameters but does not specify a recipient. Once the deployment transaction is validated by the network and included in a block, the smart contract is assigned a unique blockchain address and becomes operational. While the network does validate the standard transaction information—e.g., digital signature and sufficient gas—it does not audit the actual code being deployed.
Developer
An individual or group who creates software, including smart contracts, DeFi protocols, and related applications. In the DeFi ecosystem, developers may write open source or source-available code.
Digital Signature
A cryptographic mechanism that authenticates the sender’s identity and ensures transaction integrity. Created by using a private key to sign a transaction’s cryptographic hash, the digital signature can be verified by the network using the sender’s public key to recover and compare the original hash against a newly generated hash, confirming both the transaction’s authenticity and that it hasn’t been altered during transit.
Distributed Ledger Technology
A mechanism for storing and communicating data across a peer-to-peer network, where multiple independent nodes share authority and maintain synchronized copies of the same information without requiring a central server. Public blockchains are a type of distributed ledger technology that enables nodes to communicate with other nodes, validate transactions according to network rules, maintain copies of the ledger, and optionally participate in block creation.
External Calls
Programmed methods by which one software program communicates with or invokes operations within a separate software program. In the context of DeFi, this is how smart contracts interact with one another across a protocol.
Front-Ends
A website or application that serves as a user-friendly, optional gateway to communicate with DeFi protocols and blockchain networks. Similar to how email clients translate written messages into data packets to be sent over the internet, front-ends translate human-readable actions into blockchain-compatible data. They may display information like wallet addresses and balances while enabling users to self-direct their own transactions even if the user does not know how to code or understand the technical complexities of blockchain operations. Also known as a “graphical user interface.”
Function Argument
Specific data or parameters input into a software program (e.g., smart contract) to influence how it executes its instructions. In the context of a smart contract, this may include the amount of tokens being transferred or a voter’s choice in a governance proposal. These parameters work in conjunction with the function identifier to ensure the smart contract performs the intended operation with the correct inputs.
Function Identifier
A piece of data that signals to the smart contract which specific operation to execute (e.g., borrowing funds, token swapping, or voting on proposals).
Gas Fee
A payment required to execute transactions on a blockchain network, which compensates validators or miners for processing and validating transactions. The fee amount varies based on network conditions and transaction complexity.
Gas Optimization
The process of determining the most efficient transaction fee (gas fee) based on current network conditions, typically performed by relayers. This optimization analyzes network congestion and other factors to recommend appropriate gas fees that balance cost efficiency with transaction speed and likelihood of successful processing. While relayers suggest optimized gas fees, users maintain control by approving the final fee amount.
Governance Proposal
A formal suggestion submitted to a DeFi governance system for a vote in accordance with a transparent and automated procedure. Voters may include token holders, validators, or other entities. Depending on the governance system, proposals could be to give a grant, start a new initiative, hire persons or engage entities, or make changes to a protocol’s operations, parameters, or fees. The proposal is executed through smart contracts when approved by the required number of votes.
Hardware Wallet
A physical device used for cold storage (offline storage) of cryptocurrency private keys, providing enhanced security by keeping keys isolated from internet-connected devices and potential online attacks. Users can connect these devices to computers to sign transactions offline before broadcasting them to the blockchain network through compatible applications, maintaining security while enabling transaction functionality.
Hash Value
A fixed string of alphanumeric characters generated by a hash function that uniquely represents input data. In a blockchain, the hash function employs a cryptographic algorithm that takes a block’s data—including transactions, the previous block’s hash, and other relevant block information—and outputs the hash value. In this context, it serves as both an identifier for blocks and a security mechanism in blockchain networks, as any change to the underlying data would produce a completely different hash value, making it easy to detect tampering and helping maintain the chain’s immutability.
Hashing
A mathematical process that inputs data into a hash function to output a fixed string of characters to identify said data and organize it within a data structure. In blockchain technology, hashing is used to create unique identifiers for blocks and link them together by including the previous block’s hash value. This ensures data integrity since any alteration to the original data, no matter how small, would produce a completely different hash value.
Immutability
A characteristic of blockchain systems where data, once recorded, cannot be altered or deleted. This property is maintained through cryptographic hashing, which reveals any data alteration, and a consensus mechanism, which determines which version of the blockchain the network accepts as valid.
Implementation Contract
The component of a proxy pattern that contains the core business logic of a smart contract system within a DeFi protocol. When deployed, it provides the executable code that is accessed by the proxy contract—the other component—to carry out logic. It can be updated or replaced while maintaining the same interface through the proxy contract, allowing for system upgrades without disrupting user interactions or stored data.
Incentive System
A blockchain network’s built-in reward and penalty structure that encourages positive behavior and discourages malicious actions. In Proof-of-Work networks, this system uses computational energy costs and token rewards to ensure network security, as bad actors would incur significant energy costs without returns when attempting to introduce fraudulent blocks, while honest miners receive newly minted tokens for successful block validation. In Proof-of-Stake networks, the system uses staked tokens as both incentive for honest validation and collateral that can be reduced (“slashed”) for malicious behavior.
Information Honeypot
A repository of sensitive user data, maintained by a centralized entity, that becomes an attractive target for malicious actors and cybercriminals. These do not exist in decentralized blockchain networks because users engage in self-directed peer-to-peer transactions and no third party collects user data.
Initialization Parameters
Configuration values and settings that are specified when deploying a smart contract to the blockchain. These parameters establish the contract’s initial state (such as addresses, token supply, fees, etc.) and operating conditions, are stored in the contract’s storage, and cannot be updated after deployment unless specifically designed to be.
Intermediary
A third party that acts as a middleman between participants in financial transactions. In decentralized finance (DeFi), smart contracts and blockchain technology eliminate the need for intermediaries by enabling peer-to-peer transactions by leveraging cryptographic software and a decentralized communications network to send and receive value.
Liquidity Pool
A smart contract that allows users to make their assets available for others to trade against. These “pools” of available assets allow users to swap or borrow tokens directly from the pool, while depositors (i.e., liquidity providers) may earn rewards from transaction fees. Importantly, liquidity providers retain ownership and can withdraw their assets at any time.
Liquidity Provider
A user who deposits pairs of crypto assets into a liquidity pool to enable trading on decentralized exchanges. By contributing to the pool’s liquidity, these users help maintain market functionality and may receive a portion of the fees generated when other users conduct transactions.
Logic Contract
In a data separation pattern, this is the smart contract that contains the operational functions (e.g., token transfers and balance updates), referring to the data contract to read or modify data. Among the two contracts employed in a data separation pattern, the logic contract is the one that can be replaced with a newly deployed smart contract, while the data contract remains.
Miner
A node operator in a Proof-of-Work blockchain network who competes to solve cryptographic puzzles by finding a specific value (nonce) that, when combined with the block’s data through a hash function, produces a hash value meeting network-specified criteria. Miners verify transactions, create new blocks, and receive newly minted tokens as rewards for their computational work. The energy cost for mining acts as both an incentive system and security mechanism against malicious behavior.
Network Synchronization
The ongoing process by which all nodes in a blockchain network update their copies of the blockchain to ensure they all hold the same, most current version. When a new block is created or verified by a node, it broadcasts the block to neighboring nodes. Nodes adopt chains based on specific criteria that vary by consensus mechanism—for example, PoW networks adopt the longest chain with the most computational work, while PoS networks follow the chain with the most stake-weighted attestation votes.
Network Token
The native cryptocurrency of a blockchain network that is intrinsically linked to, and derives its value from, the programmatic functioning of a blockchain or smart contract protocol, and is issued as a reward to validators or miners for helping maintain the network. Examples include bitcoin on the Bitcoin network and ether on the Ethereum network. These tokens serve as incentives for network participation but could have other functions, such as collateral for staking.
Nodes
Computers or devices independently operated by network participants that maintain and validate the blockchain network. Nodes run software that allows them to communicate with other nodes, verify transactions, maintain copies of the blockchain, and optionally participate in block creation through mining or validation processes. They form the fundamental decentralized infrastructure of blockchain networks.
Nonce
A specific numerical value that miners must find through trial and error as part of the Proof-of-Work consensus mechanism. When combined with block data through a hash function, the nonce must produce a hash value that meets certain network-defined criteria for the block to be valid.
On-Chain Order Book
A decentralized system where buy and sell orders for cryptocurrency are posted and stored directly on the blockchain using smart contracts. Unlike traditional exchange order books, these operate without intermediaries. Matching is performed by users leveraging a front-end or automatically by third-party bots who identify compatible orders and automatically organize transaction information to broadcast it to the blockchain, targeting the smart contract that handles the order book’s settlement.
Open-Source Code
Software code that is publicly available for anyone to view, use, modify, and distribute. Open-source code enables developers to build on each other’s work, making innovation cheaper and easier. It promotes transparency through public auditability, ensures there are no bugs or backdoors, empowers global participation since anyone with a computer and internet connection can contribute, and enables rapid proliferation of ideas while preventing centralized control over protocols.
Peer-to-Peer Protocol
A set of rules and standards that govern direct communication between network participants (peers) without requiring a central server. In blockchain networks, this protocol enables independent participants to share authority and storage of data via the internet, with each peer operating nodes that can communicate, validate transactions, and maintain synchronized copies of the blockchain. This creates a distributed network where no single entity has control over the system.
Peer-to-Peer Transaction
A transaction between two parties without the involvement of an intermediary or third party, where the parties transaction maintain control and custody of their own assets. In the DeFi context, p2p transactions are secured through cryptographic methods and validated and recorded by a decentralized network.
Permissionless
No person or group of persons under common control has the ability to unilaterally exclude, block, or approve persons or entities from (i) using or modifying the network, (ii) participating in consensus mechanisms, (iii) building software that provides access to the network, or (iv) otherwise interacting with the network, its underlying technology, or the associated digital asset.
Privacy Pool
A core smart contract used in DeFi mixing protocols to temporarily hold crypto assets to obscure the connection between a sender and recipient address. These contracts serve as the foundation for privacy-enhancing features employed in the protocol and are often designed to not be upgradable in order to protect the protocol’s integrity and ensure consistent operation of privacy features.
Privacy-Enhancing Relayer
A specialized type of relayer that helps organize and optimize transaction data while providing additional privacy protections for users. Like standard relayers, it verifies transaction data completeness, optimizes gas fees, and communicates with RPC nodes to broadcast transactions to the blockchain network, but includes features designed to enhance transaction privacy. Importantly, privacy-enhancing relayers, like all relayers, do not take custody of users’ assets or control the movement of funds.
Private Key
A randomly generated string of characters used in asymmetric cryptography that allows users to control their digital assets and authenticate transactions. The private key is used to generate a corresponding public key and create digital signatures that prove ownership and intent. However, it is computationally infeasible to reverse-engineer the private key from the public key. While a public key can be shared openly, a private key must be kept secure as anyone with access to the private key has complete control over the associated assets.
Proof-of-Stake (PoS)
A consensus mechanism for blockchain networks where validators stake the network’s native digital assets to participate in block creation and demonstrate their alignment with the network’s consensus mechanism. The protocol will randomly select a validator to propose a new block and a separate committee of validators, known as attesters, then vote on the block’s validity (i.e., confirm the transactions in that block are valid). Typically, there are rewards (e.g., newly minted tokens) for performing properly, while malicious behavior results in reduction of staked tokens (i.e., slashing).
Proof-of-Work (PoW)
A consensus mechanism used by blockchain networks where miners compete to solve a cryptographic puzzle by finding a specific value (nonce) that, when combined with the block’s data through a hash function, produces a hash value meeting network-defined criteria. Successful miners are rewarded with newly minted tokens. Attempting to manipulate the blockchain would require controlling over 51% of the network’s computational power, making attacks economically impractical from the cost of electricity and computationally infeasible from the power necessary to do so.
Protocol Developer
An individual or team that creates and deploys the code for a protocol. Developers may be responsible for designing smart contracts and may have the power to implement protocol upgrades. Many DeFi protocol developers work with open-source code—allowing anyone to audit for bugs or backdoors, contribute fixes, and build upon existing work—which promotes transparency, community involvement, and rapid innovation in protocol development.
Proxy Contract
A smart contract that acts as an interface between users and the main implementation contract in a proxy pattern for a DeFi protocol. It stores the protocol’s state (data) while delegating function calls to a separate implementation contract that contains the business logic. This design allows for protocol upgrades by redirecting the proxy contract to new implementation contracts without changing the protocol’s address or losing its stored data.
Proxy Pattern
A smart contract design pattern that uses two contracts: a proxy contract that interfaces with users and stores the contract’s state, and an implementation contract that contains the business logic. The proxy delegates calls to the implementation contract and can be redirected to new implementations, allowing for upgrades without changing the contract’s address or losing its state. This pattern is more efficient than data separation patterns since the proxy can execute the implementation’s logic as if it were its own code.
Permissionless Blockchain
A type of distributed ledger technology that stores data and communications for a peer-to-peer network with full transparency to the public, maintaining security through cryptographic methods and decentralized consensus mechanisms like Proof-of-Work or Proof-of-Stake. A permissionless blockchain means anyone can conduct and view transactions, participate in consensus mechanisms, build software that provides access to the network, or otherwise interact with the network and its underlying technology.
Public Key
A cryptographic key that is mathematically derived from a private key and serves as a user’s public-facing identifier on a blockchain network. While the public key can be easily generated from the private key, it is computationally infeasible to reverse-engineer the private key from the public key. The public key is used to verify digital signatures and receive cryptocurrency transactions, and can be converted into a shorter blockchain address for easier use.
Relayer
A third-party software application that helps organize and optimize transactions before they are broadcast to the blockchain network. Relayers verify that transaction data is complete and correct, recommend optimal gas fees based on network conditions, and ensure proper sequencing of complex multi-step transactions. While relayers assist with transaction optimization, they never take custody of users’ assets or control the movement of funds, as users must still approve transactions with their private keys.
Remote Procedure Call (RPC)
A communication protocol that allows software applications, such as self-hosted wallets and decentralized applications, to communicate with blockchain networks by sending requests to remote nodes. RPC allows users to broadcast transactions, query blockchain data, and invoke smart contract functions without running a full node themselves. This protocol enables remote interaction while maintaining the decentralized architecture of the network.
RPC Node
Blockchain nodes serve as access points for software applications to communicate with the blockchain via standardized RPC requests. These nodes receive requests from wallet applications and other software, then broadcasts those requests (such as transactions) to the blockchain network. Anyone can operate an RPC node and contribute to the network’s decentralized structure by providing access points for users to interact with the blockchain.
Self-custody
Through self-custody, people maintain independent control and possession of their own digital assets by holding their private cryptographic keys without trusting or relying on a third-party custodian. Put differently, no person or group of persons (other than the user themself) has the unilateral legal authority or technical ability to initiate transactions in digital assets without the approval, consent, or direction of the user or an authorized third party.
Signature Validity
A verification check performed by network nodes to confirm that a transaction has been properly signed using the sender’s cryptographic private key. This process ensures that the transaction was genuinely authorized by the claimed sender and that the transaction data has not been altered since it was signed. The network verifies this by checking the digital signature against the sender’s public key and comparing the transaction’s hash with a newly generated hash of the received data.
Slots
Time intervals in the Ethereum Proof-of-Stake consensus mechanism during which a randomly selected validator is assigned to propose a new block. After the validator broadcasts their proposed block, other validators can attest to its validity. Once the block receives a threshold of attestations, it is considered valid and added to the blockchain. Almost immediately after, the next slot begins with a new randomly selected validator.
Smart Contract Upgrade
The process of replacing a smart contract within a DeFi protocol. Typically implemented through proxy patterns or other architectural designs, upgrades are usually limited to smart contracts with auxiliary functions rather than core protocol mechanics to maintain security. Due to the immutability of smart contracts, upgrades require deploying new contract code and redirecting users to it, either through proxy contracts or migration processes.
Smart Contracts
Blockchain-based software applications that execute functions upon users’ instructions and when predefined conditions are met. Once deployed, they are immutable. Smart contracts use code to automatically enable complex financial services. Users interact with smart contracts by sending transactions to a smart contract’s address via the blockchain, which triggers its functions. All executions are validated and recorded on the blockchain.
Software Provider
In the DeFi context, an entity that creates and maintains tools, applications, or protocols for blockchain networks that do not take custody or control of user assets. Software providers can be viewed as tool manufacturers and communication providers rather than intermediaries, as they do not collect personal information, have control over user assets, or intermediate transactions. Instead, they create the infrastructure that enables users to directly communicate with blockchain networks.
Stablecoin
A type of digital asset that is designed to maintain a stable value by pegging its price to a fiat currency or another asset with relatively low volatility, typically on a one-to-one basis.
Staff Guidance Letter
A staff guidance letter is a non-binding statement from regulators that reflects current staff thinking on how they may approach or interpret an issue. While not formal rules, these letters offer advisory insight to help market participants understand regulatory expectations. In crypto, they are especially important for giving developers and investors early signals on how regulators may view new technologies, reducing uncertainty and supporting innovation.
Stake-Weighted Attestation
A consensus mechanism in Proof-of-Stake networks where validators vote to confirm the validity of blocks, with their voting power proportional to the amount of cryptocurrency they have staked. The blockchain with the most attestation votes (weighted by stake) is considered the valid chain, as it represents the greatest economic commitment from network participants.
Staking
A process in Proof-of-Stake networks where participants provide collateral in the form of cryptocurrency to become network validators. While validator selection is random, the probability of being selected increases with the amount staked since validators have more to lose if they behave maliciously. Successful validators and attesters receive newly minted network tokens as rewards, while dishonest or negligent behavior results in automatic reduction of staked tokens (“slashing”) once detected by the network.
Self-hosted Wallet
A cryptocurrency wallet where users store their private keys, enabling them to maintain total independent control of their assets without involving, trusting, or relying on a third-party. These wallets can sometimes provide a related website or application that allows users to communicate directly with blockchain networks to engage in peer-to-peer transactions without collecting user information or requiring trust in an intermediary. Users retain full responsibility for securing their private keys and managing their assets. These are also known as “unhosted” or “noncustodial” wallets.
Validator
A network participant in a Proof-of-Stake blockchain system who stakes (locks up) cryptocurrency as collateral to earn the right to verify transactions and propose new blocks. Validators are randomly selected to create blocks and can vote on block validity, receiving newly minted tokens as rewards for honest participation. If validators act maliciously, they risk having their staked tokens reduced through a process called slashing.
Validator Rewards
Newly minted tokens earned by validators for maintaining and securing a proof-of-stake blockchain network by staking assets and participating in block validation. These rewards are considered self-sourced property (similar to extracted minerals or produced goods) because they consist predominantly of newly created tokens generated by the protocol itself, rather than transaction fees paid by other users.