Crypto Glossary
Plain definitions of the crypto market structure, DeFi, and BTCFi terms used in Steadyrain research, each linked to the analysis that covers it.
- AMM (automated market maker)
- An automated market maker is a decentralized exchange design that prices trades with a formula over pooled reserves, such as the constant-product rule x·y=k, instead of matching orders in a book. Liquidity providers earn fees but trade against better-informed flow, so their returns depend on whether fees outweigh adverse selection.
- Auto-deleveraging (ADL)
- Auto-deleveraging is a last-resort mechanism on derivatives venues: when a bankrupt position cannot be closed in the market and the insurance fund cannot absorb the deficit, the venue forcibly reduces profitable positions on the opposite side. It caps the venue's bad debt by transferring losses to traders who were winning.
- Babylon
- Babylon is a protocol that lets bitcoin holders stake BTC natively on Bitcoin, without bridging it, to provide economic security to proof-of-stake networks. Stakes are locked in time-locked Bitcoin scripts, and misbehavior is punished through extractable one-time signatures that let the protocol slash the staked coins.
- BitVM
- BitVM is a design for verifying arbitrary computation on Bitcoin without a soft fork, using an optimistic model: a claim is accepted unless someone proves it wrong on-chain. Its main application is bridges whose safety requires only one honest participant among the set that can challenge, rather than an honest majority of signers.
- Blob (EIP-4844)
- A blob is a large data payload attached to an Ethereum block, introduced by EIP-4844 so rollups can publish transaction data cheaply. Blobs have their own fee market separate from regular gas and are pruned by nodes after roughly 18 days, which is long enough for anyone to reconstruct rollup state or raise a challenge.
- Bridge
- A bridge moves assets or messages between blockchains, usually by locking an asset on one chain and issuing a representation on another. Trust models range from a multisig of operators to light clients and zero-knowledge or fraud proofs. Bridges have historically been one of the largest sources of exploit losses because the locked collateral is concentrated and the verification is often weak.
- BTCFi
- BTCFi is the set of financial applications that use bitcoin as productive collateral: staking, lending, Layer 2s, and bridges. Because Bitcoin script is deliberately limited, the central question for every BTCFi design is who must be trusted while BTC is locked, moved, or represented on another chain.
- Counterparty risk
- Counterparty risk is the risk that the other side of an arrangement fails to meet its obligations. In crypto the counterparty is often implicit: an exchange holding customer assets, a stablecoin issuer, a custodian behind an ETF or tokenized asset, or the signers of a bridge. Much of crypto market structure is an attempt to reduce or relocate this risk.
- Covenant (Bitcoin)
- A covenant is a Bitcoin script condition that restricts how coins may be spent in the future, for example by fixing the outputs of the next transaction. Proposals such as OP_CHECKTEMPLATEVERIFY (CTV, BIP-119) and OP_CHECKSIGFROMSTACK (CSFS) would enable vaults, cheaper trust-minimized bridges, and off-chain protocols, but require a soft fork to activate.
- Depeg
- A depeg is a period in which a stablecoin trades meaningfully away from its target value. Typical triggers are doubts about reserves, frozen or slow redemptions, a crash in the collateral backing the token, or liquidity draining from the pools where it trades. Steadyrain keeps a running record of major events in its stablecoin depeg tracker.
- EigenLayer
- EigenLayer is an Ethereum restaking protocol. Stakers delegate ETH or liquid staking tokens to operators, who opt in to secure additional services called actively validated services (AVSs) and accept those services' slashing conditions in return for extra rewards.
- Fee switch
- A fee switch is a governance-controlled parameter that redirects part of a protocol's fees, often from liquidity providers, to the treasury or token holders. Turning it on converts a governance token into a claim on cash flows, which raises questions about liquidity retention, legal classification, and who ultimately pays.
- Funding rate
- The funding rate is the periodic payment exchanged between long and short holders of a perpetual swap. When the perpetual trades above its index, longs pay shorts; when it trades below, shorts pay longs. The rate is also a widely watched signal of positioning, and it is the yield source for delta-neutral strategies and synthetic dollars.
- Layer 2
- A Layer 2 is a system built on top of a base chain that processes activity off the base chain while relying on it for security, typically so users can exit without trusting the operator. Rollups and payment channels such as Lightning are Layer 2s; sidechains with their own validator sets usually are not, because users must trust those validators.
- Lending pool
- A lending pool is an on-chain money market where depositors supply assets to a shared pool and borrowers draw from it against overcollateralized positions. Interest rates are set algorithmically by utilization, and solvency depends on oracle prices and on liquidations clearing before collateral value falls below debt.
- Liquidation
- A liquidation is the forced closure or sale of a leveraged position once its collateral falls below the required maintenance level. Liquidations protect lenders and exchanges from bad debt, but forced selling pushes prices lower and can trigger further liquidations, which is how cascades form during sharp moves.
- MEV (maximal extractable value)
- MEV is the value that can be captured by choosing which transactions go into a block and in what order, beyond standard block rewards and fees. Arbitrage, liquidations, and sandwich trades are typical sources. On Ethereum, MEV is captured through a supply chain of searchers, block builders, relays, and proposers, and how that chain is structured shapes censorship resistance and centralization.
- Oracle
- An oracle is the mechanism that brings off-chain information, most often asset prices, onto a blockchain so contracts can act on it. Lending markets, perpetuals, and prediction markets all depend on oracles, which makes stale, manipulable, or ambiguously defined data one of the most common paths to losses in DeFi.
- Perpetual swap
- A perpetual swap is a futures-style derivative with no expiry date. Instead of converging to spot at settlement, it is kept close to an index price through periodic funding payments between longs and shorts. Perpetuals are the dominant crypto trading instrument on both centralized exchanges and on-chain venues.
- Preconfirmation
- A preconfirmation is a commitment from a block proposer or sequencer that a transaction will be included, and sometimes in what resulting state, before the block is actually produced. It matters most for based rollups, which give up a centralized sequencer's instant confirmations, and it is only credible if breaking the promise costs collateral.
- Prediction market
- A prediction market trades contracts that pay out according to the outcome of a future event, so prices can be read as the market's implied probability. The hard problems are resolution, meaning who decides what happened and how disputes are settled, and regulation, since the same contract can look like a derivative, a binary option, or a wager depending on jurisdiction.
- Real World Asset (RWA)
- A real world asset is an off-chain asset, such as Treasury bills, private credit, or real estate, represented by a token. The token is only as good as the legal structure behind it: the issuer, the custodian, the bankruptcy-remote vehicle, and the redemption terms determine what a holder can actually claim.
- Restaking
- Restaking reuses assets that already secure one network to secure additional services, with the staker accepting extra slashing conditions in exchange for extra rewards. The same collateral then backs several obligations at once, so a fault in one service can impair security for the others.
- Rollup
- A rollup executes transactions outside a base chain and posts the transaction data or state differences back to it, so anyone can reconstruct state and exit to the base chain. Optimistic rollups assume batches are valid unless challenged with a fraud proof during a dispute window; ZK rollups attach a validity proof to every batch.
- Slashing
- Slashing is a protocol-enforced penalty that destroys part of a validator's stake when it provably misbehaves, for example by signing two conflicting blocks. It is what makes proof-of-stake security costly to attack: misbehavior has to be detectable, attributable, and punishable from collateral that is still at risk.
- Socialized loss
- A socialized loss occurs when a deficit that one party cannot cover is spread across other users of the same venue or pool, through haircuts on deposits, reduced payouts, or auto-deleveraging. It reveals who actually bears tail risk in a system, which is often not the party that took it.
- Stablecoin
- A stablecoin is a token designed to hold a steady value against a reference asset, almost always the US dollar. Designs differ by what backs the peg: fiat reserves held by an issuer, overcollateralized crypto, delta-neutral derivatives positions, or algorithmic supply rules. In every case the peg ultimately holds only as well as redemption and arbitrage work under stress.
- Tokenomics
- Tokenomics is the design of a token's supply, distribution, emissions, unlock schedule, and value accrual. The analytically important part is usually the last: whether protocol cash flows reach holders through buybacks, fee sharing, or burns, and how much new supply insiders and incentives add over time.
- TVL (total value locked)
- TVL is the dollar value of assets deposited in a protocol's contracts. It is easy to compare but easy to misread: it rises and falls with token prices, double-counts assets that are wrapped and redeposited, and says nothing about revenue or how long deposits will stay once incentives end.
- x402
- x402 is an open payment protocol built on the HTTP 402 Payment Required status code. A server answers a request with 402 and its payment terms, the client pays, typically in a stablecoin such as USDC, and retries with proof of payment. It is designed for machine-to-machine and AI agent payments where card checkouts do not fit.
- Zero-knowledge proof
- A zero-knowledge proof lets one party convince another that a statement is true without revealing anything beyond its truth. In blockchains the same machinery is used for two different jobs: validity proofs that compress the verification of many transactions (ZK rollups, zkEVMs) and privacy, where the hidden inputs are the point.