## DeFi and MEV Glossary
### A
- Arbitrage: the simultaneous buying and selling of assets (e.g., cryptocurrencies) in several markets to take advantage of their price discrepancies.
- Assets under management (AUM): the total market value of the investments that a person or entity manages on behalf of clients.
### B
- Backrunning: when an attacker attempts to have a transaction ordered immediately after a certain unconfirmed target transaction.
- Blocks: a block contains transaction data and the hash of the previous block ensuring immutability in the blockchain network. Each block in a blockchain contains a list of transactions in a particular order. These transactions encode the updates to the blockchain state.
- Block time: the time interval between blocks being added to the blockchain.
- Broadcasting: whenever a user interacts with the blockchain, they broadcast a request to include the transaction to the network. This request is public (anyone can listen to it).
- Builders: actors that take bundles (of pendent transactions from the mempool) and create a final block to send to (multiple) relays (setting themselves afeeRecipient to receive the block’s MEV).
- Bundles: one or more transactions that are grouped together and executed in the order they are provided. In addition to the searcher's transaction(s), a bundle can also contain other users' pending transactions from the mempool. Bundles can target specific blocks for inclusion as well.
### C
- Central limit order book (CLOB): patient buyers and sellers post limit orders with the price and size that they are willing to buy or sell a given asset. Impatient buyers and sellers place market orders that run through the CLOB until the desired size is reached.
- Contract address: the address hosting some source code deployed on the Ethereum blockchain, which is executed by a triggering transaction.
- Crypto copy trading strategy: a trading strategy that uses automation to buy and sell crypto, letting you copy another trader's method.
### D
- Derivatives: financial contracts that derive their values from underlying assets.
- Dollar-cost-averaging (DCA) strategy: a one-stop automated trading, based on time intervals, and reducing the influence of market volatility. Parameters for DCA can be: currency, fixed/maximum investment, and amount, investment frequency.
### E
- Epoch: in the context of Ethereum's block production, in each slot (every 12 seconds), a validator is randomly chosen to propose the block in that slot. An epoch contains 32 slots.
- Externally owned account (EOA): an account that is a combination of public address and private key, and that can be used to send and receive Ether to/from another account. An Ethereum address is a 42-character hexadecimal address derived from the last 20 bytes of the public key of the account (with 0x appended in front).
### F
- Frontrunning: the process by which an adversary observes transactions on the network layer and acts on this information to obtain profit.
- Fully diluted valuations (FDV): the total number of tokens multiplied by the current price of a single token.
- Futures: contracts used as proxy tools to speculate on the future prices of crypto assets or to hedge against their price changes.
- Future grid trading bots: bots that automate futures trading activities based on grid trading strategies (a set of orders is placed both above and below a specific reference market price for the asset).
### G
- Gas price: used somewhat like a bid, indicating an amount the user is willing to pay (per unit of execution) to have their transaction processed.
- Gwei: a small unit of the Ethereum network's Ether (ETH) cryptocurrency. A gwei or gigawei is defined as 1,000,000,000 wei, the smallest base unit of Ether. Conversely, 1 ETH represents 1 billion gwei.
- Grid trading strategy: a strategy that involves placing orders above and below a set price, using a price grid of orders (which shows orders at incrementally increasing and decreasing prices). Grid trading is based on the overarching goal of buying low and selling high.
### H
- Hedging: taking short positions.
### K
- Keys: blockchain account keys can be either private keys (for digital signatures), or public keys (for addresses).
### L
- Limit orders: when one longs or shorts a contract, several execution options can be placed (usually with a fee difference). Limit orders that are set at a specific price to be traded, and there is no guarantee that the trade will be executed (see market orders and stop-loss orders).
- Liquidity pools: a collection of crypto assets that can be used for decentralized trading. They are essential for automated market makers (AMM), borrow-lend protocols, yield farming, synthetic assets, on-chain insurance, blockchain gaming, etc.
- Liquidation threshold: the percentage at which a collateral value is counted towards the borrowing capacity.
- Liquidation: when the value of a borrowed asset exceeds the collateral. Anyone can liquidate the collateral and collect the liquidation fee for themselves.
- Long: traders maintain long positions, which means that they expect the price of a coin to rise in the future.
### M
- Fully diluted market capitalization: the total token supply, multiplied by the price of a single token.
- Circulating supply market capitalization: the number of tokens that are available in the market, multiplied by the price of a single token.
- Margin trading: buying or sell assets with leverage.
- Marginal seller: a type of seller who is willing first to leave the market if the prices are lower.
- Market orders: Market orders are executed immediately at the asset's market price (see limit orders).
- Mean reversion strategy: a trading range (or mean reversion) strategy is based on the concept that an asset's high and low prices are a temporary effect that reverts to their mean value (average value).
- Mempool: a cryptocurrency node’s mechanism for storing information on unconfirmed transactions.
- Merkle tree: a type of binary tree, composed of: 1) a set of notes with a large number of leaf nodes at the bottom, containing the underlying data, 2) a set of intermediate nodes where each node is the hash of its two children, and 3) a single root node, also formed from the hash of its two children, representing the top of the tree.
- Minting: the process of validating information, creating a new block, and recording that information into the blockchain.
### P
- Perpetual contract: a contract without an expiration date, where interest rates can be calculated by methods such as Time-Weighted-Average-Price (TWAP).
- Priority gas auctions: bots compete against each other by binding up transaction fees (gas) to extract revenue from arbitrage opportunities, driving up user fees.
- Private key: a secret number enabling a blockchain user to prove ownership on an account or contract, via a digital signature.
- Publick key: a number generated by a one-way (hash) function from the private key, used to verify a digital signature made with the matching private key.
- Provider: an entity that provides an abstraction for a connection to the blockchain network.
- POFPs: private order flow protocols.
### O
- Order flow: in the context of Ethereum and EVM-based blockchains, an order is anything that allows changing the state of the blockchain.
- Open interest: total number of futures contracts held by market participants at the end of the trading day. Used as an indicator to determine market sentiment and the strength behind price trends.
### R
- RPC endpoints: blockchain odes with RPC endpoints.
### S
- Slots: in the context of Ethereum's block production, a slot is a time period of 12 seconds in which a randomly chosen validator has time to propose a block.
- Smart contracts: a computer protocol intended to enforce a contract on the blockchain without third parties. They are reliant upon code (the functions) and data (the state), and they can trigger specific actions, such as transferring tokens from A to B.
- Sandwich attack: when slippage value is not set, this attack can happen by an actor bumping the price of an asset to an unfavorable level, executing the trade, and then returning the asset to the original price.
- Slippage: delta in pricing between the time of order and when the order is executed.
- Short: traders maintain short positions, which means they expect the price of a coin to drop in the future.
- Short squeeze: occurs when a heavily shorted stock experiences an increase in price for some unexpected reason. This situation prompts short sellers to scramble to buy the stock to cover their positions and cap their mounting losses.
- Spot trading: buy or selling assets for immediate delivery.
- Statistical trading: is the class of strategies that aim to generate profitable situations, stemming from pricing inefficiencies among financial markets. Statistical arbitrage is a strategy to obtain profit by applying past statistics.
- Stop-loss orders: this type of order execution places a market/limit order to close a position to restrict an investor's loss on a crypto asset.
### T
- otal value locked (TVL): the value of all tokens locked in various DeFi protocols such as lending platforms, DEXes, or derivatives protocols.
- Тrading volume: the total amount of traded cryptocurrency (equivalent to US dollars) during a given timeframe.
- Transaction: on EVM-based blockchains, there the two types of transactions are normal transactions and contract interactions.
- Transaction hash: a unique 66-character identifier generated with each new transaction.
- Transaction ordering: blockchains usually have loose requirements for how transactions are ordered within a block, allowing attacks that benefit from certain ordering.
- Time-weighted average price strategy: TWAP strategy breaks up a large order and releases dynamically determined smaller chunks of the order to the market, using evenly divided time slots between a start and end time.
### V
- Validation: a mathematical proof that the state change in the blockchain is consistent. To be included into a block in the blockchain, a list of transactions needs to be validated.
- VTRPs: validator transaction Reordering protocols.
- Volume-weighted average price strategy: VWAP breaks up a large order and releases dynamically determined smaller chunks of the order to the market, using historical volume profiles.
### W
- Whales: individuals or institutions who hold large amounts of coins of a certain cryptocurrency, and can become powerful enough to manipulate the valuation.