Crypto Rosetta Stone
As more friends and acquaintances ask me about crypto, it quickly becomes evident that they think I am speaking a different language. When coming across terms like staking, DeFi, and DEX, I can almost hear their eyes glazing over, even if we are on the phone. The challenge is not that they do not understand personal finance, it is that they do not understand the terminology of this new asset class… even if the basis for the crypto ecosystem is traditional finance.
Given that much of my initial conversations with them immediately delves into an explanation of terminology, I thought that creating a translation of sorts, would help demystify crypto for the uninitiated.
To that end, below follows a list that will be updated periodically, as needed. The terms will be presented in the following format:
Crypto Term
What it Means
How it Relates to Traditional Finance
CEX
Centralized Exchange
Any centralized exchange, like the NASDAQ or Coinbase.
DEX
Decentralized Exchange
An exchange, except that there is no centralized entity governing or managing it
Staking
Depositing crypto for a higher yield
Similar to a deposit except that instead of the bank earning money from lending out your assets, you do
TradFi
Traditional Finance
This IS the legacy system that most people know and use; characterized by centralized intermediaries (e.g. banks)
DeFi
Decentralized Finance
System by which traditional financial services become available without the use of a centralized intermediary
NFT
Non-Fungible Token
A unique asset, like Real Estate or Art, except that it cannot be subdivided but future sales of the asset may continue to apport economic benefits to the originator
Smart contract
Self-executing contract with the rules pre- programmed in code
Instead of setting terms out in a traditional paper contract that could be taken to arbitration to settle disputes, the terms are programmed at the onset and irreversibly executed when the conditions are triggered
Oracle
Means of pulling information into a smart contract
Akin to placing a bet on a sport’s game where the TV reports the information determining the outcome and action, an oracle serves as the conduit of bringing information into the environment of the smart contract to determine if the contract is executed
Stablecoin
A token with a value pegged to a reference asset
Similar to when one currency is pegged to another, and is managed as such, for example HKD and USD. In this case, however, many stablecoins are backed one-for-one by the reference asset such as USDC being backed by one US dollar for every one USDC
Governance token
Token granting the holder decision making power
Similar to a proxy on an equity where the stockholder votes on company proposals. The difference is that proxy votes are generally non-binding but governance token votes are binding
ICO
Initial Coin Offering
Similar in concept to an equity Initial Public Offering (IPO) except coins do not usually carry ownership in the protocol and they are less regulated than IPOs. ICOs are usually offered on their own, dedicated, websites.
IEO
Initial Exchange Offering
A type of ICO where the listing happens on a CEX, instead of dedicated platform, and follows their rules/guidelines
IDO
Initial DEX Offering
A type of ICO where the listing happens on a DEX, instead of dedicated platform, and follows fewer rules/guidelines than an IEO
Many of these concepts may still seem scary despite the relation to the existing structures of traditional finance. To help with that, I will endeavor to explain these topics in more detail in subsequent articles. Comments will be considered when deciding the order in which additional explanation is tackled.
Footnote: This post would be less clear without my sounding board and friend Matthew Chan
