Crypto Rosetta Stone

Source: Thinkstock

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

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Crypto enthusiast. Passionate about bringing crypto’s disruption to traditional finance. Background in corporate strategy & business development

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Eduardo Abreu

Eduardo Abreu

Crypto enthusiast. Passionate about bringing crypto’s disruption to traditional finance. Background in corporate strategy & business development

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