Yield Farming Glossary

AMM (Automated Market Maker)

An Automated Market Maker is a smart contract designed to automatically and instantly facilitate cryptocurrency token swaps drawing on funds held in liquidity pools. The AMM does away with the traditional order book model of trading that occurs on centralized platforms.

APR (Annual Percentage Rate)

Annual Percentage Rate is the interest earned on an investment over a specific period without compounding.

APY (Annual Percentage Yield)

Annual Percentage Yield is the interest earned on an investment over a specific period, taking into account compounding interest.

Auto-reinvest

Auto-reinvesting is the process whereby funds accrued through interest are automatically added to the principle investment amount, generating compound interest.

Closed Position

A closed position is a trade that is no longer operational, and can occur manually or automatically.

Collateral

Collareral is an amount of money put up as security in order to receive a loan.

Compound Interest

Compound interest occurs when interest accrued is added to the principle amount, effectively allowing you to gain interest on the interest you have earned.

Debt Ratio

Your debt ratio is your debt value divided by your position value, often expressed as a percentage of decimal.

For example, if you have 300 NEAR and leverage 3x, your entire position is now worth 900 NEAR, giving you a debt ratio of 66.66%. This debt ratio will (hopefully) decrease over time as you incur farming rewards, which grow the value of your position.

DAO (Decentralized Autonomous Organization)

A decentralized autonomous organization is a collective of members with rights to democratically govern the direction of a protocol with the help of smart contracts. Management is not hierarchical and power through proportional voting rights are usually conferred onto stakeholders through staking, holding governance tokens, node ownership, or completing certain actions within a platform. Transparency is achieved through decisions that are automatically enforced through smart contracts.

DEX (Decentralized Exchange)

A decentralized exchange is a platform for buying, selling, and swapping digital assets. DEXes operate using peer-to-peer (P2P) functionality to conduct financial operations, doing away with centralized intermediaries. Most DEXes use AMMs to facilitate near-instant trading, and users are custodians of their own funds.

Diversification

Diversification in cryptocurrency trading relates to holding or utlizing assets that come from different sectors, fill different roles in the DeFi economy, and aren’t necessarily correlated in terms of their movements.

Farming Pool

A farming pool is where liquidity pool (LP) tokens can be lent out to gain extra rewards, such as a high APY return, airdrops, or the right to participate in governance decisions.

Governance Token

Governance tokens are features of DAOs, conferring voting rights usually proportional to a person’s stake in the DeFi platform. Governance tokens can be used to vote through proposals affecting the very direction of the protocol.

Lending

Lending is the process of providing funds for borrowers to use for farming and other DeFi operations, gaining a percentage reward as an incentive to provide capital.

Lending Pool

A lending pool is the place where lenders provide their coins that are then used by borrowers.

Leveraging

Leveraging in the context of trading refers to borrowing a sum of money to add to your principle investment for the purposes of getting greater returns.

Liquidation

Liquidation is the closing of a trading position, usually where an exchange or platform is in danger of not being able to recover funds from a trader that has incurred mounting debts relative to the collateral provided.

Liquidation Threshold

Liquidation threshold is the point at which a position is closed. (See liquidation)

Liquidity

Liquidity in crypto refers to the ease with which tokens can be swapped for other tokens.

Liquidity Pool (LP)

A liquidity pool is a set of funds locked within a smart contract, used by automated market makers for the purposes of making seamless token swaps.

LP Token

An LP is a token that represents a liquidity provider’s equal share of the tokens in a liquidity pool.

Liquidity Provider

A person who provides liquidity to a liquidity pool or DeFi platform.

$NEAR

The native cryptocurrency of NEAR Protocol.

NEAR Protocol

A Layer 1 blockchain solution and home to an expanding ecosystem of decentralized applications. PembRock is the first leveraged yield platform built on NEAR Protocol.

Open Position

A trade that is still ongoing. An open position can be adjusted at any time on PembRock Finance.

$PEM

The native token of PembRock Finance, used for farming, accruing rewards, participation in incentivization programs, and participation in the PembRock DAO.

Position Value

The amount your entire position is worth, including principle and leveraged funds.

Ref Finance

Ref Finance is a community-led, multi-purpose Decentralized Finance (DeFi) platform built on NEAR Protocol. Ref takes advantage of NEAR’s low fees, one-to-two second finality, and WebAssembly-based runtime.

Safety Buffer

Your safety buffer is the gap in funds between your debt ratio and the liquidation threshold. A small safety buffer means your are in danger of liquidation if one or both coins in your farming pair drop any further.

Smart Contract

A smart contract is code that self-executes when certain preconditions are met. Smart contracts automate trades within decentralized exchanges and form the basis of decentralized applications.

Spin

Spin is a DeFi derivatives infrastructure built on NEAR Protocol offering an on-chain order book solution that gives CEX-competitive experience to DeFi users. By using an order book model, users get advantages that include a better user experience compared to AMM, flexible liquidity, easy access for institutional traders, secure and transparent on-chain verification, opportunity to price different types of instruments, and trading robot interoperability.

Stablecoin

Stablecoins are cryptocurrency tokens that remain consistent in value to a particular asset, whether that be a physical item (hard currency, precious metal, real estate), or virtual items such as one or more crypto assets. Stablecoins may be backed one-to-one by the physical asset it mirrors, and is often also regulated through pre-determined conditions written into smart contracts.

Staking

Staking is a part of the Proof of Stake (PoS) consensus mechanism, and involves users locking their cryptocurrency assets on a network to ensure the security and decentralized nature of the chain. Staked assets are often held in a validator node or crypto wallet and incur rewards as blocks are verified.

Token Correlation

Token correlation measures the relationship of movements between two or more cryptocurrencies. Those that rise and fall together have a close correlation, while those that move independently do not.

Tonic

Tonic brings the speed and convenience of centralized exchanges to NEAR while being fully decentralized. Through a high-performance, fully decentralized trading platform, users can buy and sell any NEAR-based token with low fees, deep liquidity and precise pricing, secured by NEAR Protocol.

Total Borrowed

The total amount of assets that have been borrowed at the protocol level.

Total Supply

The total amount of tokens that are available for distribution. The $PEM token has a total supply of 24,220,000.

Total Value Locked (TVL)

TVL is a common way to measure value in DeFi, counting the value deposited in a specific project or blockchain ecosystem.

Trading Fees

The fees you are required to pay to the protocol for conducting financial operations. Fees can vary depending on the protocol and blockchain used.

Undercollateralization

Undercollateralization refers to loans that are worth more than the principle sum put up as security. PembRock allows lenders to leverage their crypto but up to 3x, meaning that with 100 NEAR as collateral, you can secure 200 NEAR as a loan for farming.

Utilization ratio

The utilization ratio is the total amount of outstanding debt divided by the supply volume in the liquidity pool, usually expressed as a percentage. The utilization ratio is often monitored to detect unusual activity and can fluctuate depending on crypto market volatility.

Yield Farming

Yield farming is the process of investing liquidity pool tokens to receive even greater rewards. Depending on the farming pool, farmers may receive more LP tokens, a governance token, or other crypto rewards.