DeFi Glossary
Essential terms and concepts in decentralized finance explained
Index
Vault
In DeFi, a Vault most commonly refers to an ERC-4626–compliant smart contract — a standard interface where users deposit tokens, receive shares in return, and earn yield as the vault deploys capital according to a predefined strategy.
On pigi.finance we use the term Vault more broadly to cover all structured on-chain vehicles that accept capital and generate yield, including:
This lets us track and compare the full DeFi yield landscape under one consistent concept, regardless of the underlying contract design.
Daily Snapshots
Data is collected once per day by querying the blockchain at the block closest to midnight UTC (00:00:00 UTC) for each day.
This means a data point labeled April 8 reflects the on-chain state at the very start of April 8 — which is equivalent to the close of April 7. In financial terms, it represents the end-of-day reading for April 7, not an intraday snapshot of April 8.
This convention mirrors standard financial market practice, where a daily close price is stamped with the date of the session that just ended, not the following day. When interpreting charts or statistics, a data point dated April 8 should be read as "the state of the protocol at the end of April 7."
TVL
Total Value Locked (TVL) represents the total amount of cryptocurrency locked in a DeFi protocol. It measures the overall size and adoption of a protocol by showing how much value users have deposited into smart contracts. Higher TVL typically indicates greater user trust and protocol adoption.
APR
Annual Percentage Rate (APR) represents the annualized interest rate earned on a deposit or paid on a loan, without accounting for compounding. It shows the simple annual return on an investment before considering the effects of compounding interest. APR is useful for comparing different investment opportunities on a standardized annual basis.
APR is the answer to the question: "If this daily return continued linearly, what's the yearly rate?"
APY
Annual Percentage Yield (APY) represents the total amount of interest earned on a deposit or paid on a loan over one year, including the effects of compounding. Unlike APR, APY accounts for the frequency of compounding, providing a more accurate picture of actual returns. Higher compounding frequency results in higher APY.
APY is the answer to the question: "If this daily return compounded every day for a full year, what would the total return be?"
Risk-Adjusted APR
Risk-Adjusted APR accounts for the inherent risks and volatility of DeFi investments by applying a "haircut" or penalty to the raw APR. This adjustment reflects the true risk-adjusted return after accounting for factors like smart contract risks, impermanent loss, protocol risks, and market volatility. A lower risk-adjusted APR indicates higher risk exposure for a given yield.
DeFi Base Rate
The DeFi Base Rate represents the average yield offered by top DeFi lending protocols. It serves as a benchmark for comparing DeFi yields against traditional finance options.
For stablecoins, it is calculated as the average of three Aave pools: Aave USDC Pool, Aave USDT Pool, and Aave DAI Pool.
For ETH, it uses Lido stETH as the representative staking strategy. The base rate provides a standardized reference point for DeFi returns.
T-Bills Risk-Free Rate
T-Bills (Treasury Bills) represent the risk-free rate of return in traditional finance. They are considered the safest investment with virtually no risk of default. The T-Bills rate is fetched daily from the US Treasury's Fiscal Data API and serves as a benchmark for comparing DeFi yields against traditional risk-free investments. Any DeFi yield above the T-Bills rate can be considered a risk premium for taking on additional DeFi-specific risks.