Key DeFi Terms

AMM (Automated Market Maker)

• To trade an asset, we need a price at which we can buy or sell. A market maker provides these price quotes. AMM stands for Automated Market Maker, and is how many trades happen on blockchains. It runs on Smart Contracts.
• Traditional AMMs spread liquidity across ALL possible prices — from $0 to infinity. HODLMM is a type of concentrated liquidity AMM.

APR (Annual Percentage Rate)

• The yearly return on your liquidity position from trading fees, not accounting for compounding.

Bins

• A bin is a container that holds liquidity at a single fixed price point within a concentrated liquidity pool. Only the active bin can hold both tokens, and swaps within a single bin experience zero slippage.
  • Active Bin: The bin where the current market price sits and where swaps are actively happening. It's the only bin that can hold both tokens simultaneously.
  • Bin Step: The price difference between consecutive bins, measured in basis points. Larger bin steps cover wider price ranges with fewer bins; smaller bin steps allow for more precise liquidity concentration.
  • Base Fee: The minimum fee charged on every swap within a pool, paid to liquidity providers. Pools with smaller bin steps typically have lower base fees.

DEX Aggregator (Decentralized Exchange):

• Bitflow's DEX Aggregator connects multiple decentralized exchanges (DEXs) and liquidity pools on the Stacks blockchain. Its main function is to find and execute the best swap rates for any supported token pair. It aggregates liquidity from various sources, optimizing trade execution by scanning multiple DEXs for the most favorable prices.

Fee/TVL

• A metric showing how much fee revenue a pool generates relative to its total liquidity. Higher Fee/TVL = more efficient earnings for LPs. Often displayed as a 7-day/30-Day average.

Impermanent Loss (IL)

• The potential loss in value that occurs when the price ratio of your deposited tokens changes compared to simply holding them. It only becomes "permanent" when you withdraw your liquidity.

Liquid Asset

• A liquid asset is typically used to refer to an asset that can be easily and freely exchanged for cash.
  • Liquidity: Refers to the availability of liquid assets, and how easily that asset can be exchanged for money. Cryptocurrency is a liquid asset much like stocks are and liquidity is provided by Market Makers.

Liquidity Pool:

• A liquidity pool is a collection of two or more cryptocurrencies locked in a smart contract in a DeFi DApp.