Glossary

Relay chain The chain that coordinates consensus and communication between parachains (and external chains, via bridges). via Polkadot Wiki

Parachain A blockchain that meets several characteristics that allow it work within the confines of the Polkadot Host. Also known as "parallelized chain." via Polkadot Wiki

Cross-Chain and Cross-Chain Message Passing (XCMP) Cross-chain describes the transfer of data, tokenized assets, or other types of information from one independent blockchain network to another. On the Polkadot network, XCMP is a specialized mechanism used to send information between different blockchains linked together on Polkadot’s interoperable network. The XCMP system relies on Polkadot’s collator nodes to route messages between blockchains. via Gemini

Web 3.0 (web3)

The term Web 3.0 refers to a vision of the third generation of computing, which anticipates that technologies like blockchain will decentralize the internet and disintermediate web 2.0 companies like Facebook, Amazon, LinkedIn, and Apple to enable the online exchange of value, and allow users to own their data. Web 3.0 is designed to benefit all participants using a peer-to-peer (P2P) model for websites, applications, and the internet as a whole. It will focus in many ways, on producing a machine-readable data-driven semantic web. Many believe blockchain and crypto are central to the realization of the open, public, censorship-resistant, borderless, free internet: Web 3.0. via Gemini

Automated Market Maker (AMM) An automated market maker (AMM) is a fully automated decentralized exchange where trades are made against a pool of tokens called a liquidity pool. An algorithm regulates the values and prices of the tokens in the liquidity pool. Since AMMs do not rely on an active market of buyers and sellers, trades can occur at any time. via Gemini

Constant Product Market Maker (CPMM) CPMM is represented by a classic function: x*y = c

where X and Y are reserves of a certain (chosen) asset in the pool, and C is an unchangeable constant. The function establishes the price of a chosen token, meaning if the supply of token X increases, the supply of token Y decreases in order to maintain the constant value C. via Blaize

Decentralized Exchange (DEX) A decentralized exchange (DEX) is a financial services platform for buying, trading, and selling digital assets. On a DEX, users transact directly and peer-to-peer on the blockchain without a centralized intermediary. DEXs do not serve as custodians of users' funds, and are often democratically managed with decentralized governance organization. Without a central authority charging fees for services, DEXs tend to be cheaper than their centralized counterparts. via Gemini

Impermanent Loss Impermanent loss occurs when the value of tokens held in an algorithmically balanced liquidity pool lose value relative to assets in the open market due to price volatility. The loss is 'impermanent' because the original value of the tokens can be restored if the liquidity pool restores balance. via Gemini

Liquidity In regards to an asset, liquidity refers to the ability to exchange an asset without substantially shifting its price in the process, and the ease with which an asset can be converted to cash. The easier it is to convert the asset to cash, the more liquid the asset. With regard to markets, liquidity refers to the amount of trading activity in a market. The higher the trading volume in the market, the more liquid the market. Liquid markets tend to increase the liquidity of assets. via Gemini

Liquidity Providers (LP) A liquidity provider is a user who deposits tokens into a liquidity pool. In return for supplying liquidity, users are typically awarded liquidity provider (LP) tokens that represent the share of the liquidity pool the user owns. via Gemini

Slippage Within a financial context, slippage refers to the difference between the expected price of a trade relative to the actual price at which the trade is executed. Slippage generally occurs when an investor buys or sells an asset on a platform with poor liquidity and low trading volume. If there is a large gap between the bid-ask price on an exchange's order book, the asset purchaser may end up paying more for an asset or receive less of the asset than expected once the trade has been executed. via Gemini

Arbitrage To arbitrage is to exploit the price difference of an asset or security between two markets for profit. For example, if one bitcoin is selling for $10 on exchange ABC and $12 on exchange XYZ, then an arbitrageur can generate a profit of $2 by purchasing one bitcoin from ABC and selling it at XYZ. Arbitraging can be automated by utilizing sophisticated computer systems and software to monitor prices and conduct high-volume trades that take advantage of even slight differences in prices. Arbitrage is a necessary financial mechanism that keeps prices consistent between different exchanges and wider markets. via Gemini

Ink ink! is a domain specific language for writing smart contracts in Rust and compiles to Wasm code. via Polkadot Wiki

Wasm WebAssembly, shortened to simply Wasm, is a binary instruction format for a stack-based virtual machine. Wasm is designed as a portable target for compilation of high-level languages like C/C++/Rust, enabling deployment on the web for client and server applications. via Polkadot Wiki

Pallet A Substrate runtime module. via Polkadot Wiki