GAS & NETWORKS
Gas (transaction fee)
The fee paid to validators (or historically miners) to include a transaction or smart-contract call on a blockchain. More complex actions (swaps, mints, multicalls) consume more gas units than a simple transfer.
EXAMPLE
Gas price 30 Gwei × 150,000 gas units ≈ 0.0045 ETH on L1. Add any L2 sequencer fee or bridge cost when you compare “cheap” routes.
WHY IT MATTERS
Gas can erase a small trade. Price the click before you approve, swap, or claim, especially on Ethereum mainnet during congestion.
COMMON MISTAKES
- Ignoring failed-tx gas (you can still pay when a transaction reverts)
- Confusing gas limit (ceiling of units) with gas price (cost per unit)
- Forgetting L2, bridge, or withdrawal delays when comparing networks
A denomination of ETH: 1 Gwei = 10⁻⁹ ETH. Ethereum gas prices are usually quoted as Gwei per unit of gas so fee spikes are readable without long ETH decimals.
EXAMPLE
50 Gwei × 21,000 gas (simple transfer) ≈ 0.00105 ETH. At $3,000/ETH that is about $3.15 before tips or L2 fees.
WHY IT MATTERS
Wallets and explorers speak Gwei. Converting Gwei × gas units → ETH → USD is the core gas literacy loop.
COMMON MISTAKES
- Treating Gwei as a separate token (it is only a unit of ETH)
GAS & NETWORKS
Layer 2 (L2)
A network that batches user transactions and posts data (or proofs) to a base chain such as Ethereum, cutting fees while inheriting security assumptions from the rollup design (optimistic vs ZK, and their withdrawal rules).
EXAMPLE
A DEX swap that costs $8 on L1 may cost cents on an L2, but bridging assets back to L1 can add delay and a separate fee.
WHY IT MATTERS
Most daily DeFi activity moved to L2 for cost. True cost includes bridge risk, withdrawal windows, and fragmented liquidity.
COMMON MISTAKES
- Comparing L2 swap fees to L1 without counting the bridge path home
- Assuming every L2 has identical finality and security guarantees
GAS & NETWORKS
Bridge (cross-chain)
Infrastructure that moves assets or messages between chains. Designs range from custodial or multisig bridges to light-client and intent-based systems. Risk and speed vary widely.
WHY IT MATTERS
Bridge failures have caused some of the largest crypto losses. When you chase yield on another chain, bridge risk is part of the position.
COMMON MISTAKES
- Treating wrapped assets as identical risk to the native asset on the home chain
- Moving size across a new bridge without checking audits, TVL concentration, and incident history
GAS & NETWORKS
MEV (maximal extractable value)
Value that block builders, validators, or searchers can extract by ordering, inserting, or censoring transactions. Sandwich attacks on DEX swaps in a public mempool are a common retail-facing example.
EXAMPLE
You set 3% slippage on a thin pool. A searcher frontruns your buy, your trade fills worse, then they backrun. Your “tolerance” funded their profit.
WHY IT MATTERS
High slippage tolerance and public mempools raise sandwich risk. Smaller clips, deeper pools, private RPCs, and limit-style venues reduce exposure.
COMMON MISTAKES
- Setting extreme slippage “just to land” on volatile pairs
- Ignoring that failed or partial protection still costs gas on many paths
DEFI & TRADING
AMM (automated market maker)
A DEX design where prices come from a formula and pooled liquidity rather than a classic order book. Constant-product (x·y=k) pools are the textbook example; stableswap and concentrated-liquidity variants change the curve.
FORMULA
Constant product (simple): x · y = kWHY IT MATTERS
AMMs explain why swaps have price impact, why LPs face impermanent loss, and why pool depth matters for trade size.
COMMON MISTAKES
- Assuming every AMM curve behaves like Uniswap v2
- Sizing a swap without checking depth and expected price impact
DEFI & TRADING
Liquidity pool (LP)
A smart-contract vault holding two or more assets that traders swap against. Liquidity providers deposit assets and usually earn a share of trading fees (plus any emissions).
WHY IT MATTERS
Your return is fees and incentives minus impermanent loss and contract risk. Volatile pairs and stable pairs are different risk products.
COMMON MISTAKES
- Reading farm APY as risk-free yield
- Ignoring pool composition changes after large swaps
DEFI & TRADING
Impermanent loss (IL)
The gap versus simply holding the same assets, when you provide them to a typical AMM pool and prices diverge. It is called “impermanent” because it can shrink if prices revert, but it becomes permanent when you exit after a lasting move.
FORMULA
Hold value - LP value (same starting bag, same price path)EXAMPLE
Equal-weight ETH/USDC LP: if ETH doubles while USDC stays flat, a constant-product LP underperforms holding both assets. Fees must cover that gap to win on a hold-vs-LP basis.
WHY IT MATTERS
Fee income is not free. Stress IL at realistic moves before trusting a banner APY.
COMMON MISTAKES
- Assuming fees always beat IL
- Ignoring stablecoin depeg or correlated-asset risk
- Comparing LP returns to spot without the same price path
The gap between the price you expected and the average price you received. Causes include AMM price impact on thin pools, and the market moving while your transaction waits in the mempool.
EXAMPLE
Quote shows 1 ETH = 3,000 USDC. Your fill averages 2,970 USDC per ETH: about 1% slippage, before gas.
WHY IT MATTERS
Too-tight tolerance fails swaps on volatile pairs. Too-loose tolerance invites worse fills and sandwich risk.
COMMON MISTAKES
- Setting slippage extremely high “just to make it work” without checking pool depth
- Assuming stable pairs never slip during stress events
Locking tokens to help secure a proof-of-stake network or to participate in a protocol’s economics, usually for rewards. Rewards may come from inflation, fees, or both. Unbonding periods often apply.
WHY IT MATTERS
Nominal APR or APY is not net yield. Subtract fees, taxes, slashing risk where relevant, emission dilution, and lock-up liquidity cost.
COMMON MISTAKES
- Confusing APR (no compounding in the quoted rate) with APY (compounded)
- Ignoring unbonding windows when you may need liquidity
DEFI & TRADING
APR (annual percentage rate)
A simple annualized rate that does not assume rewards are reinvested. Common for staking quotes and borrow rates on lending markets.
EXAMPLE
10% APR paid monthly without compounding stays ~10% over a year if rewards sit idle. The same rate compounded monthly is higher as APY.
WHY IT MATTERS
Compare products on the same basis. Convert APR to APY only when compounding actually happens at the stated frequency.
COMMON MISTAKES
- Stacking APR labels from emissions and fees without checking what each rate includes
DEFI & TRADING
APY (annual percentage yield)
Annual return assuming rewards are reinvested at a stated compounding frequency. For the same underlying rate, headline APY is higher than APR.
FORMULA
APY ≈ (1 + APR/n)^n - 1 (n = compounds per year)EXAMPLE
12% APR compounded monthly: APY ≈ (1 + 0.12/12)^12 - 1 ≈ 12.68%. DeFi farm APYs often ignore IL and reward-token price risk.
WHY IT MATTERS
Banner APY can be far above net outcome after IL, gas, and emission dumps. Stress the path, not only the rate label.
COMMON MISTAKES
- Treating farm APY as cash yield without IL or token inflation
- Comparing daily-compound marketing APY to simple APR peers
DEFI & TRADING
Yield farming
Deploying capital into DeFi protocols to earn rewards (trading fees, token emissions, points). Often involves LP positions, lending, restaking, or multi-step incentive programs.
WHY IT MATTERS
Advertised yield is gross. Net of IL, gas, contract risk, and reward-token dilution can flip a “high APY” into a loss.
COMMON MISTAKES
- Chasing emissions without an exit plan for the reward token
- Ignoring smart-contract and oracle risk on new farms
DEFI & TRADING
TVL (total value locked)
USD value of assets deposited in a protocol’s smart contracts at a point in time. Used as a rough size and liquidity signal, not a safety certificate.
EXAMPLE
A pool with $50M TVL usually absorbs a $50k swap with less price impact than a $500k pool, all else equal. TVL can still collapse in a crisis.
WHY IT MATTERS
Higher TVL can mean deeper markets and more fee income, and also more attacker attention. Always pair TVL with audits, concentration, and incident history.
COMMON MISTAKES
- Equating high TVL with low risk
- Double-counting recursive deposits across protocols
DEFI & TRADING
Volatility (crypto)
How much price disperses over time. Higher volatility raises option-like risk, worsens IL for many LPs, and widens the range of P/L outcomes for the same hold period.
WHY IT MATTERS
Position size, stop logic, and LP choice should respect dispersion, not only expected return headlines.
COMMON MISTAKES
- Using a calm week’s realized vol as if it were a permanent regime
- Ignoring that leverage multiplies volatility on your equity
DEFI & TRADING
Portfolio rebalancing
Trading back toward target weights after drift. Crypto rebalances must weigh fee and tax drag against how far the mix has moved from plan.
EXAMPLE
Target 60/40; after a rally you sit 72/28. Selling the winner restores the target but realizes gains and pays network or exchange fees.
WHY IT MATTERS
Drift is not automatically a trade. Sometimes contribution-first rebalancing beats selling.
COMMON MISTAKES
- Rebalancing on a schedule without checking whether drift exceeds fee cost
- Ignoring taxable lots when selling winners
DEFI & TRADING
DCA (dollar-cost averaging)
Buying a fixed notional on a schedule instead of one lump sum. It reduces single-day timing risk. It does not guarantee better returns than lump sum.
EXAMPLE
$200 every week for 26 weeks vs one $5,200 buy. Path of prices, fees, and missed cash deployment all change the ending bag.
WHY IT MATTERS
DCA outcomes depend on drift, volatility, and fees. Include trading and transfer costs in any simulation.
COMMON MISTAKES
- Ignoring fees that turn tiny weekly buys into expensive habits
- Treating DCA as insurance against a permanent downtrend
The lowest current ask for an item in a collection on a marketplace (often specific to one chain and venue). It is a rough liquidity signal, not a fair-value appraisal for every trait.
EXAMPLE
Collection floor 1.2 ETH. Your rare trait may list at 2.0 ETH while a common trait may need to undercut floor to sell quickly.
WHY IT MATTERS
Thin floors move on a few listings. Pair floor with volume, depth, and trait rarity before sizing a sweep or a sale.
COMMON MISTAKES
- Treating floor as the price you can sell any item for
- Ignoring royalties and marketplace fees in net proceeds
NFTS
Royalty (NFT secondary sale)
A percentage intended for creators (or rights holders) on secondary sales. Enforcement depends on marketplace policy and chain standards. Not every venue honors the same rate.
EXAMPLE
2.5% royalty + 2% marketplace fee on a 2 ETH sale: about 0.09 ETH leaves the buyer/seller stack before gas.
WHY IT MATTERS
Creators model lifetime royalties across price paths. Traders need royalties and fees in break-even math.
COMMON MISTAKES
- Assuming royalty is always enforced on every venue
- Forgetting platform fees on top of royalties
TOKENS & LAUNCHES
Token vesting
A schedule that releases tokens over time instead of all at once. Common pieces are a cliff (nothing until date X) and linear or periodic unlocks afterward.
EXAMPLE
12-month cliff, then 24 months linear: at month 12 you unlock 0; by month 24 you have roughly half the grant if the schedule is even after the cliff.
WHY IT MATTERS
Large unlocks can pressure float. Employees and investors use vesting to plan liquidity and taxes. Unlocked is not the same as spent-without-impact.
COMMON MISTAKES
- Mixing cliff date with first unlock date
- Ignoring pre-tax vs post-tax amounts in personal planning
TOKENS & LAUNCHES
TGE (token generation event)
The period when a token first becomes transferable or claimable, often with liquidity seeding and exchange listings. TGE timing interacts with vesting and airdrops.
WHY IT MATTERS
Volatility around TGE is common. Depth is thin, unlock calendars matter, and early float can mislead market-cap reads.
COMMON MISTAKES
- Treating TGE price as a long-term fair value without float and unlock context
TOKENS & LAUNCHES
Token distribution / allocation
How supply is split across team, investors, community, treasury, and liquidity. Clear tokenomics make incentives and dilution explicit.
WHY IT MATTERS
Strong products can still struggle if unlocks overwhelm float. Read allocation charts together with vesting calendars.
COMMON MISTAKES
- Looking at pie charts without unlock timing
- Ignoring insider vs community float at TGE
TOKENS & LAUNCHES
Market cap
Price × circulating supply (definitions of “circulating” vary by source). Compares relative size; thin float can move price sharply.
EXAMPLE
$2.00 × 50M circulating = $100M market cap. If 200M tokens exist but most are locked, FDV will be much higher.
WHY IT MATTERS
Market cap without unlock context can look cheap while FDV and vesting imply heavy future sell pressure.
COMMON MISTAKES
- Comparing market caps across tokens with incompatible circulating-supply definitions
TOKENS & LAUNCHES
FDV (fully diluted valuation)
Price × maximum total supply (all tokens that could exist under the current tokenomics). Shows valuation as if every token were already liquid.
EXAMPLE
Price $2, max supply 200M → FDV $400M. If only 50M circulate, market cap is $100M and unlocks may close the gap over time.
WHY IT MATTERS
Low float + high FDV is a common post-TGE pattern. Pair FDV with vesting before calling a token “cheap.”
COMMON MISTAKES
- Using FDV alone without unlock pace
- Assuming max supply never changes via burns or emissions governance
TOKENS & LAUNCHES
Smart contract
Programmable code stored on a blockchain that runs when called. Tokens, pools, bridges, and NFTs are bundles of contracts. Bugs and admin keys can move or freeze funds.
WHY IT MATTERS
Audits reduce but do not eliminate risk. Prefer battle-tested code, limited approvals, and position sizes that survive a total loss of one protocol.
COMMON MISTAKES
- Unlimited token approvals to unknown contracts
- Equating “audited” with “safe forever” after upgrades
Your starting value in an asset for gain/loss tracking, typically purchase price plus certain allowable costs. DeFi swaps, rewards, and bridges can create new lots and basis events depending on jurisdiction.
EXAMPLE
Buy 1 ETH for $2,800 including fees. Later sell for $3,400. Rough gain sketch: $600 before tax rules and lot-matching method.
WHY IT MATTERS
Accurate basis makes net returns honest and reduces tax-time surprises. Track lots when you trade often.
COMMON MISTAKES
- Forgetting fees in basis
- Mixing wallets without a lot history
TAX & P/L
Taxable crypto event
A transaction that may create a reportable gain, loss, or income under local rules. Common candidates include disposals (sells/swaps), some reward claims, and certain airdrops. Rules vary by country and change over time.
WHY IT MATTERS
On-chain activity is not tax-invisible. Sketch P/L and income events before year-end, then confirm with a qualified professional for your jurisdiction.
COMMON MISTAKES
- Assuming a token-to-token swap is never taxable
- Treating calculator output as filing advice