Protocol
A set of rules, standards, and smart contracts that define how a blockchain network or decentralized application operates. In DeFi, 'protocol' typically refers to the suite of smart contracts that provide a specific financial service. Protocols are usually governed by DAOs and can be forked (copied and modified) because their code is open-source.
“Aave is a lending protocol, Uniswap is a trading protocol, and Lido is a liquid staking protocol. Each defines specific rules through smart contracts for how users interact with the service.”
Smart Contract
Self-executing programs stored on a blockchain that automatically enforce the terms of an agreement when predetermined conditions are met. Smart contracts enable trustless transactions without intermediaries because the code, once deployed, executes exactly as written and cannot be altered (unless specifically designed to be upgradeable). They form the foundation of DeFi, NFTs, DAOs, and virtually all dApps.
DeFi (Decentralized Finance)
An ecosystem of financial services built on blockchain networks that operate without traditional intermediaries like banks, brokerages, or insurance companies. DeFi uses smart contracts to provide lending, borrowing, trading, insurance, derivatives, and yield generation in a permissionless, transparent, and composable manner. Anyone with a wallet can participate.
DAO (Decentralized Autonomous Organization)
An organization governed by smart contracts and token-holder votes rather than traditional management hierarchies. DAOs enable collective decision-making on protocol upgrades, treasury allocation, and strategic direction without centralized leadership. Proposals are submitted on-chain and executed automatically if they pass a vote.
dApp (Decentralized Application)
An application that runs on a decentralized blockchain network rather than being hosted on centralized servers. dApps use smart contracts for their backend logic while providing user-friendly front-end interfaces. They are censorship-resistant and typically open-source, though their performance depends on the underlying blockchain's capabilities.