Reference
TradFi ⇄ DeFi Primitives Reference
The Rosetta stone: every DeFi primitive mapped to its TradFi equivalent, with the differences made explicit.
The mapping table
DeFi is not novel finance — it is known finance with different settlement, custody, and access properties. This table is the Rosetta stone: find the primitive you know, read across.
| TRADFI PRIMITIVE | DEFI EQUIVALENT | KEY DIFFERENCES |
|---|---|---|
| Market maker — quotes bid/ask, warehouses inventory | (Uniswap v2 / Uniswap v3) | Always on, algorithmic, no quoting — the curve is the ; cannot pull quotes from informed flow |
| Repo / collateralized loan — secured borrowing with haircut | MakerDAO · Aave borrow | Overcollateralized, anonymous, on-chain by keeper auction instead of margin call |
| Money market fund — short-term pooled cash yield | Compound / Aave lending pool | No maturity, variable rate set by formula, receipt token is itself composable collateral |
| — buy at discount, redeem at par | Pendle token | Tokenized, transferable 24/7, sliceable to any size; discounts embed contract risk, not just rates |
| — fixed vs floating exchange | Pendle token | Permissionless, no counterparty/ISDA — the swap is a token; no credit risk, only contract risk |
| — cross-margining, | Euler / Fluid | Permissionless, risk-tiered by code; collateral reuse is transparent on-chain rather than hidden in broker books |
| Central bank (lender of last resort) — unlimited emergency liquidity | Flash loan | Atomic, zero credit risk, intra-block only — unlimited size but zero ; reverts if unpaid |
Money-flow diagrams
FLOW 01 — LENDING POOL CIRCUIT
DEPOSITOR → deposits USDC → LENDING POOL → lends at r_b → BORROWER → interest → POOL (−reserve cut) → yield r_s → DEPOSITOR
FLOW 02 — AMM SWAP & FEE DISTRIBUTION
TRADER → swap + 0.30% fee → AMM POOL (x·y=k) → fee accrues to reserves → LP SHARE VALUE ↑ → realized on burn → LIQUIDITY PROVIDER
FLOW 03 — YIELD VAULT LOOP
DEPOSITOR → deposit → VAULT (pJar) → deploys → STRATEGY → farms → YIELD SOURCE → harvest → sell → reinvest ⟲ → VAULT SHARE PRICE ↑
Risk concept table
| RISK | WHAT IT IS | CANONICAL FAILURE | MITIGATIONS |
|---|---|---|---|
| Liquidation risk | Collateral value falls below maintenance threshold; position force-closed with penalty | Black Thursday 2020 — zero-bid Maker auctions | Conservative , health-factor monitoring, partial/soft liquidations (Euler, Fluid) |
| risk | Protocol acts on a manipulated or stale price feed | Compound/DAI Nov 2020 — $89M wrongful liquidations | TWAPs, multi-source medians (Chainlink), delay modules (Maker OSM), deep-liquidity feeds only |
| Smart contract risk | Bug or unintended interaction in immutable code holding funds | Euler Mar 2023 — $197M via missing health check | Audits, formal verification, bug bounties, timelocked upgrades, code immutability after maturity |
| Governance risk | Token-vote capture or governance error changes the rules against users | Beanstalk 2022 — $182M flash-loan governance takeover | Timelocks, quorum + delay (GSM), (long-term alignment), guardian multisigs |
| risk | LP underperformance vs holding, from price divergence + informed flow () | Any volatile pair in a trending market | Stable/correlated pairs, fee tier selection, active range management, IL hedging with options |