Glossary

Important Terms

At 1881 Capital Partners, our goal is to give our clients a great experience by providing education on the nascent digital asset industry. We believe that it is important for our clients to understand why our investment approach provides value

Actively Validated Services (AVS)

An AVS is integrated with Ehtereum's consensus (validator) layer through the Eigenlayer protocol. This allows the AVS to leverage the strong security of the Ethereum network without needing to build out its own validator network. This speeds up the launch process, reduces costs, and enhances application-level security

Airdrop

Airdrops are when digital asset tokens are distributed for free. The distribution can be targeted to specific addresses on the network, or can be targeted to everyone in the network. You can think of airdrops like free samples. By giving some tokens for free, the ecosystem aims to incentivize activity

Automated Market Maker

Automated market makers (AMMs) are types of decentralized exchanges that use code to facilitate the trade of digital assets. In the traditional financial market, liquidity is maintained through high buyer and seller activity. However, AMMs use liquidity pools to maintain liquidity

Bitcoin

Bitcoin is the first decentralized cryptocurrency. After the global financial crisis, and unknown person (or entity) named Satoshi Nakamoto created bitcoin based off of the free market ideology. Today, bitcoin is seen as a store of value with immutable and non-sovereign properties

Bitcoin Runes

Bitcoin Runes is an exciting development in the Bitcoin ecosystem. It transforms bitcoin into a more functional platform by enabling the creation of fungible tokens on the Bitcoin network. These fungible tokens can be used in ways similar to ERC-20 tokens on the Ethereum network

Block

A block within a blockchain is a blob of data that contains the history of transactions that occurred over a given time interval. Blocks are added by the computers on the network (miners or validators) via the consensus protocol. These computers check the blocks to ensure that the transactions are sound and that the references match up

Blockchain

A blockchain is a decentralized ledger that is organized as a series of "blocks" containing data. Computers running the blockchain are distributed all throughout the world, and use a special set of rules to add the blocks to the blockchain. Once transactions are recorded on the chain, they cannot be tampered with

Coin

Coins are digital currencies that operate within their own blockchains. Bitcoin and Ethereum are examples of coins. The purpose of the coin is as a medium of exchange, store of value, or as payment paid to the computers working on securing the network via the consensus protocol

Consensus Protocol

The consensus protocol is the special set of rules computers running the blockchain follow to add blocks. The consensus protocol determines the "truth" behind what actually occurred in the system, and enables the block addition accordingly. Consensus involves tradeoffs: optimizing for speed means limiting participants, while optimizing for decentralization limits speed

Cryptography

Cryptography is the technology that protects computer information. In the digital age, this is needed to facilitate information exchange. Cryptography allows two computers communicating with one another to encode the message (privacy) and ensure that the message was not tampered with (integrity). Cryptography also helps ensure that communicating parties that the messages received are authentic

DAO

DAOs are decentralized (rules cannot be changed by a single individual), autonomous (operate based on smart contracts and without human intervention), organizations (coordinate activity among a distributed community). The DAO extends traditional corporate governance into the digital world by encoding laws into smart contracts

DeFi

DeFi, or decentralized finance, are decentralized applications used for financial operations such as trading, lending, and saving. These applications are encoded in smart contracts that have been deployed to various blockchain networks. DeFi has unlocked the door to the world of programmable, faster, and powerful financial applications

Eigenlayer

Eigenlayer is a middleware built on the Ethereum network. Eigenlayer allows protocols that are built on it to leverage Ethereum's trust network. This will allow protocols built on Eigenlayer to have low barriers to entry, since they can just leverage Ethereum's validators to create their ecosystems. Eigenlayer allows protocols building on it to rent ethereum's trust. Validators on Ethereum can restake some of their Ethereum to secure these individual protocols

ERC-20

ERC-20 is a widely used standard for creating and issuing fungible tokens on the Ethereum blockchain. This standard has significantly contributed to the growth and development of the Ethereum ecosystem. By creating a common framework for creating and managing tokens, ERC-20 unlocked a wide range of applications, from simple tokens to complex financial instruments. These common set of rules ensure interoperability and ease of integration within Ethereum

Ethereum

Ethereum was created by Vitalik Buterin in 2013. While the bitcoin network unlocked the monetary use case of blockchain technology, Buterin argued that blockchain technology allowed for other opportunities in the space. Through smart contract technology, Ethereum opened the door for developers and applications to benefit from blockchain technology

Exit Liquidity

Founders or early investors in blockchain protocols will also cash out of the protocol via a liquidity event. When these founders and early investors sell their token holdings, these holdings are purchased by other individuals or companies. These entities represent the exit liquidity

Fork

A fork in a blockchain network is created when two nodes disagree about which block to add in the block addition process. This disagreement creates a "fork" in the blockchain and creates two parallel chains.
A soft fork does not result in a permanent split in the network and is generally done when the network needs to update.
A hard fork occurs when the nodes do not reach consensus, creating two branches. New blocks accepted on one fork will be rejected by the other

Fully Disributed Valuatons

The fully distributed valuation is the entire token supply that the protocol will ever issue, multiplied by the price of each individual token. This differs from the market capitalization, which is the total dollar valuation of a protocol based on circulating supply multiplied by the price of the cryptocurrency

Gas

Gas is the fee that is paid to the computers (validators) on blockchains. For providing their computational resources, these computers need the gas as incentive to continue participating in the block addition process of the network

Halving

The bitcoin halving is an event that happens once every four years. Miners on the bitcoin network get some bitcoin as a reward for participating in the block addition process. During the halving, the reward gets slashed in half, creating a supply shock in the bitcoin network. The most recent halving happened on April 19, 2024

Liquidity Pool

Liquidity pools are integral to decentralized exchanges such as Uniswap. In a centralized exchange, an intermediary facilitates the trade between two traders. In the decentralized exchange, however, use liquidity pools funded by the other digital asset users. These pools contain reserves of digital assets that users can trade against

Liquid Staking

Liquid staking is a service that allows users to deposit their Ethereum tokens into a staking pool. In return, the users receive a liquid staking token, which represents a claim on their Ethereum and their staking yield

LST Restaking

LST restaking is a method where users who hold liquid staking tokens (LSTs) transfer their LSTs to smart contracts on Eigenlayer in order to restake these LSTs

M1 Money Supply

The M1 money supply is a key economic indicator used to measure the money in circulation. M1 consists of the most liquid forms of money, such as currency in circulation (physical money such as coins and bills), demand deposits (checking accounts where money can be withdrawn on demand), as well as other checkable deposits such as NOW (negotiable order of withdrawal)

M2 Money Supply

The M2 money supply is a key economic indicator used to measure the total amount of money in circulation within an economy. M2 includes M1 as well as less liquid forms of money that are easily convertible to cash or checking deposits. These include savings deposits, small-denomination time deposits, and retail money market mutual funds

Multiparty Compute

Multiparty computation allows parties, who each have their private data, to come together to evaluate a computation without revealing their sensitive information. The multiparty computation protocol ensures privacy (the private information cannot be inferred from the protocol) and accuracy (bad actors cannot force honest actors to output an incorrect result)

Operator

An operator is an entity who helps run AVS software that is build on top of the Eigenlayer. They register in the Eigenlayer, and stakers can delegate to them. Operators then opt in to provide the AVSs buid on top of the Eigenlayer

Points

Restaked points in Eigenlayer measure the depositor's contribution to the shared security of the ecosystem. Points can be thought of as scores tracked by Eigenlayer and liquid restaking protocols. Depositors are incentivized to earn points since accruing points increases the likelihood of airdrops within Eigenlayer

Proof of Stake

Proof of stake is another type of consensus protocol used by most other blockchain networks outside of bitcoin. In proof of stake, the computers (validators) put up a deposit to a smart contract to participate in the block addition process of the network. Requiring the token deposit to participate, and punishing "bad" validators keeps the consensus mechanism in check

Proof of Work

Proof of work is a type of consensus protocol that is mainly used to secure the bitcoin network. The computers (miners) in the bitcoin network work on a complex cryptographic problem to add the new block to the blockchain. The miner that solves this problem first gets some bitcoin as a reward, while the other miners validate the block addition

Restaking

Restaking allows Ethereum staked on the Ethereum network to be used to secure protocols built on Eigenlayer. When the Ethereuem validators restake their Ethereum on Eigenlayer and into these protocols, the earn protocol fees and rewards for doing so

SAB 121

SAB 121 is a guideline created by the Securities and Exchange Commission in March 2022 that required publicly traded banks to hold custodied digital assets on their balance sheets. Generally, custodial assets of a bank are always held off-balance sheet. This rule has made it difficult for banks to custody digital assets. As of May 16, 2024, both the House of Representatives and the Senate voted against the recommendation

Smart Contract

A smart contract is a computer program that runs on the blockchain network. Just like a legal contract, the smart contract encodes the agreement between the parties involved in the transaction. Smart contracts unlocked the world of general-purpose platforms for decentralized computing

Staking

Staking is the process of locking up digital assets within a blockchain ecosystem. By doing so, the "staker" participates in the security and block addition process of the network via Proof of Stake. The staker earns a return on the principal for participating in this process

Token

Tokens are digital assets that are created on blockchain networks. A cryptocurrency is also a token, but not all tokens are cryptocurrencies. The token represents an asset or utility within a specific ecosystem

Tokenization

Tokenization is the process of representing real-world assets or rights as digital tokens on the blockchain. Tokens can represent ownership or rights to a particular asset and can be traded. Tokenization allows for both cost reduction and capital efficiency in the transaction process

Tokenomics

Tokenomics is a portmanteau of "token" and "economics". It refers to the analysis of the economic aspects of a cryptocurrency or blockchain project. It take into account how tokens within these networks are created, distributed, utilized, and managed to ensure that the economic environments for these projects and sustainable and thriving

Token Generation Event

Token generation event, or TGE, is a strategic method used by blockchain networks to launch and market new tokens. It is a form of crowdfunding that involves a digital asset project issuing tokens and making them available for purchase

Token Unlocks

Token Unlocks is a blockchain analytics provider that makes management and investor token unlock schedules and information readily available to users

Uniswap

Uniswap is a decentralized cryptocurrency exchange. Uniswap replaces centralized exchanges with liquidity pools to facilitate trades. Through this process, Uniswap prioritizes decentralization, censorship resistance, and security

Web 3.0

Web 3.0 is the new generation of the internet. Unlike Web 2.0, which focuses on centralized control, data privacy issues, and intermediaries, Web 3.0 is built on the ethos of decentralization, user-centricity, and privacy. Blockchain technology naturally lends itself to these principles, and serves as the foundational technology of Web 3.0, enabling transparent, immutable, and secure transactions