Markets
How tokens are priced and traded without an order book or a counterparty, and what it costs to supply the capital that makes that possible. This is the heart of DeFi, and the section reads in that order: the exchange, the formula that prices it, the canonical implementation, then the economics of providing the liquidity.
A decentralized exchange replaces the order book with an automated market maker — a liquidity pool priced by an invariant, usually the constant product formula or its weighted cousin, the constant mean formula. Uniswap is the canonical implementation, and its concentrated liquidity rests on virtual reserves: a trick for making limited capital behave like a much deeper pool.
Providing that liquidity is not free. Impermanent loss is what the pool costs a provider when the price moves, volatility is the input that determines how much, and maximal extractable value is what block producers take from the ordering of a trade. Staking and yield farming are the two standard ways of being paid to leave capital in place, and transfer on join/exit vs. mint/burn is the accounting choice underneath any of them.
A prediction market is the same machinery pointed at an event rather than an asset: the price of a contract is the market’s probability for an outcome. Prediction market event time is the surprisingly awkward question of when the event is deemed to have happened.
Options are the derivatives built on top of these markets and have a section of their own; the oracles that bring a price on-chain from outside are the section after this one.