Decentralized Finance (DeFi) Applications and Ecosystem BBLC Practice Questions (Page 9)

Questions 41–45

1. 41application · medium

   A small business wants to offer its customers a way to earn interest on their crypto holdings without relying on a bank. The business is evaluating a DeFi lending protocol that uses automated market makers and smart contracts. Which key characteristic of DeFi makes this possible, and what is the primary risk the business should disclose to customers?

   • ADeFi eliminates intermediaries through smart contracts; the primary risk is smart contract vulnerabilities.
   • BDeFi relies on a central clearinghouse to settle trades; the primary risk is counterparty default.
   • CDeFi requires a bank as a custodian of funds; the primary risk is theft by the bank.
   • DDeFi uses a permissioned blockchain to ensure compliance; the primary risk is regulatory fines.
   Reveal Solution Discussion Select an answer first
2. 42foundation · easy

   What is a primary risk associated with smart contracts in DeFi?

   • AThey are always immutable and cannot be changed, even to fix bugs.
   • BThey may contain vulnerabilities that can be exploited by attackers.
   • CThey require high transaction fees that make them unusable.
   • DThey are controlled by a central authority that can freeze funds.
   Reveal Solution Discussion Select an answer first
4. 43expert · hard

   A DeFi protocol's governance token holders are debating whether to upgrade a smart contract that handles collateral liquidations. The upgrade would fix a known vulnerability but would also change the liquidation penalty, potentially reducing protocol revenue. The protocol has a time-locked governance process that requires a majority vote. What is the most important consideration for the governance process to address?

   • AEnsuring the upgrade is executed immediately without delay
   • BDetermining whether the vulnerability is real or a false positive
   • CDeciding whether to keep the vulnerability to preserve revenue
   • DBalancing the security benefit of the fix against the economic impact on the protocol
   Reveal Solution Discussion Select an answer first
5. 44expert · hard

   A multinational company wants to use DeFi for cross-border payments but must comply with data protection regulations in multiple jurisdictions. What is the most significant compliance challenge?

   • ADeFi cannot process cross-border payments.
   • BThe public nature of blockchain transactions may conflict with data privacy requirements.
   • CDeFi does not use blockchain.
   • DDeFi is illegal in all jurisdictions.
   Reveal Solution Discussion Select an answer first
6. 45application · medium

   A yield farmer is considering moving funds from a stablecoin pool to a newly launched token pool that offers much higher APY. What should the farmer consider before making this move?

   • AThe higher APY may come with higher impermanent loss and smart contract risk.
   • BThe stablecoin pool will always have lower returns.
   • CThe higher APY is guaranteed by the protocol.
   • DThe new token pool is safer because it is newer.
   Reveal Solution Discussion Select an answer first