DeFi Protocols and Their Financial Functions BDC Practice Questions (Page 4)

Questions 16–20

1. 16application · medium

   A DeFi protocol is designing a new algorithmic stablecoin that maintains its peg through a seigniorage mechanism. The team wants to reduce the risk of a death spiral during a market crash. Which design feature would be most effective in mitigating this risk?

   • AUse a fully collateralized reserve of a volatile asset to back the stablecoin.
   • BIncrease the reward for holders who burn the stablecoin when it is below peg.
   • CRely solely on arbitrageurs to bring the price back to peg by buying when below $1 and selling when above.
   • DImplement a circuit breaker that pauses minting and burning when the price deviates beyond a certain threshold.
   Reveal Solution Discussion Select an answer first
2. 17foundation · easy

   How does delegated staking differ from direct staking?

   • ADelegated staking is only available on centralized exchanges.
   • BDelegated staking offers higher returns than direct staking.
   • CIn delegated staking, token holders delegate their voting and validation power to a third-party validator, while direct staking involves running a validator node oneself.
   • DDirect staking does not require locking tokens.
   Reveal Solution Discussion Select an answer first
4. 18application · medium

   A lending protocol uses a variable interest rate model based on utilization. When utilization is high, the interest rate increases. A user wants to borrow a large amount of a token that is already highly utilized. What is the most likely outcome?

   • AThe user will be unable to borrow because the protocol is out of funds
   • BThe user will be required to provide more collateral than usual
   • CThe user will receive a discount because they are borrowing a large amount
   • DThe user will pay a higher interest rate due to the high utilization
   Reveal Solution Discussion Select an answer first
5. 19application · medium

   A developer is designing a DeFi protocol that aims to provide lending, borrowing, and trading services. The developer wants to minimize the risk of smart contract vulnerabilities while maintaining the benefits of composability. Which approach best balances these goals?

   • ARely on a bug bounty program to find vulnerabilities after deployment.
   • BBuild a single monolithic smart contract that handles all functions to reduce the number of external calls.
   • CAvoid composability entirely by not integrating with other protocols.
   • DUse well-audited, modular smart contracts that follow established standards and limit the permissions of each contract.
   Reveal Solution Discussion Select an answer first
6. 20foundation · easy

   Which of the following is a common economic exploit in DeFi?

   • AUsing a VPN to access DeFi protocols.
   • BPrice oracle manipulation to trigger unfair liquidations or arbitrage.
   • CSetting high gas limits for transactions.
   • DUsing a hardware wallet to store funds.
   Reveal Solution Discussion Select an answer first