DeFi Protocols and Their Financial Functions BDC Practice Questions (Page 5)

Questions 21–25

1. 21application · medium

   A proof-of-stake network allows token holders to delegate their stake to validators. A developer is building a DeFi application that lets users delegate their tokens and earn rewards. The developer wants to ensure that the delegated tokens are still usable in other DeFi protocols. Which approach would enable this?

   • ARequire users to choose between staking and using tokens in DeFi, as they cannot do both.
   • BLock the delegated tokens in a smart contract and do not allow any other use.
   • CIssue a liquid staking derivative token that represents the delegated stake and can be used in other DeFi protocols.
   • DUse a centralized exchange to manage the staking and provide a receipt that is not tradable.
   Reveal Solution Discussion Select an answer first
2. 22application · medium

   A yield farming protocol rewards users with its governance token for providing liquidity to a specific pool. The reward rate is set to be very high initially to attract liquidity. What is a likely consequence of this strategy?

   • ALiquidity providers will likely sell the governance token, causing its price to drop
   • BThe governance token price will increase indefinitely
   • CThe protocol will become more secure due to increased liquidity
   • DThe protocol will attract long-term loyal users
   Reveal Solution Discussion Select an answer first
4. 23foundation · easy

   What is the primary function of a decentralized insurance protocol?

   • ATo provide coverage for smart contract failures or other crypto-related risks through a decentralized pool of funds.
   • BTo regulate all DeFi protocols.
   • CTo guarantee profits for all DeFi investments.
   • DTo offer traditional life insurance policies on the blockchain.
   Reveal Solution Discussion Select an answer first
5. 24foundation · easy

   How are synthetic assets typically created in DeFi?

   • ABy mining a new block on the blockchain.
   • BBy forking an existing token's code and changing its name.
   • CBy locking collateral in a smart contract and minting a token that tracks the price of an underlying asset.
   • DBy directly purchasing the underlying asset and tokenizing it.
   Reveal Solution Discussion Select an answer first
6. 25application · medium

   A decentralized insurance protocol wants to offer coverage for smart contract failures. The protocol needs to determine whether a claim is valid without relying on a centralized authority. Which mechanism should the protocol use to assess claims?

   • AA decentralized claims assessment where token holders stake tokens and vote on the validity of claims, with economic incentives for honest voting.
   • BAn automated smart contract that approves all claims that include a transaction hash of the failed interaction.
   • CA random selection of users who are not financially invested in the protocol to vote on claims.
   • DA panel of expert auditors who manually review each claim and decide the outcome.
   Reveal Solution Discussion Select an answer first