DeFi Protocols and Their Financial Functions BDC Practice Questions (Page 6)

Questions 26–30

1. 26expert · hard

   A DeFi protocol allows users to deposit LP tokens from an AMM as collateral to borrow stablecoins. The protocol uses a spot price oracle to value the LP tokens. An attacker uses a flash loan to manipulate the AMM price, causing the LP token value to drop, which triggers liquidations. What is the most effective solution?

   • ADisallow LP tokens as collateral
   • BIncrease the collateralization ratio to 200%
   • CAdd a circuit breaker that pauses the protocol when the LP token value drops by more than 10%
   • DUse a TWAP oracle to value the LP tokens
   Reveal Solution Discussion Select an answer first
2. 27expert · hard

   A synthetic asset protocol allows users to mint a token that tracks the S&P 500 index. The protocol uses an oracle to get the index price and requires 150% collateralization. During a market crash, the index drops 40% in a day. What is the most immediate risk to the protocol?

   • AUsers will be liquidated, and the protocol may not have enough collateral to cover the synthetic tokens
   • BThe protocol will be unable to mint new synthetic tokens
   • CThe oracle will fail to update the index price
   • DThe synthetic token will become depegged from the index
   Reveal Solution Discussion Select an answer first
4. 28application · medium

   An AMM-based DEX uses a constant product formula x*y=k for its ETH/DAI pool. A developer notices that a large trade can move the price significantly, causing arbitrageurs to profit at the expense of liquidity providers. Which modification would best reduce the price impact for large trades while maintaining the AMM model?

   • AIncrease the liquidity depth of the pool by incentivizing more liquidity providers to deposit funds.
   • BUse a time-weighted average price (TWAP) oracle to execute trades gradually.
   • CSwitch to an order book model so that large trades match against resting orders.
   • DChange the fee tier to a higher percentage to discourage large trades.
   Reveal Solution Discussion Select an answer first
5. 29application · medium

   A DEX uses an order book model but is struggling with low liquidity for a new token. The team considers switching to an AMM model. What is the primary advantage of an AMM over an order book for this token?

   • AAMMs are more resistant to front-running than order books
   • BAMMs provide continuous liquidity without requiring a counterparty
   • CAMMs provide better price discovery than order books
   • DAMMs have lower gas costs than order books
   Reveal Solution Discussion Select an answer first
6. 30foundation · easy

   How do most DeFi lending protocols determine the interest rate for borrowers?

   • ABased on the borrower's credit history and income.
   • BThrough a dynamic algorithm that adjusts rates based on the utilization of the liquidity pool.
   • CFixed rates set by the protocol governance at launch.
   • DDetermined by the current price of the protocol's native token.
   Reveal Solution Discussion Select an answer first