DeFi Protocols and Their Financial Functions BDC Practice Questions (Page 7)

Questions 31–35

1. 31foundation · easy

   What is the role of an oracle in a DeFi protocol?

   • ATo execute trades on behalf of users.
   • BTo validate transactions on the blockchain.
   • CTo provide external data, such as asset prices, to smart contracts on the blockchain.
   • DTo store encrypted user data on-chain.
   Reveal Solution Discussion Select an answer first
2. 32expert · hard

   A DeFi protocol uses an AMM for its primary trading pair and a spot-price oracle for liquidations. The protocol has experienced a near-miss where a flash loan temporarily moved the spot price, but no liquidation was triggered. The team wants to reduce oracle manipulation risk without significantly increasing latency for legitimate liquidations. Which solution best meets this constraint?

   • AUse a decentralized oracle network that aggregates spot prices from multiple exchanges without any time weighting.
   • BUse a spot-price oracle but add a delay of 10 minutes before any liquidation can be executed.
   • CUse a spot-price oracle and increase the liquidation threshold to 150% to provide a larger buffer.
   • DUse a TWAP oracle with a short window (e.g., 5 minutes) that smooths out flash loan spikes while still reacting quickly to sustained price moves.
   Reveal Solution Discussion Select an answer first
4. 33expert · hard

   A DeFi developer is building a composite product that uses a lending protocol's yield-bearing token as collateral in a derivatives protocol. The developer wants to maximize composability while minimizing the risk of a protocol-wide failure. Which approach best achieves this?

   • ACreate a custom yield-bearing token that is only used within the developer's own protocols.
   • BUse a well-established yield-bearing token that has a proven track record and is integrated with multiple protocols.
   • CAvoid using yield-bearing tokens altogether and use only the underlying asset as collateral.
   • DUse a yield-bearing token from a new, unaudited protocol to get higher yields.
   Reveal Solution Discussion Select an answer first
5. 34foundation · easy

   What is a flash loan attack in DeFi?

   • AAn attack that involves sending spam transactions to overload the network.
   • BAn attack that causes the blockchain to fork.
   • CAn attack where a user borrows a large amount of assets without collateral and repays it within the same transaction, exploiting vulnerabilities in protocols.
   • DAn attack that steals private keys.
   Reveal Solution Discussion Select an answer first
6. 35foundation · easy

   What is the primary characteristic of a DeFi protocol?

   • AIt is a government-regulated financial institution that offers digital assets.
   • BIt is a software application that only provides cryptocurrency price tracking.
   • CIt operates without a central intermediary, using smart contracts on a blockchain to provide financial services.
   • DIt is a centralized platform that uses blockchain technology for record-keeping.
   Reveal Solution Discussion Select an answer first