Comparing TradFi, CeFi, and DeFi BFC Practice Questions (Page 7)

Questions 31–35

1. 31application · medium

   A compliance officer at a traditional bank is assessing the risk of partnering with a DeFi lending protocol. The bank is particularly concerned about regulatory clarity and counterparty risk. Which of the following is the most accurate assessment?

   • ADeFi eliminates counterparty risk because smart contracts execute automatically.
   • BDeFi is equivalent to CeFi in regulatory treatment because both use blockchain.
   • CDeFi protocols are fully regulated by the same frameworks as banks, so compliance is straightforward.
   • DDeFi presents regulatory uncertainty and smart contract risk, which require additional due diligence.
   Reveal Solution Discussion Select an answer first
2. 32foundation · easy

   Which of the following is a primary risk associated with DeFi that is less prevalent in TradFi?

   • ARegulatory risk from changing interest rates set by central banks.
   • BOperational risk from a central clearinghouse processing errors.
   • CSmart contract vulnerabilities that can be exploited by attackers.
   • DCounterparty risk due to a bank failing to honor its obligations.
   Reveal Solution Discussion Select an answer first
4. 33foundation · easy

   What is a key limitation of DeFi compared to TradFi?

   • AInability to trade digital assets, as DeFi only supports fiat currencies.
   • BLimited availability, as DeFi services are only open during business hours.
   • CHigh barriers to entry, requiring users to have a minimum account balance of $10,000.
   • DLack of recourse if a transaction goes wrong, since transactions are irreversible and there is no central support.
   Reveal Solution Discussion Select an answer first
5. 34foundation · easy

   What is a key accessibility advantage of DeFi over TradFi?

   • ADeFi offers services only during business hours and requires in-person verification.
   • BDeFi services are available to anyone with an internet connection and a compatible wallet, without requiring approval from a central authority.
   • CDeFi requires users to have a bank account and a credit score to access services.
   • DDeFi is only accessible to accredited investors and institutional clients.
   Reveal Solution Discussion Select an answer first
6. 35foundation · easy

   What type of risk is most associated with CeFi platforms, such as centralized exchanges?

   • ACounterparty risk, because users must trust the platform to hold and return their funds.
   • BNo risk, because CeFi platforms are fully insured by governments.
   • CSmart contract risk, because all CeFi operations are executed by unverified code.
   • DOnly market risk, because CeFi platforms do not hold user funds.
   Reveal Solution Discussion Select an answer first