Core Protocols and Liquidity Mechanisms in DeFi BFC Practice Questions (Page 1)

Questions 1–5

1. 1application · medium

   A liquidity provider deposits $50,000 worth of USDC and $50,000 worth of ETH into a Uniswap-style pool. After two weeks, the price of ETH doubles relative to USDC. The provider notices their LP token balance has remained constant but the value of their underlying position has changed. What is the most accurate description of their situation?

   • AThey have experienced impermanent loss because the pool rebalanced their holdings toward the depreciating asset
   • BThey have earned a guaranteed profit because trading fees always offset any price divergence
   • CThey have no loss because LP tokens are always redeemable for the original deposited assets
   • DTheir LP tokens have decreased in value because the pool's total liquidity shrank
   Reveal Solution Discussion Select an answer first
2. 2foundation · easy

   What is price impact in an AMM trade?

   • AThe difference between the highest bid and lowest ask on an order book.
   • BThe effect of external market volatility on the token's price.
   • CThe change in the pool's exchange rate caused by the trade itself, which becomes larger for bigger trades relative to pool size.
   • DThe fee that the protocol charges on each trade.
   Reveal Solution Discussion Select an answer first
4. 3foundation · easy

   What is the primary purpose of liquidity mining in DeFi?

   • ATo lend assets to borrowers and earn interest.
   • BTo provide insurance coverage for smart contract failures.
   • CTo mine new blocks on a proof-of-work blockchain.
   • DTo incentivize users to provide liquidity to a protocol by rewarding them with protocol tokens.
   Reveal Solution Discussion Select an answer first
5. 4foundation · easy

   How does a DAO typically make decisions in a DeFi protocol?

   • AThrough off-chain polls on social media that are not binding.
   • BThrough a board of directors elected by the founding team.
   • CThrough on-chain voting where governance token holders vote on proposals, and the outcome is executed automatically.
   • DThrough a single administrator who has the power to change protocol parameters.
   Reveal Solution Discussion Select an answer first
6. 5application · medium

   A DeFi protocol's governance token holders are voting on a proposal to change the fee structure of the protocol's liquidity pools. A large holder with 15% of the voting power wants to ensure the proposal passes. What is the most accurate statement about this governance process?

   • AThe 15% holder should delegate their voting power to a smaller holder to increase the chances of passing
   • BThe proposal will automatically pass because fee changes are administrative, not governance decisions
   • CThe proposal will only pass if a majority of all token holders participate and vote in favor
   • DThe 15% holder can unilaterally pass the proposal because they have the largest single stake
   Reveal Solution Discussion Select an answer first