Core Protocols and Liquidity Mechanisms in DeFi BFC Practice Questions (Page 2)

Questions 6–10

1. 6application · medium

   A user is deciding between staking their ETH on a proof-of-stake network and providing liquidity to an ETH/USDC pool. They want to earn passive income but are concerned about losing their principal. What is the key difference they should understand?

   • AStaking provides higher returns than liquidity provision in all market conditions
   • BStaking requires active management to avoid liquidation, while liquidity provision is passive
   • CLiquidity provision is risk-free because LP tokens are always redeemable for the original assets
   • DStaking locks the asset but does not expose it to price divergence risk, while liquidity provision can incur impermanent loss
   Reveal Solution Discussion Select an answer first
2. 7application · medium

   A borrower wants to take out a loan on a DeFi lending protocol using ETH as collateral. The protocol requires a 150% collateralization ratio and uses a price oracle. If the ETH price drops sharply, what happens to the borrower's position?

   • AThe interest rate on the loan is increased to compensate for the risk
   • BThe protocol mints additional collateral to maintain the ratio
   • CThe borrower's debt is automatically reduced to match the collateral value
   • DThe position becomes eligible for liquidation if the collateral ratio falls below the required threshold
   Reveal Solution Discussion Select an answer first
4. 8foundation · easy

   What is the primary function of a governance token in a DeFi protocol?

   • ATo provide a stable store of value pegged to a fiat currency.
   • BTo represent a share of the protocol's future profits.
   • CTo grant holders the right to propose and vote on protocol changes.
   • DTo serve as the primary medium of exchange within the protocol.
   Reveal Solution Discussion Select an answer first
5. 9expert · hard

   A synthetic asset protocol allows users to mint a token that tracks the price of gold. To mint the synthetic, users must deposit collateral worth 150% of the synthetic's value. The protocol relies on a price oracle for gold. If the oracle is compromised and reports a gold price 20% higher than the real market price, what is the most likely consequence?

   • AUsers can mint more synthetic tokens than the collateral actually supports, creating under-collateralized positions that may become insolvent when the oracle is corrected
   • BThe protocol will pause minting until the oracle is verified
   • CThe protocol will automatically increase the collateralization ratio to compensate
   • DThe synthetic token's price will immediately drop because traders will sell it
   Reveal Solution Discussion Select an answer first
6. 10application · medium

   An investor wants exposure to the price of Tesla stock but does not want to leave the blockchain ecosystem or deal with traditional brokers. They decide to mint a synthetic asset that tracks TSLA. What is the fundamental mechanism that enables this synthetic asset to maintain its price peg?

   • AA centralized custodian guarantees the price by promising to redeem the synthetic for cash
   • BA price oracle feeds the real-world TSLA price to the protocol, and arbitrageurs trade the synthetic against the oracle price to maintain the peg
   • CThe synthetic token's supply is algorithmically adjusted to match TSLA's market cap
   • DThe protocol holds actual Tesla shares in a vault to back each synthetic token
   Reveal Solution Discussion Select an answer first