Core Protocols and Liquidity Mechanisms in DeFi BFC Practice Questions (Page 4)

Questions 16–20

1. 16application · medium

   A small trading firm wants to list a newly issued token on a decentralized exchange using an AMM. The token has low initial liquidity and the team is concerned about large trades causing excessive price movement. They plan to seed the pool with equal values of the new token and ETH. What should the firm prioritize to minimize price impact for early traders?

   • ARestrict trading to whitelisted addresses
   • BSet a high trading fee to discourage large trades
   • CDeposit a large amount of both assets to increase total pool liquidity
   • DUse a constant sum formula instead of a constant product formula
   Reveal Solution Discussion Select an answer first
2. 17foundation · easy

   How do DeFi lending protocols determine the interest rate for borrowing a particular asset?

   • AThrough a dynamic interest rate model based on the utilization rate of the asset in the protocol.
   • BThrough a centralized oracle that provides a global benchmark rate.
   • CThrough a vote by all token holders on each loan.
   • DThrough a fixed rate set by the protocol team and updated quarterly.
   Reveal Solution Discussion Select an answer first
4. 18application · medium

   A user wants to borrow $10,000 USDC from a DeFi lending protocol using their ETH as collateral. The protocol requires a 150% collateralization ratio and uses a price oracle to determine ETH's value. If the oracle reports ETH at $2,000, what is the minimum amount of ETH the user must deposit?

   • A5 ETH
   • B15 ETH
   • C7.5 ETH
   • D10 ETH
   Reveal Solution Discussion Select an answer first
5. 19application · medium

   A user provides liquidity to a DEX pool and receives LP tokens. The user then wants to use these LP tokens as collateral in a lending protocol. What is the most accurate statement about this strategy?

   • ALP tokens cannot be used as collateral because they are not ERC-20 tokens
   • BLP tokens have a fixed value equal to the initial deposit amount
   • CUsing LP tokens as collateral eliminates impermanent loss because the tokens are locked
   • DThe LP tokens represent a claim on the pool's assets and can be used as collateral, but their value fluctuates with the pool's composition and impermanent loss
   Reveal Solution Discussion Select an answer first
6. 20foundation · easy

   What is impermanent loss in the context of providing liquidity to an AMM?

   • AThe loss of funds due to a smart contract hack or exploit.
   • BThe loss of trading fees that would have been earned if the provider had traded actively.
   • CThe loss of governance voting power when LP tokens are staked.
   • DThe temporary reduction in the dollar value of a liquidity provider's holdings compared to simply holding the assets, which becomes permanent if the price ratio diverges and does not return.
   Reveal Solution Discussion Select an answer first