Tokenomics and Digital Assets Flashcards

What distinguishes a security token from a utility token under US securities regulations?

Answer: Security tokens represent an investment with an expectation of profit derived from others' efforts, making them subject to SEC regulations

Security tokens pass the Howey Test by representing an investment of money in a common enterprise with an expectation of profits from others' efforts, triggering full SEC regulatory oversight.

What is an Initial Coin Offering (ICO)?

Answer: A fundraising mechanism where blockchain projects sell newly created tokens to early investors

An ICO is a fundraising mechanism where blockchain projects sell newly created tokens to early investors in exchange for established cryptocurrencies or fiat, analogous to an IPO in traditional finance.

What characteristic makes algorithmic stablecoins different from collateral-backed stablecoins?

Answer: Algorithmic stablecoins use smart contract supply-adjustment mechanisms to maintain their peg without holding equivalent reserves

Algorithmic stablecoins maintain their price peg through automated supply expansion and contraction via smart contracts rather than holding equivalent collateral in reserve.

In DeFi, what does 'Total Value Locked' (TVL) measure?

Answer: The aggregate dollar value of all crypto assets deposited in a DeFi protocol's smart contracts

TVL measures the aggregate dollar value of all cryptocurrency assets deposited and locked in a DeFi protocol's smart contracts, serving as a primary indicator of protocol adoption and trust.

What is yield farming in decentralized finance?

Answer: Generating returns by strategically providing liquidity or staking assets across multiple DeFi protocols

Yield farming involves strategically deploying crypto assets across DeFi protocols—liquidity pools, lending markets, and staking contracts—to earn compounded returns through fees, interest, and token incentives.

What does 'circulating supply' refer to when analyzing a cryptocurrency's tokenomics?

Answer: The number of tokens currently in the market and available for public trading

Circulating supply refers to the number of tokens that are publicly available and tradeable in the market, excluding locked, reserved, burned, or otherwise inaccessible tokens.

What is a token airdrop in blockchain projects?

Answer: The free distribution of tokens to existing holders or target users as a promotional or reward strategy

A token airdrop is the free distribution of tokens to wallet addresses, used to reward existing community members, incentivize new users, or bootstrap adoption of a newly launched protocol.