DeFi and Decentralized Applications Flashcards
7 cards from real CCE practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 DeFi and Decentralized Applications flashcards as text
In DeFi, what is a 'flash loan attack' most commonly used to exploit?
Answer: Price oracle manipulation within a single transaction
Flash loan attacks typically borrow large sums to manipulate on-chain price oracles and exploit arbitrage or collateral vulnerabilities within one atomic transaction.
Which mechanism do Automated Market Makers (AMMs) use to determine token swap prices?
Answer: A constant product formula (x * y = k)
AMMs like Uniswap v2 use the constant product formula x * y = k, where the product of reserve quantities remains constant after each trade.
What is 'impermanent loss' in the context of liquidity provision?
Answer: The opportunity cost when pooled asset prices diverge from the deposit ratio
Impermanent loss occurs when the price ratio of deposited assets changes after deposit, leaving LPs with less value than if they had simply held the assets.
In Compound Finance, what is a 'cToken'?
Answer: An interest-bearing receipt token representing a deposited asset
cTokens (e.g., cDAI, cETH) are minted when users supply assets to Compound and accrue interest over time by appreciating in value relative to the underlying asset.
What distinguishes a 'liquidity bootstrapping pool' (LBP) from a standard AMM pool?
Answer: LBPs dynamically shift token weights over time to reduce initial price volatility
LBPs (popularized by Balancer) start with a high project-token weight and shift it over time, creating natural downward price pressure that discourages bots and enables fairer distribution.
Which Ethereum standard is most commonly used for fungible DeFi tokens such as governance or reward tokens?
Answer: ERC-20
ERC-20 is the standard interface for fungible tokens on Ethereum, used by virtually all DeFi governance, reward, and utility tokens.
What is the primary role of a 'keeper' in decentralized protocols like MakerDAO or Chainlink?
Answer: To perform automated on-chain actions such as liquidations or oracle updates for incentives
Keepers are bots or participants that trigger protocol functions (e.g., liquidating undercollateralized vaults) in exchange for a reward, maintaining system health.