Crypto Trading Crypto Trading DeFi and Exchanges

Question 1

What is a decentralized exchange (DEX)?

Accepted Answer

A peer-to-peer trading platform that operates via smart contracts without a central intermediary

Answer

An exchange operated by a government financial authority

Answer

An exchange that only lists Bitcoin and Ethereum

Answer

A platform that stores user funds in a centralized vault for security

Question 2

What is an Automated Market Maker (AMM) in DeFi?

Accepted Answer

A smart contract-based liquidity protocol that uses mathematical formulas to price assets instead of an order book

Answer

A bot that automatically places trades on behalf of users

Answer

A government-approved algorithm for setting crypto prices

Answer

A tool that automatically rebalances a crypto portfolio

Question 3

What is 'impermanent loss' in DeFi liquidity provision?

Accepted Answer

A temporary reduction in value that liquidity providers experience compared to simply holding assets when prices diverge

Answer

A permanent loss of funds due to a smart contract hack

Answer

The fee charged by a DEX for removing liquidity

Answer

The loss caused by high gas fees on Ethereum

Question 4

What is the primary function of a liquidity pool in DeFi?

Accepted Answer

To provide the reserves of tokens needed for a DEX to execute trades without a counterparty

Answer

To store private keys for users securely

Answer

To lock tokens and prevent market manipulation

Answer

To distribute staking rewards to validators

Question 5

What is a 'gas fee' in the context of Ethereum-based crypto trading?

Accepted Answer

The transaction fee paid to Ethereum validators for processing and including a transaction on the blockchain

Answer

A fee paid to miners for electricity used to cool their equipment

Answer

A monthly subscription fee charged by DeFi platforms

Answer

A penalty fee for canceling a limit order on a DEX

Question 6

What distinguishes a centralized exchange (CEX) from a DEX?

Accepted Answer

CEXs hold user funds in custodial wallets and use internal order books, while DEXs let users trade directly from self-custody wallets via smart contracts

Answer

CEXs only support fiat-to-crypto trading while DEXs support crypto-to-crypto only

Answer

CEXs charge no trading fees while DEXs charge high fees

Answer

CEXs operate on public blockchains while DEXs operate on private servers