DeFi and Decentralized Protocols Flashcards
6 cards from real Cryptocurrency practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 DeFi and Decentralized Protocols flashcards as text
What does DeFi stand for in the context of cryptocurrency?
Answer: Decentralized Finance
DeFi stands for Decentralized Finance, referring to financial services built on blockchain networks without centralized intermediaries.
What is an Automated Market Maker (AMM) in DeFi?
Answer: A protocol that uses liquidity pools and algorithms to price assets
An AMM uses liquidity pools and mathematical formulas to automatically price and swap assets without needing a traditional order book.
Which of the following is a well-known decentralized exchange (DEX) built on Ethereum?
Answer: Uniswap
Uniswap is a leading DEX on Ethereum that uses an AMM model to enable trustless token swaps.
What is a liquidity pool in DeFi?
Answer: A reserve of funds locked in a smart contract to facilitate trading
A liquidity pool is a collection of funds locked in a smart contract that enables decentralized trading and lending.
What is impermanent loss in DeFi liquidity provision?
Answer: The temporary reduction in value of deposited assets compared to simply holding them
Impermanent loss occurs when the price ratio of tokens in a liquidity pool changes, causing the pooled value to be less than if the tokens were just held.
What is the primary function of a governance token in a DeFi protocol?
Answer: To allow holders to vote on protocol changes and proposals
Governance tokens give holders voting rights to participate in decisions about protocol upgrades, fee structures, and other changes.