C4 C4 DeFi & Smart Contracts

Question 1

What is decentralized finance (DeFi)?

Accepted Answer

A financial ecosystem built on public blockchains that provides financial services without centralized intermediaries

Answer

A government-backed digital currency system

Answer

A consortium of crypto-friendly banks

Answer

A regulatory framework for cryptocurrency exchanges

Question 2

What is a smart contract?

Accepted Answer

Self-executing code deployed on a blockchain that automatically enforces predefined rules when conditions are met

Answer

A legally binding digital agreement stored in a corporate database

Answer

An encrypted PDF contract signed with a private key

Answer

A smart routing algorithm used by decentralized exchanges

Question 3

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

Accepted Answer

A smart contract protocol that uses liquidity pools and a pricing formula to enable permissionless token swaps

Answer

A bot that places orders on centralized exchanges

Answer

A market surveillance tool used by regulators

Answer

An algorithm that automates portfolio rebalancing

Question 4

What is a liquidity pool in a DeFi protocol?

Accepted Answer

A smart contract holding reserves of two or more tokens contributed by liquidity providers to facilitate trading

Answer

A reserve fund held by a centralized exchange

Answer

A mining pool that aggregates hash power

Answer

A pool of stablecoins used to back a CBDC

Question 5

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

Accepted Answer

The temporary reduction in value a liquidity provider experiences compared to simply holding tokens, caused by price divergence between pooled assets

Answer

A permanent loss due to a smart contract hack

Answer

Interest charged for borrowing from a lending protocol

Answer

Slippage incurred during a large token swap

Question 6

What is a governance token in a DeFi protocol?

Accepted Answer

A token that grants holders voting rights over protocol parameters, upgrades, and treasury decisions

Answer

A token issued by a government to represent digital fiat

Answer

A token used only to pay gas fees on a blockchain

Answer

A non-fungible token representing identity on a DeFi platform