Decentralized Finance (DeFi) and Tokenization Flashcards

What does DeFi stand for in the blockchain ecosystem?

Answer: Decentralized Finance

DeFi stands for Decentralized Finance, referring to financial services built on blockchain networks without traditional intermediaries.

In a DeFi liquidity pool, what do liquidity providers receive in exchange for depositing assets?

Answer: LP tokens representing their share of the pool

Liquidity providers receive LP (Liquidity Provider) tokens that represent their proportional share of the pool and can be redeemed for deposited assets plus earned fees.

What type of pricing mechanism do Automated Market Makers (AMMs) use instead of traditional order books?

Answer: Mathematical formulas based on asset ratios in the pool

AMMs use mathematical formulas such as the constant product formula (x*y=k) based on the ratio of assets in the liquidity pool to determine token prices automatically.

What best describes yield farming in DeFi?

Answer: Strategically moving assets across DeFi protocols to maximize returns

Yield farming involves strategically moving assets between DeFi protocols to maximize returns through trading fees, interest, and governance token rewards.

What is a key characteristic that makes flash loans unique among DeFi lending products?

Answer: They must be borrowed and fully repaid within the same atomic transaction

Flash loans are uncollateralized loans that must be borrowed and fully repaid within a single atomic blockchain transaction, or the entire transaction is reversed automatically.

What does TVL (Total Value Locked) measure in the DeFi ecosystem?

Answer: The total monetary value of assets deposited in DeFi smart contracts

TVL represents the total monetary value of all assets deposited and locked in DeFi smart contracts, used as a key metric for measuring a protocol's adoption and liquidity.

Which type of stablecoin maintains its peg through overcollateralization with cryptocurrency assets rather than fiat reserves?

Answer: Crypto-collateralized stablecoin

Crypto-collateralized stablecoins like DAI are backed by excess cryptocurrency collateral to maintain their peg despite the volatility of the underlying crypto assets.