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Decentralized Finance (DeFi) and Tokenization Flashcards

7 cards from real CBCP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

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  1. What is asset tokenization in the context of blockchain technology?

    Answer: Converting ownership rights to assets into blockchain-based digital tokens

    Asset tokenization is the process of representing ownership rights to real-world or digital assets as blockchain tokens, enabling fractional ownership and programmable transfers.

  2. What distinguishes a security token from a utility token under regulatory frameworks?

    Answer: Security tokens represent investment contracts and are subject to securities laws

    Security tokens represent investment interests in an asset or company and are subject to securities regulations such as the Howey Test in the US, while utility tokens provide access to a product or service.

  3. What is the primary function of a utility token in a blockchain ecosystem?

    Answer: To grant holders access to a specific product, service, or platform feature

    Utility tokens grant holders access to a specific product, service, or platform functionality, and are not intended to function as investment vehicles.

  4. What is a Security Token Offering (STO)?

    Answer: A regulated fundraising mechanism where security tokens are sold to investors in compliance with securities laws

    An STO is a fundraising mechanism where digital tokens representing securities are issued and sold to investors in full compliance with applicable securities regulations.

  5. What is the primary purpose of the ERC-20 token standard on the Ethereum blockchain?

    Answer: To create a common interface enabling interoperable fungible tokens on Ethereum

    ERC-20 defines a standard interface for fungible tokens on Ethereum, ensuring interoperability so that wallets, exchanges, and dApps can integrate any compliant token consistently.

  6. What key property distinguishes ERC-721 tokens from ERC-20 tokens on Ethereum?

    Answer: ERC-721 tokens are non-fungible, with each token having a unique on-chain identifier

    ERC-721 tokens are non-fungible tokens (NFTs) where each token has a unique identifier, making every token distinguishable from all others, unlike the interchangeable ERC-20 tokens.

  7. What is 'composability' (often called 'money legos') in the context of DeFi protocols?

    Answer: The ability of DeFi protocols to interoperate and build upon each other like modular building blocks

    DeFi composability refers to the ability of protocols to integrate and build upon each other's smart contracts, enabling complex financial products to be constructed from simpler primitives.