CBCP Cryptocurrency and Digital Assets 4 — Questions and Answers
Question 1: What is an 'Initial DEX Offering' (IDO)?
- A token launch conducted exclusively by centralized exchanges
- A fundraising method where new tokens are sold and listed directly on a decentralized exchange (Correct answer)
- A government-approved method of issuing digital securities
- A token airdrop distributed to existing holders of a protocol's governance token
Correct answer: A fundraising method where new tokens are sold and listed directly on a decentralized exchange
An IDO is a token launch on a DEX launchpad, providing immediate liquidity and trading without the gatekeeping of centralized exchanges.
Question 2: What is 'impermanent loss' in DeFi liquidity provision?
- Funds permanently lost due to a smart contract exploit
- The temporary reduction in value a liquidity provider experiences compared to simply holding the assets, caused by price divergence (Correct answer)
- Transaction fees lost when a trade fails to execute
- The penalty for withdrawing staked assets before the lock-up period ends
Correct answer: The temporary reduction in value a liquidity provider experiences compared to simply holding the assets, caused by price divergence
Impermanent loss occurs when the price ratio of pooled assets changes from deposit time; the loss becomes permanent only if the LP withdraws before prices revert.
Question 3: Which regulatory framework primarily governs cryptocurrency exchanges operating in the United States?
- Basel III accords administered by the Federal Reserve
- A combination of FinCEN (MSB registration), SEC (securities), and CFTC (derivatives) oversight (Correct answer)
- Exclusively the Office of the Comptroller of the Currency (OCC)
- FINRA rules identical to those applied to stock brokers
Correct answer: A combination of FinCEN (MSB registration), SEC (securities), and CFTC (derivatives) oversight
US crypto exchanges face a patchwork: FinCEN requires MSB registration with AML/KYC, the SEC regulates security tokens, and the CFTC oversees crypto derivatives.
Question 4: What is a 'wrapped token' such as Wrapped Bitcoin (WBTC)?
- A token with enhanced privacy features that obscures transaction amounts
- A token pegged to another cryptocurrency's value, issued on a different blockchain to enable cross-chain use (Correct answer)
- A multi-signature token requiring multiple parties to authorize transfers
- A token that automatically rebalances between multiple cryptocurrencies
Correct answer: A token pegged to another cryptocurrency's value, issued on a different blockchain to enable cross-chain use
Wrapped tokens are pegged 1:1 to another asset, held in custody, and minted on a target blockchain to bring that asset's value into a different ecosystem (e.g., WBTC brings BTC into Ethereum's DeFi).
Question 5: What is the 'halving' event in Bitcoin's protocol?
- A 50% reduction in transaction fees that occurs every four years
- A scheduled event approximately every four years that cuts the block subsidy reward to miners in half (Correct answer)
- The point at which Bitcoin's price reaches double its previous all-time high
- A network upgrade requiring half of all nodes to update their software
Correct answer: A scheduled event approximately every four years that cuts the block subsidy reward to miners in half
Bitcoin's halving occurs every 210,000 blocks (~4 years), reducing the block reward by 50% to enforce its disinflationary supply schedule toward the 21 million cap.
Question 6: In the context of NFTs, what does 'royalty enforcement' refer to?
- A legal requirement that NFT creators register their works with copyright offices
- A mechanism built into a smart contract that automatically pays the original creator a percentage of each secondary sale (Correct answer)
- The exclusive right of marketplace platforms to set trading fees
- A DAO governance vote determining which artists can mint on a platform
Correct answer: A mechanism built into a smart contract that automatically pays the original creator a percentage of each secondary sale
NFT royalty enforcement uses smart contract logic to automatically route a creator-specified percentage of secondary sale proceeds back to the original minter.
Question 7: What distinguishes a 'cold wallet' from a 'hot wallet' in cryptocurrency asset management?
- Cold wallets store only stablecoins while hot wallets hold volatile assets
- Cold wallets are kept offline and disconnected from the internet, while hot wallets remain connected online (Correct answer)
- Cold wallets use hardware encryption while hot wallets use software encryption
- Cold wallets require multi-signature authorization while hot wallets require only a single key
Correct answer: Cold wallets are kept offline and disconnected from the internet, while hot wallets remain connected online
Cold wallets (hardware or paper) store private keys offline, making them immune to remote hacking, while hot wallets maintain internet connectivity for convenience at the cost of greater attack surface.
CBCP Cryptocurrency and Digital Assets 4
What is an 'Initial DEX Offering' (IDO)?