CBCP Cryptocurrency and Digital Assets 5 — Questions and Answers
Question 1: What is a 'flash loan' in DeFi?
- A short-term loan with a very high interest rate issued by centralized lenders
- An uncollateralized loan that must be borrowed and repaid within the same blockchain transaction (Correct answer)
- A loan automatically liquidated if collateral value drops below 150%
- A loan issued by a DAO to fund protocol development with governance token repayment
Correct answer: An uncollateralized loan that must be borrowed and repaid within the same blockchain transaction
Flash loans exploit atomic transaction properties to provide uncollateralized funds that must be returned within the same transaction block, or the entire operation reverts.
Question 2: What is 'tokenomics' and why is it important when evaluating a cryptocurrency project?
- The study of token transaction speeds and network throughput metrics
- The economic design of a token including supply, distribution, incentives, and utility that drives its long-term value (Correct answer)
- The technical specification for how tokens are minted and burned on a specific blockchain
- A regulatory compliance framework for classifying digital assets as securities or commodities
Correct answer: The economic design of a token including supply, distribution, incentives, and utility that drives its long-term value
Tokenomics encompasses supply schedules, distribution allocations, incentive mechanisms, and token utility — factors that fundamentally determine a project's economic sustainability and value accrual.
Question 3: Which type of blockchain attack involves an attacker gaining majority control of network hash rate?
- Sybil attack
- Routing attack
- 51% attack (Correct answer)
- Replay attack
Correct answer: 51% attack
A 51% attack occurs when a single entity controls the majority of a PoW network's hash rate, enabling transaction reversal and double-spending but not theft of funds from other wallets.
Question 4: What is a 'DAO treasury' in the context of decentralized organizations?
- A hardware wallet controlled jointly by the DAO's founding team
- A pool of funds collectively owned and managed by token holders through governance votes (Correct answer)
- A centralized bank account registered under the DAO's legal entity
- An automated smart contract that distributes revenue equally to all token holders monthly
Correct answer: A pool of funds collectively owned and managed by token holders through governance votes
A DAO treasury is an on-chain pool of assets governed by token holder proposals and votes, funding development, grants, and operational expenses without centralized control.
Question 5: What is the primary risk of an 'algorithmic stablecoin' compared to a collateral-backed stablecoin?
- Higher transaction fees due to complex smart contract execution
- Susceptibility to 'death spiral' collapse if confidence in the peg mechanism breaks down (Correct answer)
- Inability to be redeemed for the underlying fiat currency at any time
- Regulatory risk from being classified as a security by the SEC
Correct answer: Susceptibility to 'death spiral' collapse if confidence in the peg mechanism breaks down
Algorithmic stablecoins rely on market incentives and supply adjustments rather than hard collateral; a loss of confidence can trigger a reflexive collapse, as seen with TerraUST in May 2022.
Question 6: What does 'KYC' stand for, and why is it required by cryptocurrency exchanges?
- Keep Your Currency; required to prevent market manipulation
- Know Your Customer; required under anti-money laundering regulations to verify user identity and prevent financial crimes (Correct answer)
- Key Your Credentials; required to secure account access through two-factor authentication
- Know Your Counterparty; required to ensure both sides of a trade are legitimate entities
Correct answer: Know Your Customer; required under anti-money laundering regulations to verify user identity and prevent financial crimes
KYC (Know Your Customer) is a regulatory requirement under AML laws mandating exchanges verify user identities through ID documents to prevent money laundering, terrorism financing, and fraud.
Question 7: What is 'gas' in the context of the Ethereum network?
- The cryptocurrency miners receive as block rewards for validating new blocks
- A unit measuring computational effort required to execute operations, paid in ETH to compensate validators (Correct answer)
- The maximum number of transactions that can fit in a single Ethereum block
- A fee paid to the Ethereum Foundation for using the network's infrastructure
Correct answer: A unit measuring computational effort required to execute operations, paid in ETH to compensate validators
Gas measures the computational resources consumed by Ethereum operations; users pay gas fees in ETH (calculated as gas units × gas price in gwei) to incentivize validators to include their transactions.
CBCP Cryptocurrency and Digital Assets 5
What is a 'flash loan' in DeFi?