CBCP Cryptocurrency and Digital Tokens 3 — Questions and Answers
Question 1: What is a 'stablecoin trilemma' in the context of digital tokens?
- The challenge of achieving price stability, decentralization, and capital efficiency simultaneously (Correct answer)
- The difficulty of listing on three major exchanges
- Balancing transaction speed, cost, and finality
- The trade-off between anonymity, compliance, and usability
Correct answer: The challenge of achieving price stability, decentralization, and capital efficiency simultaneously
Stablecoins face a trilemma where achieving full price stability, true decentralization, and capital efficiency at the same time has proven extremely difficult.
Question 2: Which of the following best describes an 'Initial DEX Offering' (IDO)?
- A token sale conducted through a centralized exchange
- A fundraising method where tokens are launched and immediately traded on a decentralized exchange (Correct answer)
- An audit process for new token smart contracts
- A governance vote to list a token on Uniswap
Correct answer: A fundraising method where tokens are launched and immediately traded on a decentralized exchange
An IDO launches tokens directly on a decentralized exchange, providing instant liquidity and open participation without a centralized intermediary.
Question 3: In Ethereum's ERC-20 standard, what function must be implemented for a token contract to be compliant?
- mint() and burn()
- transfer(), approve(), and allowance() (Correct answer)
- stake() and unstake()
- deposit() and withdraw()
Correct answer: transfer(), approve(), and allowance()
ERC-20 mandates core functions including transfer(), transferFrom(), approve(), allowance(), balanceOf(), and totalSupply() for interoperability.
Question 4: What is 'wrapped' cryptocurrency (e.g., Wrapped Bitcoin - WBTC)?
- Cryptocurrency held in a multisig wallet
- A token pegged to another cryptocurrency, enabling cross-chain use (Correct answer)
- Encrypted private key storage format
- A staking derivative issued by validators
Correct answer: A token pegged to another cryptocurrency, enabling cross-chain use
Wrapped tokens are representations of one cryptocurrency on another blockchain, backed 1:1 by the underlying asset held in custody, enabling cross-chain DeFi participation.
Question 5: Under the FATF Travel Rule, what information must Virtual Asset Service Providers (VASPs) share for cryptocurrency transactions above threshold?
- Only the transaction hash and timestamp
- Originator and beneficiary name, account number, and address (Correct answer)
- IP addresses of sending and receiving nodes
- Mining fees and validator signatures
Correct answer: Originator and beneficiary name, account number, and address
FATF's Travel Rule requires VASPs to collect and transmit originator and beneficiary identifying information for transactions above $1,000/€1,000 to combat money laundering.
Question 6: What is the key risk of 'impermanent loss' in automated market maker (AMM) liquidity pools?
- Smart contract bugs that permanently destroy tokens
- Loss compared to simply holding assets when their prices diverge (Correct answer)
- Failure of the oracle feeding price data
- Regulatory seizure of pooled assets
Correct answer: Loss compared to simply holding assets when their prices diverge
Impermanent loss occurs when the price ratio of pooled assets changes after deposit, making the LP position less valuable than simply holding the tokens individually.
Question 7: Which property of Bitcoin's UTXO model differs from Ethereum's account-based model?
- Bitcoin uses smart contracts; Ethereum does not
- Each Bitcoin transaction consumes unspent outputs and creates new ones, with no persistent account balances (Correct answer)
- Bitcoin allows fractional reserve; Ethereum does not
- Ethereum uses UTXOs for DeFi transactions only
Correct answer: Each Bitcoin transaction consumes unspent outputs and creates new ones, with no persistent account balances
Bitcoin's UTXO model tracks discrete unspent transaction outputs rather than account balances, providing better privacy and parallelization but less smart contract flexibility.
CBCP Cryptocurrency and Digital Tokens 3
What is a 'stablecoin trilemma' in the context of digital tokens?