CBCP Cryptocurrency and Digital Tokens 4 — Questions and Answers
Question 1: What is a 'governance token' in the context of decentralized protocols?
- A token required to pay transaction fees
- A token that grants holders voting rights over protocol changes and treasury decisions (Correct answer)
- A token used to verify identity on-chain
- A stablecoin used to fund protocol development
Correct answer: A token that grants holders voting rights over protocol changes and treasury decisions
Governance tokens give holders the ability to propose and vote on protocol upgrades, parameter changes, and treasury allocations in a decentralized autonomous organization.
Question 2: What defines a 'deflationary' cryptocurrency model?
- A token whose price decreases over time
- A token designed so its circulating supply decreases over time through burns or buybacks (Correct answer)
- A token with no maximum supply cap
- A token backed by a deflating fiat currency
Correct answer: A token designed so its circulating supply decreases over time through burns or buybacks
Deflationary tokens use mechanisms like burns, transaction fee destruction, or buybacks to continuously reduce circulating supply, potentially increasing scarcity over time.
Question 3: Which of the following best describes 'yield farming' in DeFi?
- Mining cryptocurrency using agricultural computing hardware
- Moving assets across protocols to maximize returns through liquidity provision and token rewards (Correct answer)
- Staking tokens to secure a proof-of-stake blockchain
- Generating yield by lending physical commodities tokenized on-chain
Correct answer: Moving assets across protocols to maximize returns through liquidity provision and token rewards
Yield farming involves strategically deploying crypto assets across DeFi protocols to earn the highest combination of interest, fees, and incentive token rewards.
Question 4: What is the primary purpose of a 'token lockup' period following a cryptocurrency presale?
- To comply with PoS slashing conditions
- To prevent early investors from immediately selling and crashing the token price at launch (Correct answer)
- To allow auditors to review the token contract
- To delay token minting until the mainnet launches
Correct answer: To prevent early investors from immediately selling and crashing the token price at launch
Lockup periods restrict early investors and team members from selling their tokens immediately after listing, reducing sell pressure and protecting public investors.
Question 5: In cryptocurrency regulation, what does 'KYC/AML' require exchanges to do?
- Only verify corporate clients, not individual traders
- Verify user identities and monitor transactions for suspicious activity to prevent financial crimes (Correct answer)
- Report all transactions above $100 to regulators
- Ensure all listed tokens have passed a security audit
Correct answer: Verify user identities and monitor transactions for suspicious activity to prevent financial crimes
KYC (Know Your Customer) and AML (Anti-Money Laundering) regulations require exchanges to verify user identities, maintain records, and report suspicious transactions to relevant authorities.
Question 6: What is 'slippage' in the context of cryptocurrency trading?
- A consensus failure causing a chain split
- The difference between the expected price of a trade and the actual execution price (Correct answer)
- Loss of private key access due to software errors
- A smart contract vulnerability caused by reentrancy
Correct answer: The difference between the expected price of a trade and the actual execution price
Slippage occurs when market conditions change between order submission and execution, or in AMMs when large trades move the pool's price mid-transaction.
Question 7: Which feature distinguishes ERC-721 tokens from ERC-20 tokens on Ethereum?
- ERC-721 tokens support cross-chain transfers natively
- Each ERC-721 token is unique and non-fungible, unlike interchangeable ERC-20 tokens (Correct answer)
- ERC-721 tokens have a fixed supply of exactly 721
- ERC-721 tokens cannot be stored in MetaMask
Correct answer: Each ERC-721 token is unique and non-fungible, unlike interchangeable ERC-20 tokens
ERC-721 defines the NFT standard where each token has a unique ID and cannot be exchanged 1:1 with another token of the same contract, unlike fungible ERC-20 tokens.
CBCP Cryptocurrency and Digital Tokens 4
What is a 'governance token' in the context of decentralized protocols?