CCE Crypto Trading and Exchanges 4 — Questions and Answers
Question 1: What is 'impermanent loss' for a liquidity provider on a DEX?
- A permanent loss due to a smart contract hack
- The opportunity cost from price divergence of pooled assets compared to simply holding them (Correct answer)
- Fees charged by the DEX for withdrawing liquidity
- Loss from providing liquidity in a rug-pull project
Correct answer: The opportunity cost from price divergence of pooled assets compared to simply holding them
Impermanent loss occurs when the price ratio of pooled tokens changes after deposit, causing the LP to hold less value than if they had simply held the tokens.
Question 2: Which exchange type requires no account registration and allows peer-to-peer trading directly from wallets?
- Centralized exchange (CEX)
- Decentralized exchange (DEX) (Correct answer)
- OTC desk
- Dark pool
Correct answer: Decentralized exchange (DEX)
DEXs enable non-custodial, permissionless trading directly from users' wallets via smart contracts, with no account or identity verification required.
Question 3: What does 'open interest' measure in crypto futures markets?
- The total trading volume for a futures contract in the last 24 hours
- The total number of outstanding futures contracts that have not been settled (Correct answer)
- The interest rate applied to margin borrowing on futures positions
- The number of unique traders active in a futures market
Correct answer: The total number of outstanding futures contracts that have not been settled
Open interest is the total number of active, unsettled futures or options contracts, used as an indicator of market participation and trend strength.
Question 4: What is 'front-running' in the context of decentralized exchanges?
- Being first to list a new token on an exchange
- Exploiting mempool transaction visibility to insert a trade ahead of a pending transaction for profit (Correct answer)
- Executing trades faster by co-locating servers near an exchange
- Placing a large buy order to push up price before selling
Correct answer: Exploiting mempool transaction visibility to insert a trade ahead of a pending transaction for profit
Front-running on DEXs occurs when bots (MEV bots) detect pending transactions in the mempool and pay higher gas fees to insert their own transactions first for profit.
Question 5: In crypto trading, what does a 'long' position mean?
- Holding an asset for more than one year
- Borrowing and selling an asset expecting the price to fall
- Buying an asset expecting the price to rise (Correct answer)
- Holding stablecoins to avoid market exposure
Correct answer: Buying an asset expecting the price to rise
A long position means buying an asset with the expectation that its price will increase, allowing you to sell at a higher price for a profit.
Question 6: What is the role of a 'crypto custodian' for institutional traders?
- To provide trading signals and portfolio advice
- To securely store private keys and digital assets on behalf of institutional clients (Correct answer)
- To match buy and sell orders on behalf of institutions
- To audit blockchain transactions for regulatory compliance
Correct answer: To securely store private keys and digital assets on behalf of institutional clients
A crypto custodian provides secure, regulated storage of private keys and digital assets, often required by institutional investors and regulated funds.
Question 7: What is 'basis' in the context of crypto futures trading?
- The minimum price increment for a futures contract
- The difference between the futures contract price and the spot price of the underlying asset (Correct answer)
- The collateral required to open a futures position
- The annualized yield earned by holding a futures contract
Correct answer: The difference between the futures contract price and the spot price of the underlying asset
Basis is the spread between a futures contract price and the current spot price; a positive basis (contango) means futures trade above spot.
CCE Crypto Trading and Exchanges 4
What is 'impermanent loss' for a liquidity provider on a DEX?