CCE DeFi and Decentralized Applications 4

Question 1

In DeFi, what is a 'flash loan attack' most commonly used to exploit?

Accepted Answer

Price oracle manipulation within a single transaction

Answer

Flash loan attacks typically borrow large sums to manipulate on-chain price oracles and exploit arbitrage or collateral vulnerabilities within one atomic transaction.

Question 2

Which mechanism do Automated Market Makers (AMMs) use to determine token swap prices?

Accepted Answer

A constant product formula (x * y = k)

Answer

AMMs like Uniswap v2 use the constant product formula x * y = k, where the product of reserve quantities remains constant after each trade.

Question 3

What is 'impermanent loss' in the context of liquidity provision?

Accepted Answer

The opportunity cost when pooled asset prices diverge from the deposit ratio

Answer

Impermanent loss occurs when the price ratio of deposited assets changes after deposit, leaving LPs with less value than if they had simply held the assets.

Question 4

In Compound Finance, what is a 'cToken'?

Accepted Answer

An interest-bearing receipt token representing a deposited asset

Answer

cTokens (e.g., cDAI, cETH) are minted when users supply assets to Compound and accrue interest over time by appreciating in value relative to the underlying asset.

Question 5

What distinguishes a 'liquidity bootstrapping pool' (LBP) from a standard AMM pool?

Accepted Answer

LBPs dynamically shift token weights over time to reduce initial price volatility

Answer

LBPs (popularized by Balancer) start with a high project-token weight and shift it over time, creating natural downward price pressure that discourages bots and enables fairer distribution.

(CCE) Certified Cryptocurrency Expert Practice Test

(CCE) Certified Cryptocurrency Expert Practice Test

CCE DeFi and Decentralized Applications 4