Smart Contracts and DeFi Investigations Flashcards

What is a Decentralized Exchange (DEX)?

Answer: A platform that facilitates peer-to-peer crypto trading via smart contracts without a central authority

A DEX is a peer-to-peer marketplace where transactions occur directly on the blockchain through smart contracts, without a central intermediary controlling funds or requiring identity verification.

Why is tracing funds through DeFi protocols particularly challenging for cryptocurrency investigators?

Answer: DeFi protocols can route funds across multiple pools, contracts, and chains, obscuring the trail

DeFi protocols create investigative challenges because funds can rapidly pass through multiple smart contracts, liquidity pools, and cross-chain bridges, creating complex layered transaction trails that are difficult to follow.

What is the primary purpose of a security audit in smart contract development?

Answer: To identify vulnerabilities and coding flaws before deployment

Smart contract audits involve expert review of code to identify security vulnerabilities, logic errors, and potential exploits before the contract is deployed to the immutable blockchain.

What is a re-entrancy attack in smart contract security?

Answer: When an attacker forces a smart contract to call an external contract before completing its own state updates

A re-entrancy attack occurs when a malicious contract repeatedly calls back into the victim contract before the first execution's state updates are complete, allowing repeated unauthorized fund withdrawals.

What is a liquidity pool in DeFi?

Answer: A smart contract holding reserves of two or more tokens to enable automated trading

A liquidity pool is a collection of funds locked in a smart contract that provides liquidity for decentralized trading, with liquidity providers earning a share of trading fees in return.

In Ethereum, what does 'gas' represent?

Answer: The computational fee required to execute transactions and smart contract operations

Gas is the unit measuring the computational work required to execute operations on the Ethereum network, with users paying gas fees denominated in ETH to compensate miners or validators.

What is a governance token in DeFi?

Answer: A token that grants holders voting rights over protocol decisions and upgrades

Governance tokens grant holders the right to vote on protocol changes, parameter adjustments, and treasury decisions, giving them decentralized influence over a DeFi protocol's development.