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Cryptocurrency and Digital Tokens Flashcards

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  1. What is a 'stablecoin trilemma' in the context of digital tokens?

    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.

  2. Which of the following best describes an 'Initial DEX Offering' (IDO)?

    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.

  3. In Ethereum's ERC-20 standard, what function must be implemented for a token contract to be compliant?

    Answer: transfer(), approve(), and allowance()

    ERC-20 mandates core functions including transfer(), transferFrom(), approve(), allowance(), balanceOf(), and totalSupply() for interoperability.

  4. What is 'wrapped' cryptocurrency (e.g., Wrapped Bitcoin - WBTC)?

    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.

  5. Under the FATF Travel Rule, what information must Virtual Asset Service Providers (VASPs) share for cryptocurrency transactions above threshold?

    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.

  6. What is the key risk of 'impermanent loss' in automated market maker (AMM) liquidity pools?

    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.

  7. Which property of Bitcoin's UTXO model differs from Ethereum's account-based model?

    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.