CBCP Decentralized Finance (DeFi) and Tokenization 5 — Questions and Answers
Question 1: How does an algorithmic stablecoin mainly differ from a fiat-collateralized stablecoin like USDC?
- It keeps its peg through supply-adjustment mechanisms rather than full reserves of fiat held by a custodian (Correct answer)
- It is always backed 1:1 by US Treasury bills
- It cannot be traded on decentralized exchanges
- It is issued only by central banks
Correct answer: It keeps its peg through supply-adjustment mechanisms rather than full reserves of fiat held by a custodian
Algorithmic stablecoins use code-driven minting and burning incentives instead of custodial fiat reserves, as the collapse of TerraUSD showed.
Question 2: What does the ERC-4626 standard define?
- A royalty standard for NFT marketplaces
- A cross-chain bridge messaging format
- A standard interface for tokenized yield-bearing vaults (Correct answer)
- A permissioned token standard for security offerings
Correct answer: A standard interface for tokenized yield-bearing vaults
ERC-4626 standardizes deposit, withdrawal, and share accounting for yield-bearing vaults, which makes them easier to compose across protocols.
Question 3: A DeFi protocol's governance is controlled by token holders who vote on proposals executed on-chain. What is this organizational structure called?
- Special Purpose Vehicle (SPV)
- Decentralized Autonomous Organization (DAO) (Correct answer)
- Centralized exchange (CEX)
- Federated sidechain
Correct answer: Decentralized Autonomous Organization (DAO)
A DAO uses governance tokens and smart contracts to let its community propose and execute protocol changes.
Question 4: What is the main security risk with cross-chain bridges that use a lock-and-mint model?
- Wrapped tokens cannot be transferred
- Bridges always produce higher gas fees than native transfers
- Bridges require users to reveal their private keys
- Large pools of locked collateral become attractive single points of failure if validators or contracts are compromised (Correct answer)
Correct answer: Large pools of locked collateral become attractive single points of failure if validators or contracts are compromised
Bridge exploits such as Ronin and Wormhole drained locked collateral and left the wrapped tokens on the other chain unbacked.
Question 5: In yield farming, what does 'liquidity mining' usually mean?
- Users receive protocol governance tokens as rewards for supplying liquidity (Correct answer)
- Miners validate blocks using liquidity pool shares
- Protocols buy back tokens to reduce liquidity
- Users mint stablecoins by mining Bitcoin
Correct answer: Users receive protocol governance tokens as rewards for supplying liquidity
Liquidity mining pays LPs in native protocol tokens on top of trading fees, which helps bootstrap liquidity.
Question 6: A security token uses the ERC-3643 (T-REX) standard. Which feature sets it apart from a plain ERC-20?
- It has no transfer function
- It can only be minted once by a miner
- Transfers are restricted to identity-verified, eligible wallets through on-chain compliance checks (Correct answer)
- It automatically converts into an NFT after each transfer
Correct answer: Transfers are restricted to identity-verified, eligible wallets through on-chain compliance checks
ERC-3643 builds permissioning and on-chain identity checks into transfers so they comply with securities regulations.
Question 7: A DeFi protocol takes a large loss when an attacker uses a flash loan to move the spot price on one low-liquidity DEX that the protocol reads as its price feed. What would best mitigate this?
- Raising the protocol's gas limit
- Using time-weighted average prices (TWAP) or aggregated decentralized oracles instead of a single spot price (Correct answer)
- Shortening block times
- Removing all collateral requirements
Correct answer: Using time-weighted average prices (TWAP) or aggregated decentralized oracles instead of a single spot price
TWAPs and multi-source oracle aggregation make it expensive to manipulate prices within a single transaction.