Crypto Trading Crypto Trading DeFi and Exchanges 2 — Questions and Answers
Question 1: What is 'yield farming' in DeFi?
- Mining new cryptocurrency by running a full node
- Strategically moving crypto assets across DeFi protocols to maximize returns from interest, fees, and token rewards (Correct answer)
- Buying and holding stablecoins to earn fixed interest
- A method of generating crypto by solving complex math puzzles
Correct answer: Strategically moving crypto assets across DeFi protocols to maximize returns from interest, fees, and token rewards
Yield farming involves deploying capital across DeFi platforms—lending, liquidity pools, staking—to earn the highest possible APY, often including governance token rewards.
Question 2: What is a 'flash loan' in DeFi?
- A high-interest loan offered by centralized lenders to retail traders
- An uncollateralized loan that must be borrowed and repaid within a single blockchain transaction (Correct answer)
- A short-term loan issued by the US Federal Reserve for crypto market stability
- A loan that automatically converts to equity if not repaid within 24 hours
Correct answer: An uncollateralized loan that must be borrowed and repaid within a single blockchain transaction
Flash loans allow users to borrow large amounts with no collateral as long as the loan is repaid within the same transaction block, enabling arbitrage and other strategies.
Question 3: What does 'TVL' (Total Value Locked) measure in DeFi?
- The total number of validated transactions on a blockchain
- The aggregate dollar value of crypto assets deposited and actively used within a DeFi protocol (Correct answer)
- The total supply of a governance token multiplied by its price
- The number of unique wallet addresses using a DeFi platform
Correct answer: The aggregate dollar value of crypto assets deposited and actively used within a DeFi protocol
TVL is the sum of all crypto assets deposited into a protocol's smart contracts and is widely used to gauge the size, adoption, and health of a DeFi project.
Question 4: What is a 'stablecoin' and why is it important in crypto trading?
- A coin whose price is pegged to gold and cannot fluctuate at all
- A cryptocurrency designed to maintain a stable value, usually pegged to a fiat currency, providing a safe haven during volatility (Correct answer)
- A coin issued by central banks with government-backed guarantees
- A token that earns a fixed yield regardless of market conditions
Correct answer: A cryptocurrency designed to maintain a stable value, usually pegged to a fiat currency, providing a safe haven during volatility
Stablecoins like USDT and USDC maintain a 1:1 peg to fiat currencies, giving traders a way to exit volatile positions without converting back to fiat.
Question 5: What is 'MEV' (Maximal Extractable Value) in crypto trading?
- The maximum profit a miner can earn per day from block rewards
- The profit that validators or bots can extract by reordering, inserting, or censoring transactions within a block (Correct answer)
- The total earnings distributed to liquidity providers on a DEX
- The highest possible return on investment for a yield farming strategy
Correct answer: The profit that validators or bots can extract by reordering, inserting, or censoring transactions within a block
MEV refers to the extra profit validators or searcher bots can capture by manipulating transaction ordering within a block, often at the expense of regular users.
Question 6: What is a 'bridge' in the context of blockchain and crypto trading?
- A connection between a crypto exchange and a traditional bank
- A protocol that allows tokens to be transferred between different blockchain networks (Correct answer)
- A type of smart contract that bridges the gap between DeFi and CeFi
- A technical term for connecting a hardware wallet to a software interface
Correct answer: A protocol that allows tokens to be transferred between different blockchain networks
Blockchain bridges lock assets on one chain and mint equivalent wrapped tokens on another, enabling cross-chain liquidity and trading.
Crypto Trading Crypto Trading DeFi and Exchanges 2
What is 'yield farming' in DeFi?