C4 DeFi & Smart Contracts Flashcards

What is yield farming in DeFi?

Answer: The practice of strategically moving assets across DeFi protocols to maximize returns from interest, fees, and token rewards

Yield farming (liquidity mining) involves deploying crypto assets across DeFi protocols to earn the highest combined return from trading fees, lending interest, and governance token incentives.

What is a rug pull in the DeFi context?

Answer: An exit scam where developers abandon a project and drain liquidity pool funds after attracting investor capital

A rug pull is an exit scam where malicious developers attract investment then withdraw all liquidity or mint unlimited tokens, leaving investors with worthless assets.

What does TVL (Total Value Locked) measure in DeFi?

Answer: The total value of crypto assets deposited and actively used within a DeFi protocol's smart contracts

TVL represents the aggregate dollar value of assets (tokens, ETH, stablecoins) currently deposited in a DeFi protocol's smart contracts.

What is a wrapped token (e.g., WBTC) in DeFi?

Answer: An ERC-20 token backed 1:1 by another asset, enabling a native asset like Bitcoin to be used on an Ethereum-based DeFi protocol

Wrapped tokens (e.g., WBTC) are ERC-20 representations of assets from other blockchains, held in custody so the native asset can participate in Ethereum DeFi protocols.

What is MEV (Maximal Extractable Value) in blockchain and DeFi?

Answer: The profit validators or block producers can capture by reordering, inserting, or censoring transactions within a block

MEV refers to the value extractable by block producers through transaction reordering, front-running, or sandwich attacks, often at the expense of regular DeFi users.

Which C4 principle applies when a cryptocurrency professional is advising a client on DeFi investments and must disclose risks such as smart contract vulnerabilities and impermanent loss?

Answer: Full disclosure and suitability — ensuring the client understands material risks before investing

C4's professional standards require practitioners to fully disclose material risks — including smart contract risk, impermanent loss, and protocol insolvency — to ensure client suitability.