Cryptocurrency DeFi and Decentralized Protocols 2 — Questions and Answers
Question 1: What is yield farming in DeFi?
- Mining cryptocurrency using solar-powered farms
- Moving crypto assets between protocols to maximize returns (Correct answer)
- Buying tokens and holding them long-term
- Validating transactions on a proof-of-stake network
Correct answer: Moving crypto assets between protocols to maximize returns
Yield farming involves strategically moving crypto assets across different DeFi protocols to maximize interest, fees, and token rewards.
Question 2: What is TVL (Total Value Locked) a measure of in DeFi?
- The total number of token holders on a platform
- The total dollar value of assets deposited in a DeFi protocol (Correct answer)
- The maximum transaction size allowed by a protocol
- The total trading volume over 24 hours
Correct answer: The total dollar value of assets deposited in a DeFi protocol
TVL represents the aggregate value of all assets deposited in a DeFi protocol, used as a key metric for platform adoption and health.
Question 3: In DeFi lending protocols like Aave or Compound, what is over-collateralization?
- Borrowing more than the value of your collateral
- Providing collateral worth more than the loan amount (Correct answer)
- Paying extra fees to secure lower interest rates
- Locking tokens for an extended period to earn higher yields
Correct answer: Providing collateral worth more than the loan amount
Over-collateralization requires borrowers to deposit collateral worth more than the loan to protect lenders against price volatility.
Question 4: What is a flash loan in DeFi?
- A high-interest loan with a 24-hour repayment window
- An uncollateralized loan that must be borrowed and repaid within a single transaction (Correct answer)
- A loan with instant approval from a centralized lender
- A loan secured by NFT collateral
Correct answer: An uncollateralized loan that must be borrowed and repaid within a single transaction
A flash loan is an uncollateralized loan that must be borrowed and repaid within the same blockchain transaction, or the entire transaction reverts.
Question 5: What does APY stand for in DeFi yield calculations?
- Annual Percentage Yield (Correct answer)
- Automated Protocol Yield
- Asset Price Index
- Annual Profit Yield
Correct answer: Annual Percentage Yield
APY stands for Annual Percentage Yield, which includes the effect of compounding interest over a year.
Question 6: What is a stablecoin in the context of DeFi?
- A cryptocurrency with a fixed maximum supply
- A token pegged to a stable asset like the US dollar (Correct answer)
- A coin that can only be used on one blockchain
- A token backed by real estate assets
Correct answer: A token pegged to a stable asset like the US dollar
A stablecoin is a cryptocurrency designed to maintain a stable value by pegging to a reserve asset such as the US dollar.
Cryptocurrency DeFi and Decentralized Protocols 2
What is yield farming in DeFi?