DeFi and Decentralized Protocols Flashcards

What is a DAO in the cryptocurrency ecosystem?

Answer: Decentralized Autonomous Organization

A DAO is a Decentralized Autonomous Organization governed by smart contracts and token holder voting rather than centralized management.

What is the purpose of a wrapped token (e.g., WBTC)?

Answer: To represent a non-native asset on a different blockchain

Wrapped tokens represent an asset from one blockchain on another, enabling assets like Bitcoin to be used in Ethereum's DeFi ecosystem.

What is a cross-chain bridge in DeFi?

Answer: A system that allows assets to move between different blockchain networks

A cross-chain bridge is a protocol that enables the transfer of tokens or data between separate blockchain networks.

What is a sandwich attack in DeFi trading?

Answer: A front-running attack where a bot places trades before and after a victim's transaction

A sandwich attack involves a bot detecting a pending transaction, placing a buy order before it and a sell order after it to profit from the price impact.

What does the term 'slippage' refer to in DEX trading?

Answer: The difference between the expected and actual execution price of a trade

Slippage is the difference between the expected trade price and the actual price at execution, common in low-liquidity pools or large trades.

Which blockchain is most commonly associated with the DeFi ecosystem?

Answer: Ethereum

Ethereum pioneered smart contracts and hosts the majority of DeFi protocols due to its programmability and large developer ecosystem.