15 Questions
What is the main feature of decentralized finance (DeFi)?
Ability to earn interest in savings-like accounts
Which technology is mainly used for implementing DeFi platforms?
Blockchain
What is the purpose of DEX aggregators in the DeFi architecture?
To facilitate connection and interaction with other DEXs via smart contracts
What are the common components of the first four layers in the multi-layered DeFi architecture?
Settlement layer, Asset layer, Protocol layer, Application layer
What is a key challenge commonly associated with DeFi platforms?
High risk due to coding errors and hacks
What was the significant introduction by Ethereum blockchain in 2017?
Smart contracts
Which platform is known for using smart contracts for loan, repayment, and liquidation processes?
MakerDAO
In June 2020, which cryptocurrency was introduced by Compound Finance for rewarding lenders and borrowers in its decentralized finance ecosystem?
Comp
Which entities have shown significant interest in DeFi, including platforms like Compound, Uniswap, and Aave?
Venture capital investors
What is a major advantage of decentralized exchanges like Uniswap?
Reduction of hacking risk
What is the term used to describe the loss faced by liquidity providers if the token pairs they have invested in have significantly altered in value ratio?
Impermanent loss
What is the primary reason for price impact in Automated Market Makers (AMM)?
Non-linear price impact
What is the term used to describe a special type of attack in public blockchains where a participant puts their own transaction ahead of an upcoming trading transaction, often by manipulating transaction fees?
Front running attack
What component of a decentralized exchange can still have centralized control, despite the overall decentralization?
Centralized authority
What is a common consequence faced by operators of decentralized exchanges from government regulators?
Legal consequences
Study Notes
- Ethereum blockchain introduced smart contracts in 2017, leading to decentralized finance (DeFi) platforms like MakerDAO.
- MakerDAO is a decentralized lending platform based on a stablecoin, DAI, established in 2017. It uses smart contracts for loan, repayment, and liquidation processes.
- In June 2020, Compound Finance introduced a new cryptocurrency, Comp, for rewarding lenders and borrowers in its decentralized finance ecosystem.
- DeFi attracted significant attention in 2020, with platforms like Compound, Uniswap, and Aave offering yield farming and liquidity mining opportunities.
- DeFi has gained traction with venture capital investors, including Andreessen Horowitz and Michael Novogratz.
- As of September 2020, DeFi made up a large portion of the cryptocurrency market in terms of price changes.
- The future of digital finance was described as a three-way fight between Big Tech, national governments, and software developers building decentralized finance applications.
- DeFi is based on decentralized applications (DApps) and blockchain technology, enabling direct peer-to-peer transactions, mediated by smart contracts.
- Many DeFi platforms, including Uniswap, offer decentralized exchanges (DEX), allowing users to trade cryptocurrencies without intermediaries like banks or brokerages.
- Decentralized exchanges reduce the risk of hacking and offer greater anonymity, but they may suffer from low trading volumes and reduced market liquidity.
- Users on decentralized exchanges are at risk of losing their assets if they are hacked for their passwords or private keys, as there is no way to reverse transactions.
Test your knowledge about decentralized finance (DeFi) and its key features, including smart contracts, blockchain, lending, borrowing, derivatives, cryptocurrency trading, insurance, and composability. Learn about the innovative financial instruments offered by DeFi platforms.
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