12 Questions
What is the main advantage of DEXs over CEXs?
Lower transaction fees
What is the main advantage of DEXs over CEXs?
They charge lower transaction fees
What is the main advantage of DEXs over CEXs?
Decentralization
What is the risk that liquidity providers face in the pool system?
Impermanent loss
What are liquidity providers entitled to withdraw from the pool?
The portion of the value of the pool they contributed
What is the constant product mechanism used for in DEXs?
To maintain reserves in relative balance
How do DEXs determine asset prices without a centralized body?
Through a constant product mechanism
What does Uniswap advocate for in its whitepaper?
Zero rent extraction to protect users from additional costs
How are liquidity providers compensated for the impermanent loss risk?
Through higher transaction fees
How do DEXs determine asset prices?
Through automated market maker protocols
How do traders or bots profit from discrepancies in prices through arbitrage?
By buying assets at a low price on DEXs and selling them at a high price on CEXs
How do traders or bots profit from discrepancies in prices between DEXs and CEXs?
By buying assets from the pool at a lower price than the wider market
Study Notes
- DEXs aim to complete transactions more quickly and cheaply than CEXs by cutting out intermediaries.
- Uniswap's whitepaper advocates for "zero rent extraction" to protect users from additional costs.
- Bancor advocates for decentralization to prevent concentration of liquidity in the hands of a few actors.
- Uniswap charges a lower transaction fee than major CEXs like Binance, Coinbase, and Kraken.
- DEXs use automated market maker protocols to determine asset prices without a centralized body.
- The constant product mechanism tends to keep reserves in relative balance.
- DEXs offer roughly the same prices for assets as CEXs due to arbitrage opportunities.
- Traders or bots can profit from discrepancies in prices through arbitrage.
- DEXs may have to let traders sell assets into the pool at a higher price than the wider market to maintain balance.
- The volume in the pool would rise, reducing its offered price until it matched the wider market.
If you're interested in the world of decentralized exchanges (DEXs) and automated market makers (AMMs), then this quiz is for you! Test your knowledge on everything from the mechanics of DEXs and AMMs to the differences between major players like Uniswap and Bancor. You'll also learn about the concept of arbitrage and how it can be used to profit from price discrepancies between DEXs and centralized exchanges (CEXs). So, are you ready to dive into the
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