Exam #03 Problem set 09-12

Terms

What is DeFi?

Decentralized Finance - a system of financial services (lending, borrowing, trading) built on blockchain networks without traditional intermediaries like banks

What is Triple-Entry Accounting?

An accounting system where a third entry (blockchain-based) verifies and secures transactions, increasing transparency and trust

What is Bitcoin?

A decentralized digital currency that allows peer-to-peer transactions without a central authority, secured by blockchain technology.

What is Ethereum?

A blockchain platform that enables smart contracts and decentralized applications (dApps), using its native cryptocurrency, Ether (ETH)

What are stable coins?

Cryptocurrencies designed to maintain a stable value by being pegged to assets like the US dollar

What are Algorithmic Stablecoins?

Stablecoins that maintain their value using algorithms and supply adjustments rather than being backed by reserves

What are treasury bills?

Short-term government debt securities issued by the U.S. Treasury, considered low-risk investments

What are Central Bank Digital Currencies (CBDCs)?

Digital versions of a country’s official currency issued and controlled by its central bank

What is Tokenization?

The process of converting real-world assets (like real estate or stocks) into digital tokens on a blockchain

What is Blockchain?

A decentralized digital ledger that records transactions across many computers in a secure, transparent, and tamper-resistant way

What are Lenders (in DeFi)?

individuals or entities that provide assets to lending platforms in exchange for interest

What is the GENIUS act?

A proposed or emerging U.S. legislative framework aimed at regulating stablecoins and digital asset markets

What are smart contracts?

Self-executing contracts with terms written in code that automatically carry out actions when conditions are met

What is USDC?

A stablecoin pegged to the U.S. dollar, backed by reserves and issued by regulated financial instituitons

What is DAI?

A decentralized stablecoin pegged to the U.S. dollar, maintained through crypto collateral and smart contracts on Ethereum

Which feature best defines blockchain technology?

Tamper-proof distributed ledger

Smart contracts primarily allow:

Automated execution of agreements without intermediaries

Triple-entry accounting adds which element to traditional bookkeeping?

Blockchain-verified public record

Which of the following best describes Bitcoin’s current use?

Store of value

Ethereum differs from Bitcoin primarily because it:

Enables programmable smart contracts

Which of the following is NOT a function of money?

Unit of risk

Tokenization means:

Representing asset ownership as blockchain tokens

In tokenized systems, digital wallets primarily store:

Private keys controlling tokens

A major advantage of tokenization is:

Fractional ownership and near-instant settlement

Which stablecoin is most transparent and backed by cash + T-bills?

USDC

Which stablecoin model failed in 2022 due to algorithmic design?

UST

DAI is minted when users:

Collateralize crypto such as ETH or USDc

CBDS differ from stablecoins mainly because they":

Are issued by central banks

Which is a key risk of retail CBDCs?

Bank disintermediation and privacy loss

Wholesale CBDCs are primarily designed for:

Cross-border and interbank settlement

A “hybrid” CBDC design means:

Two-tier system where banks distribute central-bank money

AI in credit scoring introduces which main benefit/ risk pair?

Faster decisions / bias amplification

Which best illustrates AI intermediation?

Automated portfolio rebalancing and loan matching

The GENIUS Act focuses on:

Regulating AI in financial services

A major tension raised by the GENIUS Act is:

Innovation vs. regulation

What are derivatives?

Financial contracts whose value is based on (derived from) an underlying asset, such as stocks, bonds, commodities, or currencies

What are forwards?

Customized contracts between two parties to buy or sell an asset at a specific price on a future date; traded privately (over-the-counter)

What are futures?

Standardized contracts to buy or sell an asset at a predetermined price on a future date; traded on exchanges and regulated

What are options?

Contracts that give the buyer the RIGHT (but NOT the obligation) to buy or sell an asset at a set price before or on a specific date

What is hedging?

A risk management strategy used to offset potential losses in investments by taking opposite position in a related asset

What is a call option?

A contract that gives the buyer the RIGHT (but NOT the obligation) to buy an asset at a specified price before or on a certain date

What is a put option?

A contract that gives the buyer the RIGHT (but not the obligation) to sell an asset at a specified price before or on a certain date

What is a short position?

Selling an asset (often borrowed) with the expectation that its price will decrease so it can be brought back at a lower price

What are electronic RFQ systems?

Electronic “Request for Quote” platforms where buyers request price quotes from dealers or market makers before executing a trade

What is a dark pool?

A private trading venue where large orders are executed anonymously to avoid impacting market prices

What is the difference between a call option and a futures contracts?

• Call option: Gives the buyer the right (not obligation) to buy an asset at a set price; loss is limited to the premium paid.

• Futures contract: Creates an obligation for both parties to buy/sell at a set price on a future date; gains and losses can be unlimited.

What is Lending Club?

A fintech marketplace lender that connects borrowers with investors. It offers personal loans, business loans, and banking services, using data-driven underwriting instead of traditional banks.

What is Prosper?

One of the first peer-to-peer (P2P) lending platforms in the U.S. It allows individuals to borrow directly from investors through an online marketplace

What is SoFi?

A FinTech company (social Finance) that provides loans (student, personal, mortgage), investing and banking services. Known for targeting high-income, financially stable customers and offering member perks

What are customer acquisition costs (CAC)?

The total cost of acquiring a new customer, including marketing, advertising, sales expenses, and promotions

What is WebBank?

An FDIC-insured, Utah-based industrial bank that partners with fintech companies (like LendingClub, Prosper, SoFi) to originate loans, helping them comply with banking regulations

What are payment initiation service providers (PISPs)?

Fintech providers that initiate payments directly from a customer’s bank account on their behalf, typically with the customer’s consent. Enabled by open banking (e.g., PSD2 in Europe), PISPs bypass traditional card networks, often reducing fees and improving payment speed and security.