Cryptoasset Anti-Financial Crime Specialist (CCAS) Certification Practice Test

Which statement accurately defines a decentralized finance (DeFi) protocol?

1. It operates only within government regulations.

2. It is controlled by a central bank.

3. It provides traditional financial services without intermediaries.

4. It requires users to disclose their identities.

The correct answer is: It provides traditional financial services without intermediaries.

A decentralized finance (DeFi) protocol is primarily characterized by its ability to offer traditional financial services—such as lending, borrowing, trading, and more—without the need for intermediaries like banks or financial institutions. This is achieved through the use of blockchain technology and smart contracts, which automate these services in a trustless environment. By removing intermediaries, DeFi protocols aim to create a more inclusive and accessible financial ecosystem that enables peer-to-peer transactions and increases financial participation globally. The essence of DeFi lies in its decentralized nature, which allows users to retain control of their assets and engage in financial activities directly on the blockchain. This contrasts sharply with traditional finance, where transactions typically pass through multiple intermediaries, thus potentially increasing costs and limiting access. In the context of the other statements, a proper understanding of DeFi shows why they do not accurately describe the characteristics of a DeFi protocol. For instance, some options suggest reliance on government regulations or central control, which directly opposes the foundational principles of DeFi centered on decentralization and autonomy. Similarly, an emphasis on identity disclosure is also contrary to the pseudonymous nature often associated with many DeFi applications, where users can interact without revealing their personal identities.