Free CAIA Level I Digital Assets Practice Questions
Digital assets on CAIA Level I cover blockchain technology, smart contracts, decentralized finance (DeFi), Bitcoin and Ethereum fundamentals, tokenization of assets, and institutional portfolio allocation frameworks for digital assets.
Sample Questions
Question 1
Easy
A smart contract is best described as:
Solution
B is correct.
A smart contract is a program stored on a blockchain that automatically executes predefined actions when specified conditions are satisfied. It removes the need for intermediaries by encoding agreement terms directly into code.
A smart contract is a program stored on a blockchain that automatically executes predefined actions when specified conditions are satisfied. It removes the need for intermediaries by encoding agreement terms directly into code.
Question 2
Medium
In decentralized finance (DeFi), composability refers to the ability to:
Solution
A is correct.
Composability in DeFi refers to the property that allows different protocols and smart contracts to interact seamlessly and be combined to build more complex financial applications. This is often described as "money Legos" because developers can stack protocols on top of each other.
Composability in DeFi refers to the property that allows different protocols and smart contracts to interact seamlessly and be combined to build more complex financial applications. This is often described as "money Legos" because developers can stack protocols on top of each other.
Question 3
Hard
An institutional investor analyzes Bitcoin's drawdown profile and observes that Bitcoin has experienced peak-to-trough drawdowns exceeding 70% on multiple occasions. When incorporating this into portfolio risk management, the investor should recognize that:
Solution
D is correct.
Maximum drawdown captures the worst peak-to-trough decline and the duration of the drawdown, providing information about path-dependent risk that variance and standard deviation do not convey. A 70%+ drawdown over many months poses liquidity, margin, and governance challenges for institutional investors that a single annualized volatility number obscures. Furthermore, historical episodes show that during severe crypto drawdowns, correlations with risk assets tend to increase, compounding portfolio losses precisely when diversification is most needed.
Maximum drawdown captures the worst peak-to-trough decline and the duration of the drawdown, providing information about path-dependent risk that variance and standard deviation do not convey. A 70%+ drawdown over many months poses liquidity, margin, and governance challenges for institutional investors that a single annualized volatility number obscures. Furthermore, historical episodes show that during severe crypto drawdowns, correlations with risk assets tend to increase, compounding portfolio losses precisely when diversification is most needed.