CAIA LEVEL II EXAM SET QUESTIONS
WITH COMPLETE SOLUTIONS
Token - Answer-Blockchain asset
Stablecoins - Answer-Asset underlying smart contracts
Asset-based decentralized derivative - Answer-Follow price movements of underlying
assets
Event-based decentralized derivatives - Answer-Value based on probability of event
occuring
Web 3.0 - Answer-Third generation internet based on distributed ledger technology
(DLT), provides peer-to-peer automated services
Decentralized finance - Answer-Web 3.0 financial services built with 'smart contracts'
(automated algorithms) on distributed ledger networks
Tokenization - Answer-Linking an asset to a digital token with rules encoded in a smart
contract
Fungible - Answer-All tokens are equivalent
Non-fungible - Answer-Tokens are unique
Asset tokens - Answer-Backed by another asset (i.e. gold or digital artwork)
Payment tokens - Answer-Coins
Security tokens - Answer-Play a similar role to traditional equity, issued through initial
coin offerings (ICO)
Utility tokens - Answer-Gives access to product or service
Governance tokens - Answer-Allows stakeholders to collaborate (and vote)
Reward tokens - Answer-Awards benefits, granted in reward for participation
Smart contracts - Answer-Algorithms that automatically execute on the blockchain;
essential for tokenization
Digital object identifiers - Answer-ID for internet objects
,Universal object identifier - Answer-ID for all digital and physical objects
Distributed storage - Answer-Breaking down large files and storing across networks
(interplanetary file system)
Distributed ledger technology - Answer-Database shared and synchronized across
multiple locations (blockchain is an example of DLT)
Relayers - Answer-Off-chain managers of the order book
Off-chain collateral - Answer-Storing collateral assets with an escrow service like a
commercial bank
On-chain collateral - Answer-The assets are locked on the blockchain within smart
contracts
Scalability - Answer-The risk that a blockchain will not be able to meet increased
demands for more block space without compromising advantages such as
decentralization and security
Oracles - Answer-Off-chain parties that provide prices or information into a
decentralized blockchain system
Initial coin offering (ICO) - Answer-Cryptocurrency version of an IPO; they are issued on
the blockchain, and they have drawn considerable regulatory interest
Initial exchange offering (IEO) - Answer-ICO administered by cryptocurrency exchange
(underwriters); effectively an ICO that opens on a centralized exchange rather than on
the blockchain
Security token offering (STO) - Answer-Tokenized digital securities sold on security
token exchanges; attempt to resolve regulatory issues with ICOs by involving ownership
rights in the company issuing an ICO
Utility token offering (UTO) - Answer-Issuing the right to participate in a digital
application or service; encourages usage of digital assets. It gives the owner the right to
participate in an activity or service within a digital ecosystem.
DeFi RegTech - Answer-Deploying DeFi technologies to allow regulators to collaborate
Value creation plan (VCP) - Answer-Combination of action items identified by private
equity firms for implementation on investment ('deals') to enhance value
Fiat off-ramp - Answer-Moves assets from a blockchain-based system to a bank
account
, The settlement layer - Answer-Considered Layer 1 and contains both the blockchain
itself and the native protocol asset
The asset layer - Answer-Considered Layer 2 and includes all assets listed on the
blockchain (the native protocol asset and any others
Whipsawed - Answer-Selling based on falling prices only to see the market recover or
buying based on rising prices only to see the market weaken
Net promoter ranking - Answer-A measurement used to capture the culture metric within
the category of environmental enablers
Measurements - Answer-Represent observable facts
Metrics - Answer-Measurements put into broader context, can represent knowledge
Asset owners - Answer-Acting in a fiduciary capacity for the principal (I.e. pension
funds, endowments, family offices)
Principal - Answer-Ultimate owner of the assets; could refer to an individual, beneficiary,
or institution acting on behalf of the individual
Agents - Answer-Provide services to asset owners to enhance value (i.e. asset
managers, investment banks, consultants)
Stakeholders - Answer-Those directly and indirectly affected by industry (i.e.
governments, regulators, academics)
Social license principal - Answer-Society implicitly grants a license to carry out
commercial business when it enhances social well-being; companies that engage in
sustainable finance will be granted a clean social license to operate
Stewardship - Answer-Engagement with investee companies to promote long-term
growth (fundamental purpose)
Sustainability - Answer-Meeting current asset owner needs while not harmful interests
of future stakeholders
Access persons - Answer-Employees of a U.S. investment adviser with access to
nonpublic information regarding securities transitions
Fundamental purpose - Answer-Increase societal wealth and well-being
Intrinsic purpose - Answer-Matching those with excess capital with those that have a
capital need (the plumbing)
WITH COMPLETE SOLUTIONS
Token - Answer-Blockchain asset
Stablecoins - Answer-Asset underlying smart contracts
Asset-based decentralized derivative - Answer-Follow price movements of underlying
assets
Event-based decentralized derivatives - Answer-Value based on probability of event
occuring
Web 3.0 - Answer-Third generation internet based on distributed ledger technology
(DLT), provides peer-to-peer automated services
Decentralized finance - Answer-Web 3.0 financial services built with 'smart contracts'
(automated algorithms) on distributed ledger networks
Tokenization - Answer-Linking an asset to a digital token with rules encoded in a smart
contract
Fungible - Answer-All tokens are equivalent
Non-fungible - Answer-Tokens are unique
Asset tokens - Answer-Backed by another asset (i.e. gold or digital artwork)
Payment tokens - Answer-Coins
Security tokens - Answer-Play a similar role to traditional equity, issued through initial
coin offerings (ICO)
Utility tokens - Answer-Gives access to product or service
Governance tokens - Answer-Allows stakeholders to collaborate (and vote)
Reward tokens - Answer-Awards benefits, granted in reward for participation
Smart contracts - Answer-Algorithms that automatically execute on the blockchain;
essential for tokenization
Digital object identifiers - Answer-ID for internet objects
,Universal object identifier - Answer-ID for all digital and physical objects
Distributed storage - Answer-Breaking down large files and storing across networks
(interplanetary file system)
Distributed ledger technology - Answer-Database shared and synchronized across
multiple locations (blockchain is an example of DLT)
Relayers - Answer-Off-chain managers of the order book
Off-chain collateral - Answer-Storing collateral assets with an escrow service like a
commercial bank
On-chain collateral - Answer-The assets are locked on the blockchain within smart
contracts
Scalability - Answer-The risk that a blockchain will not be able to meet increased
demands for more block space without compromising advantages such as
decentralization and security
Oracles - Answer-Off-chain parties that provide prices or information into a
decentralized blockchain system
Initial coin offering (ICO) - Answer-Cryptocurrency version of an IPO; they are issued on
the blockchain, and they have drawn considerable regulatory interest
Initial exchange offering (IEO) - Answer-ICO administered by cryptocurrency exchange
(underwriters); effectively an ICO that opens on a centralized exchange rather than on
the blockchain
Security token offering (STO) - Answer-Tokenized digital securities sold on security
token exchanges; attempt to resolve regulatory issues with ICOs by involving ownership
rights in the company issuing an ICO
Utility token offering (UTO) - Answer-Issuing the right to participate in a digital
application or service; encourages usage of digital assets. It gives the owner the right to
participate in an activity or service within a digital ecosystem.
DeFi RegTech - Answer-Deploying DeFi technologies to allow regulators to collaborate
Value creation plan (VCP) - Answer-Combination of action items identified by private
equity firms for implementation on investment ('deals') to enhance value
Fiat off-ramp - Answer-Moves assets from a blockchain-based system to a bank
account
, The settlement layer - Answer-Considered Layer 1 and contains both the blockchain
itself and the native protocol asset
The asset layer - Answer-Considered Layer 2 and includes all assets listed on the
blockchain (the native protocol asset and any others
Whipsawed - Answer-Selling based on falling prices only to see the market recover or
buying based on rising prices only to see the market weaken
Net promoter ranking - Answer-A measurement used to capture the culture metric within
the category of environmental enablers
Measurements - Answer-Represent observable facts
Metrics - Answer-Measurements put into broader context, can represent knowledge
Asset owners - Answer-Acting in a fiduciary capacity for the principal (I.e. pension
funds, endowments, family offices)
Principal - Answer-Ultimate owner of the assets; could refer to an individual, beneficiary,
or institution acting on behalf of the individual
Agents - Answer-Provide services to asset owners to enhance value (i.e. asset
managers, investment banks, consultants)
Stakeholders - Answer-Those directly and indirectly affected by industry (i.e.
governments, regulators, academics)
Social license principal - Answer-Society implicitly grants a license to carry out
commercial business when it enhances social well-being; companies that engage in
sustainable finance will be granted a clean social license to operate
Stewardship - Answer-Engagement with investee companies to promote long-term
growth (fundamental purpose)
Sustainability - Answer-Meeting current asset owner needs while not harmful interests
of future stakeholders
Access persons - Answer-Employees of a U.S. investment adviser with access to
nonpublic information regarding securities transitions
Fundamental purpose - Answer-Increase societal wealth and well-being
Intrinsic purpose - Answer-Matching those with excess capital with those that have a
capital need (the plumbing)
