DeFi Smart Contract Development
Smart contracts are pre-defined automated lines of codes agreed between a buyer and seller upon an activity. When the pre-set conditions are met, the functions coded in the contract are executed.
Smart Contracts are the driving force behind decentralized finance (DeFi) protocols. And since DeFi has witnessed its impossible growth of late, smart contract development is on the rise. It's mainly because both entrepreneurs and consumers are equally benefited by smart contracts, and hence the adoption rate is higher.
The advent of cryptocurrencies began in 2008 with Bitcoin. But, smart contracts date long back to the 1990s. The term was first coined by a cryptographer, Nick Szabo. He defined it as ‘A smart contract is a set of promises, specified in digital form, including protocols within which the parties perform on these promises.’
What are these unique digital promises? And how are they effectively adopted in finance?
Let's begin with the existing concerns, and explore how digital promises of smart contract sort them out at ease.
Challenges in centralized organizations
Centralized finance organizations are transformed into decentralized with the help of smart contracts. By making it decentralized, it solves the following issues.
Traditional financial bodies only offer limited online services. Hence, it fails to attract the next-gen mass of users. Also, according to the Massacheuttes Institute of Technology, digitization of banks can cut costs by 60-80%.
Frequent shutdown of financial services and security breaches are major concerns of customers. Since the entire system is centralized, in no way can this be eliminated.
Natural calamities, governmental policies, and competition are some of the external factors that influence a financial body's performance. This tends to disrupt the uniformity in the issuance of services.
Since our conventional finance is centralized, it is prone to conflicts from both buyers and sellers. Constantly changing regulations, fraudulent activities, and inefficient organization resources are some areas that lead to disputes.
Would you believe if we told you smart contracts are the solution to solve all the above-mentioned concerns?
Well, you have to.
The next section uncovers the role played by smart contracts in DeFi.
Roles and Benefits of smart contracts in DeFi
Smart contracts are completely digitized lines of codes. Hence, they power the DeFi protocols to completely go online. It saves the costs of both the organization and its customers.
Smart contracts are regularly audited to check their conformation with standards. Their codes can never be altered once they are agreed upon by a buyer and a seller. Thus, it relieves the anxiety of both the customers and the firm.
It's all integrated within the automated system. In no way can external factors interfere with the financial services offered by DeFi protocols.
Smart contracts leave no room for conflicts between buyers and sellers because the presence of an intermediary is ruled out.
Since third-parties are eliminated in smart contract based DeFi protocols, the cost incurred for activities is very low.
The absence of human intervention promotes the utmost accuracy in operations.
The entire process is automated. Hence, manual functioning is practically reduced to nothing. Thus, the performance is faster than conventional services.
Examples of smart contract based DeFi protocols
Some high-performing examples are as follows,
Compound is an Ethereum-based automated protocol for various crypto tokens. It supports BAT, DAI, ETH, USDC, REP, ZRX tokens. The interest rate is not fixed in the Compound. It varies based on real-time market dynamics. When demand from borrowers increases, the interest rate increases. When the lendable amount increases, the interest rate decreases.
Maker’s Dai stablecoin is a widely used synthetic in DeFi space. It is also an ethereum-based platform. Users can borrow DAI(pegged to USD) by depositing ETH as collateral.
Synthetix is a decentralized issuance platform that helps users mint various synthetic assets, fiat currencies, derivatives, and cryptocurrencies. Users can also swap synthetic assets.
Business opportunities in DeFi protocols
DeFi has witnessed exponential growth in both the user base and the total assets locked in the contracts.
At the time of writing, the total value locked in DeFi contracts is $11.26 Billion, as per defipulse.com.
A Coingecko survey had found that more than 40% of yield farmers had no idea (and could not read) about smart contracts. Also, more than 90% of users have reaped a massive profit of 500%. This proves smart contracts are easy to adopt and use without any technical knowledge.
Launch your smart contract based DeFi protocol with Osiz Technologies
Osiz Technologies, a leading DeFi Development Company
, has 10+ years of experience in blockchain technology. Our pool of blockchain architects and DeFi developers are guaranteed to deliver quality DeFi development services to launch your smart contract based DeFi platforms.