How Do Smart Contracts Contribute to the Efficiency of Decentralized Lending Protocols?

Smart contracts automate the entire lending lifecycle, including fund pooling, interest calculation, collateral management, and liquidation. This automation removes the slow, costly human intermediaries found in traditional finance.

By enforcing loan terms transparently and programmatically, they enable instant, permissionless borrowing and lending. The immediate execution of liquidation when collateral falls below a threshold protects the lender's capital.

This efficiency results in lower transaction fees and faster settlement times.