What Are the Primary Use Cases for Smart Contracts?
Smart contracts automate agreements, executing terms without intermediaries when predefined conditions are met. In Decentralized Finance (DeFi), they enable lending, borrowing, and Automated Market Makers (AMMs).
They are fundamental for creating tokenized financial derivatives and options, allowing for trustless, on-chain settlement. This automation significantly reduces operational costs and counterparty risk in finance.
They ensure transparency and immutability for all recorded transactions.
Glossar
Primary Use Cases
Application ⎊ Primary use cases for crypto derivatives extend beyond simple speculation to include sophisticated risk management applications for market participants.
Decentralized Finance
Architecture ⎊ Decentralized Finance, within the cryptocurrency ecosystem, represents a paradigm shift in financial infrastructure, moving away from centralized intermediaries towards peer-to-peer systems leveraging blockchain technology.
Financial Derivatives
Stewardship ⎊ Involves engineering these contracts to explicitly manage or incentivize positive externalities, such as climate risk exposure or carbon credit valuation.
Smart Contracts
Function ⎊ Smart contracts are self-executing agreements with the terms of the agreement directly written into lines of code, residing on a decentralized ledger.
Counterparty Risk
Exposure ⎊ Counterparty risk represents the potential loss incurred when a trading partner defaults on their contractual obligations.
Automated Market Makers
Architecture ⎊ Automated Market Makers represent a fundamental shift in price discovery, moving away from traditional order book models towards algorithmic execution predicated on mathematical formulas.