Diving into the innovative world of decentralized finance, we’ve gathered insights from CEOs and founders to uncover specific smart contract features that empower DeFi users. From automating collateral management to earning passively through automated liquidity, explore the eight distinct advantages these experts highlight for a smarter DeFi experience.
- Automate Collateral Management
- Ensure Trustless Transaction Execution
- Empower Through Decentralized Governance
- Leverage Flash Loans for Quick Plays
- Adjust Fees with Market Conditions
- Incentivize with Proof of Performance
- Streamline Yield with ERC-4626 Vaults
- Earn Passively via Automated Liquidity
Automate Collateral Management
One specific smart-contract feature that benefits DeFi users is automated collateral management. This feature allows users to automatically manage their collateral in lending and borrowing protocols, ensuring that their positions remain secure without constant manual oversight.
What people should know about this feature is that it uses smart contracts to monitor the value of collateral in real-time. If the collateral’s value drops below a certain threshold, the smart contract can automatically trigger actions like partial liquidation or additional collateralization to protect the user’s position. This reduces the risk of sudden liquidations and helps users maintain their borrowing positions more safely, even in volatile markets.
Automated collateral management enhances the security and efficiency of DeFi interactions, making it easier for users to engage with these platforms while minimizing the risks associated with market fluctuations.
Sergiy Fitsak
Managing Director, Fintech Expert, Softjourn
Ensure Trustless Transaction Execution
One specific smart-contract feature that greatly benefits DeFi (Decentralized Finance) users is automated, trustless execution of transactions. This feature allows users to engage in financial activities—such as lending, borrowing, trading, or yield farming—without relying on a centralized intermediary like a bank or broker. The smart contract automatically enforces the rules agreed upon in the transaction, ensuring that all parties meet their obligations (e.g., a loan is repaid with interest) without the need for manual intervention.
What people should know about this feature is that it enhances security and transparency. Since smart contracts are publicly visible on the blockchain, users can audit the code and understand the exact terms before interacting with the protocol. This helps eliminate the risk of manipulation or fraud that can sometimes occur with traditional financial intermediaries.
However, it’s important to recognize that smart contracts are immutable—once deployed, they cannot be easily altered. Therefore, the security of these contracts is crucial, as bugs or vulnerabilities in the code could lead to the loss of funds. Users should only interact with well-audited and trusted DeFi platforms.
Shehar Yar
CEO, Software House
Empower Through Decentralized Governance
I’ve seen firsthand the advantages of smart contracts in DeFi, especially the feature of decentralized governance. This allows users to vote on changes and upgrades directly through the smart contract, ensuring transparency and collective decision-making. For example, when we used a governance-based DeFi protocol, our clients enjoyed increased engagement and control over their investments, which resulted in a 15% boost in client satisfaction. The lesson here is that decentralized governance empowers users and fosters a more inclusive and transparent financial environment.
Jonathan Gerber
President, RVW Wealth
Leverage Flash Loans for Quick Plays
Alright, let’s talk about flash loans then.
So, flash loans are like borrowing money without any collateral, but with a catch. You have to pay it back in the same transaction. Sounds wild, right?
Here’s how it works: in DeFi, you can borrow a huge sum, use it for whatever you need (like arbitrage or debt swapping), and return it—all within the blink of an eye (okay, maybe a few seconds, but still). If you don’t pay it back instantly, the whole transaction is reversed, as if it never happened. Magic.
Why should you care? Well, it lets users with minimal capital make some serious plays, like profiting from price differences between platforms or paying off multiple debts in one swoop. The kicker? You don’t need to put up collateral, which is a massive game-changer for the average user who isn’t rolling in crypto.
But here’s what you need to know: flash loans are insanely powerful but also come with risks. Hackers love trying to exploit them, so it’s important the platform you’re using has solid security in place. When used wisely, though, flash loans give DeFi users flexibility and leverage that you just can’t find in traditional finance.
Kartik Chugh
Chief Marketing Officer, QuillAudits
Adjust Fees with Market Conditions
From our experience, one unique smart-contract feature that has really helped our DeFi business owners is “Dynamic Fee Adjustment.” This feature enables smart contracts to automatically adjust transaction fees based on market conditions like liquidity, volatility, and trading volume.
For example, we developed a DeFi platform for one of our clients that integrated this feature into it to benefit users with lower fees during times of high liquidity. This encouraged more trading activity. Conversely, during low liquidity or high volatility, fees increase slightly to protect liquidity providers from excessive losses.
This feature provides flexibility for both traders and liquidity providers and keeps the market stable. Thus, this smart-contract design encourages participation in the platform, creating a more sustainable ecosystem.
Gagandeep Singh
Founder of Blocktech Brew, Blocktech Brew
Incentivize with Proof of Performance
We prioritize security as a core aspect of every blockchain infrastructure we deploy. One particularly effective strategy we have recommended is leveraging our Proof of Performance (PoP) Consensus Mechanism. This strategy ensures that every architectural solution we implement remains verifiable and accountable.
By utilizing PoP, infrastructure operators are incentivized to meet specific performance benchmarks, which are transparently validated on-chain. This approach not only guarantees that the infrastructure operates securely as promised but also fosters continuous improvement and trust within the system.
In one case, we implemented PoP for a decentralized finance (DeFi) platform, ensuring that the infrastructure maintained high throughput while securing transactions against potential exploits. As a result, the platform experienced a 20% increase in transaction speed without compromising security, giving users confidence in the reliability and safety of their funds.
Marouen Zelleg
Co-Founder, Crestal
Streamline Yield with ERC-4626 Vaults
I’d like to mention that the ERC-4626 is a vault standard that allows smart contracts to create DeFi abstraction. This works by streamlining how yield-bearing assets work. This ERC standard makes it easier for developers to create vaults that automatically optimize yield strategies, simplifying user interaction with DeFi protocols.
A specific benefit of ERC-4626 is how it enables users to earn yield passively. Fees generated from order flow can be captured by the vault, and these earnings are automatically distributed back to users. This way, users gain exposure to yield-earning opportunities without active management, enhancing both user experience and financial efficiency.
Agustin Cortes
Defi Specialist, Polygon
Earn Passively via Automated Liquidity
One key smart-contract feature that benefits DeFi users is “automated liquidity provision.” Through liquidity pools, users can lock up their assets in a smart contract to facilitate trading, earning passive income via transaction fees. This feature eliminates the need for traditional market makers and reduces slippage in trades. Users should know that while this can generate returns, there are risks like “impermanent loss” if the value of tokens in the pool fluctuates significantly. Understanding these risks is crucial before participating.
Ronald Osborne
Founder, Ronald Osborne Business Coach
