THE INVENTIVE SMART CONTRACTS TO DRIVE DEFI ADOPTION.

Within the global blockchain ecosystem, it can be concluded that the aspect of decentralized finance is making great advancements and growing speedily. It has since its introduction into the system simplified finance for traders, investors, innovators and other stakeholders within the industry and provided solutions for the prevalent issues obtainable in traditional centralized financial systems.

Over the years, the hub of activities within the financial industry is completely reliant on traditional contractual agreements drawn up by parties involved and requires validation by intermediaries regarding the fulfilment of the terms outlined on the paperwork. Granted, this approach served its purpose for a little while but it has become quite slow, completely outdated and not structurally suited for the current financial institutions. unfortunately, the advancement in technology characterized by a break out of various innovative tools has obscured the use of traditional contract agreements to this day and is replaced by smart contracts.

WHAT ARE SMART CONTRACTS?

     smart contract descriptively is a computer program or a transaction protocol that is designed to automatically execute, control or document vital events and actions bases on the terms of a contract or an agreement. The purpose of smart contracts is to eliminate the need for trusted intermediators, arbitrations and enforcement costs, fraud losses, as well as the reduction of malicious and accidental exceptions.

     Meanwhile, the existing smart contract options within the blockchain ecosystem has threatened the resolve of DeFi developers and hampered the adoption and mainstreaming of their various Dapps.

Some of the issues encountered when dealing with current smart contracts include 

COST INEFFECTIVENESS

     The fees required to establish interaction and the running of smart contracts on legacy networks is quite high,this creates a barrier to entry that compromises the security of the blockchain network and creates room for cheating miners to be incentivized.

SLOWNESS IN OPERATION.

     There is tardiness in the operation of the first generation block consensus times and the fact that it is often subjected to forking negatively affects the possibility of unrestricted scalability as the slowness in execution of transaction leads to a congestion in the network and creates trustlessness within the network.

ALGORAND’S SMART CONTRACTS

     The Algorand infrastructure has introduced its unique version of smart contracts built with the capacity to attain decentralization, scalability and security. Through this, app developers can conveniently utilize the network without giving up the core requirements of their applications in the process.

These smart contracts are totally flexible in that they are performed on a trustless network providing transparency, highly accurate apps invulnerable to compromise. Dapps developers through the algorand smart contracts are empowered to create large scale complex programs equipped to challenge the financial services obtainable in today’s society.

Let’s consider a few peculiarities that gives algorand smart contracts an advantage over many others and facilitates the development of swift, secure and scalable financial applications.

ATOMIC TRANSFERS

     This is a unique feature that is characterized by the ability to transfer a number of assets among various parties without depending on time locked contracts,escrows or third parties. The atomic transfer eliminates counterparty risks and the need for collateral involvement while catalyzing the process of transaction.

REKEYING

     This gives custody providers and network users the ability to change private keys without necessarily altering their public addresses thereby providing perpetuity for their public addresses and minimizing overhead in operations.

STANDARDIZED PLATFORM FOR DAPPS

     Algorand smart contracts forms the basis for the development of DeFi applications, increases the possibility of iteration as well as swift deployments with innovative and cost effective capacities.

THE CONTRIBUTIONS OF ALGORAND SMART CONTRACTS TOWARDS DEFI TRANSACTIONS

ESCROW.

     The concept of escrow has always been a huge part of transactions over the years. Descriptively, funds are locked up in an escrow account during transactions until certain specified conditions are met. For instance, if Mr A needs a loan and Mr B agrees to provide the loan on the condition that Mr A uses one of his assets as collateral, the rationale is that if Mr A fails to return the loan within specified period,Mr B can claim the collateral but if he(Mr A)succeeds in paying back before the specified time, he can reclaim his asset.

 The conditions that unlocks the ‘collateral’ in traditional finance is mediated by a centralized party or an intermediary and this causes slowness in transactions and high transaction fees.

     This is also applicable in the algorand smart contracts, the two conditions surrounding release of funds are encoded in the contract, this way, the need for third parties, intermediaries or centralized authority which confirms if conditions are met and possibly mediates the transaction is completely eliminated. Meanwhile, when conditions are met, claiming funds on the algorand structure is only but a frictionless and swift atomic transfer that requires very low fee and is completed in a few seconds.

PAYMENT SOLUTION

     The core characteristic of every payment based application is the transferring of funds from one point or party to another. Trading of assets between parties require a high trust level between them, but in order to save the troubles of either of the parties failing to hold up their end of the deal, most times an intermediary is employed. Unfortunately, this breeds vesting the governance of transaction on a central authority which is in contrast with the purpose of the blockchain.

     The algorand smart contracts, trade between two or more individuals is simplified without the need for a mediator through atomic transfer. The atomic transfer is built at layer 1 and involves a grouped transaction which is sent into the network, if one transaction fails ,others follow suit.

MARKET PREDICTION

     Today’s prediction market is ridden with centralized entities, this basically means that we only have one person validating or refuting occurrences in the market, this of course breeds fraud within the system. 

     Meanwhile, the ”wisdom of the crowd” is a much better approach as its practice is centered around decentralization. This involves thousands of users reporting market occurrences and behaviors thereby ensuring that information given is accurate. With this approach the market becomes fair given to the fact that their is less risk for manipulation from bad users.

     Algorand smart contracts eliminates centralized entities in the prediction market industry, this brings about low fees and fund security, also when an outcome of an event is confirmed, the automated smart contract will execute and after validating the accuracy of the report, will allocate the amount of funds required.

MARKETPLACES

     It is quite sad how centralized entities have taken over the entirety of the market, dictating the terms of trade and collecting commissions from every transaction they can possibly get their hands on, some of these entities include eBay and Amazon.

     Fortunately, the creation of decentralized marketplaces backed by smart contracts is characterized by a peer to peer approach of buying and selling in the site without necessarily requiring the services of an intermediary. Smart contract provides users the power to dictate trade terms and protect them from any form of fraud throughout the entire trade process.

     The involvement of smart contracts also impacts credit and lending, synthetics, stablecoins, exchange and liquidity as well as margin trading in order to give users a whole new and improved perspective about DeFi and drive its adoption further

CONCLUSION

The integration of Algorand smart contracts makes transactions, trading and exchanges on the network more simplified than it used to be. More so, it facilitates the development of several DeFi solutions and highly scalable Dapps for the growing sector of Decentralized Finance.

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