Top 8 Use Cases For Smart Contracts In Defi In 2024

‍1. Introduction

The growing prominence of blockchain technology in 2024 has sparked widespread adoption of smart contracts, which are self-executing agreements driven by conditional logic. From legal documents to real estate transactions, industries everywhere are leveraging the efficiency and automation of smart contracts. However, one of the most transformative applications of smart contracts is within the decentralized finance (DeFi) sector.

DeFi, which already offers a revolutionary alternative to traditional financial systems by eliminating the need for intermediaries, can also leverage smart contracts for greater transparency and efficiency. In fact, it has been reported that in April 2023, the Total Value Locked (TVL) in DeFi smart contracts surpassed $53.63 billion, as compared to the previous reported value of $20 billion, thus signifying the rapid growth of smart contract use cases in DeFi.

In this blog, we’ll explore how smart contracts are reshaping DeFi and highlight key industry use cases that stand to benefit from their continued evolution.

2. How Do Smart Contracts help in Making Defi Better?

DeFi processes are significantly enhanced by several of the staple benefits of smart contracts, such as:

• Intermediary-Free Transactions

Blockchain smart contracts can automate and streamline financial operations whilst removing the need for intermediaries or third parties. Whether it be decentralized peer-to-peer lending, borrowing, or trading, smart contracts can execute all of these in a single transaction all through code, without any banks or brokers involved.

• Greater Transparency and Trust

Smart contracts operate on blockchain, where each transaction is publicly verified and recorded on a digital ledger. This transparency fosters trust between users and DeFi platforms. With every action visible and traceable, there is little room for disputes or fraudulent behavior.

• Lower Transaction Costs

Automated execution of smart contracts leads to faster, more efficient financial processes. This efficiency helps drive down transaction costs by 30-40%, a critical advantage for DeFi platforms. Users save on fees that would otherwise be paid to traditional financial intermediaries, making DeFi much more cost-effective.

• Global Accessibility

Smart contracts have opened up DeFi to a global audience by offering financial services without geographic limitations. Their lower transaction costs and decentralized nature allow individuals across the world to participate in financial activities, regardless of their location.

3. What Industries can benefit from Smart Contracts in Defi?

With their enhanced abilities in automation, transparency, and efficiency, smart contracts are transforming a wide range of industries, specifically those that are utilizing DeFi for their financial transactions. Here, we will list out some of the industries and the kind of benefits they receive from smart contracts in DeFi:

4. Top 8 Use Cases for Smart Contracts in Defi in 2024

Now, we will examine some of the common use cases for smart contracts in DeFi in 2024. Let’s dive in!

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‍4.1. Blockchain-Based Insurance

‍The traditional methods of the insurance and claims processing system are plagued with issues such as excessive paperwork, obsolete auditing systems, and cumbersome procedures. Smart contract development through DeFi can resolve these problems and provide a more thorough and streamlined system for blockchain-based insurance, with a 40% increase in execution efficiency for companies.

‍4.2. Digital Identity Systems

‍Blockchain-based digital identities have rapidly gained popularity in recent times. However, by pairing them with smart contracts in DeFi protocols, they can gain access to a decentralized global economic system and result in an unprecedented profit margin of over 65%  for organizations dealing with digital identity management. These new digital identities will also be able to provide DeFi access to underprivileged people from any Internet location.

‍4.3. Asset Management

‍As blockchain technology is all about user control and autonomy, many leading DeFi solutions based on smart contracts enable users to manage their assets, purchase new ones or transfer old ones that they have previously owned. DeFi also allows users and corporations to protect these assets and their other valuable data using high-complexity encryption, thereby enhancing security and privacy.

‍4.4. Video Game Incentives

‍As we all know, most of the video games today include several different in-app purchases and loot boxes. However, the good news is that blockchain has revolutionized this particular niche as well. Using smart contracts in DeFi, game developers can implement incentive or reward schemes that offer DeFi coins and give higher returns in the form of greater retention and increased enthusiasm from the gaming community.

‍4.5. Asset Tokenization

‍The DeFi ecosystem allows users to tokenize their assets and store them on a blockchain network. This helps foster a whole new ecosystem where digital assets are exchanged and traded on a large scale to build value and significantly increase the profits achievable on a given number of assets by around 55%.

‍4.6. DeFi Stablecoins

‍DeFi-based smart contracts enable the creation and development of decentralized, transparent, and low-volatility digital assets known as stablecoins. These stablecoins are ideal for exchange use, as they are essentially digital assets that are pegged to the value of a fiat currency or commodity. When traded, these stablecoins can offer a 60% higher return value to the user that owns them.

‍4.7. Tokenized Derivatives and Artificial Assets

‍Using smart contracts in DeFi, users can create tokenized derivatives, which are a type of artificial asset whose value keeps fluctuating based on the value of the underlying primary security, a type of traditional security consisting of bonds, fiat currencies, commodities, etc.

‍4.8. P2P Lending and Borrowing

‍DeFi eliminates the traditional third-party/intermediary system and instead brings a whole new revolution to the financial ecosystem with peer-to-peer lending and borrowing use cases. Blockchain-based smart contracts enhance this use case by facilitating faster exchanges and driving a greater number of transactions, thereby increasing the profitability by 8% to 20% or more.

5. Conclusion

Smart contracts and their ability to automate complex financial processes have disrupted traditional finance, giving DeFi a crucial advantage. In 2023 alone, DeFi saw a rise to over $250 billion in total value locked (TVL), which underscores the growing impact of smart contracts. Looking ahead, smart contracts will likely continue driving DeFi's evolution. We can expect smart contracts to facilitate new decentralized innovations that will push DeFi even further into the mainstream. The future of DeFi looks bright, and smart contracts are right at the heart of this financial transformation.

6. FAQs (Frequently Asked Questions)

6.1 What are Smart Contracts?

‍Smart contracts are self-executing agreements written in code and stored on a blockchain. They automatically enforce terms when predefined conditions are met, ensuring transparency and trust in transactions.

6.2 How do Smart Contracts help in DeFi?

‍Smart contracts eliminate intermediaries in decentralized finance (DeFi) processes like lending, borrowing, and trading. They automate tasks, reduce costs, and increase transparency, all within a secure, decentralized ecosystem.

6.3 What are some common use cases of Smart Contracts in DeFi?

‍Common DeFi use cases include automated lending, decentralized exchanges, insurance claims processing, and staking platforms. These applications leverage smart contracts to create efficient, transparent, and decentralized solutions.

6.4 How has DeFi benefitted from Smart Contracts?

‍DeFi has benefited from smart contracts by cutting costs, speeding up transactions, and providing financial services to unbanked populations.

6.5 What is the future of DeFi?

‍DeFi is expected to continue growing as blockchain technology evolves. Smart contracts will expand beyond finance into areas like healthcare, real estate, and supply chain, enhancing efficiency and transparency across industries.

6.6 What industries are most prevalent in using Smart Contracts for DeFi?

‍Industries like finance, real estate, insurance, and supply chain are leading in DeFi adoption. These sectors use smart contracts for automation, transparency, and cost reduction, enhancing their overall operational efficiency.