DeFi Smart Contract

Definition ∞ A DeFi smart contract is an autonomous, self-executing agreement stored on a blockchain, specifically designed for decentralized finance applications. These contracts automatically execute predefined terms and conditions without intermediaries, facilitating financial services like lending, borrowing, and trading. They underpin the functionality of various decentralized exchanges, liquidity pools, and yield generation protocols. The code dictates the financial logic and asset transfers.
Context ∞ The security and correctness of DeFi smart contracts are paramount, as vulnerabilities can lead to substantial financial losses. Regulatory bodies globally are examining how to categorize and oversee these novel financial instruments. Continuous innovation focuses on enhancing contract security through audits and formal verification, alongside expanding their functional capabilities.