Blockchain has given rise to a number of technologies and systems that are now a fundamental part of its infrastructure. Of all the tech tools that blockchain uses, smart contracts may be the singular one that’s most synonymous with the world of blockchain and most useful.
Smart contracts are the backbone of decentralized finance, eliminating the need for third parties and allowing peer-to-peer transactions to flourish. As blockchain is founded on principles of being fully decentralized, promoting transparency, and allowing peer-to-peer movements, smart contracts are a winning solution for everyone.
In this article, we’ll dive into smart contracts, demonstrating how this technology works, why they have become so favored as a safety solution, and how exchanges like StormGain are pushing the bounds of what’s possible with smart contracts.
How Do Smart Contracts Work in Decentralized Finance?
Smart contracts are self-executing agreements that work without the need for a third party to oversee the process. Instead of a system or a human ensuring that the requirements for a trade have been established, a smart contract uses mathematical computation to check for fulfillment, then executing once those conditions have been met.
Instead of creating a paper trail that has to be validated by third parties, smart contracts work by documenting their movements directly onto the blockchain. As an unalterable financial ledger, the blockchain provides complete transparency around transactions and ensures that people can trace and follow transactions as they’re executed.
Beyond just eliminating the need for these intermediary systems, smart contracts are an exciting technology as they can be applied to almost any industry. While the obvious and native appearance of smart contracts is within decentralized finance, other industries are rapidly adopting these excellent mechanisms.
Why Smart Contracts Are Favored
As the world of decentralized finance has continued to grow, other industries are beginning to flock to smart contract technology due to all of the benefits that they offer. While they can be used in a range of scenarios, let’s explore some of the reasons that they work so well in decentralized finance:
- Reducing the Cost of Running Financial Systems – By eliminating intermediaries, businesses can execute transactions without having to go through additional steps. By removing these third parties, everyone that’s involved with the transaction is set to benefit. This can be greatly seen in the stock photo industry, which is notorious for middle-men services skimming from creators and increasing buyer costs.
- Increasing Trading Speed – As there is no need for a third party to waste time, transactions that are driven by smart contracts are significantly faster than those within traditional financial spheres.
- Immutable Trail of Data – When transactions are listed on the blockchain, they are available for everyone to see. Having all financial transactions on this system would eliminate fraud, unsanctioned political donations, and would hold people accountable for their actions.
Smart contracts are a wonderful technology that powers decentralized technology. Even so, some blockchain businesses are finding ways to push the functionality of this technology one step further. We can especially see this within centralized and decentralized exchanges, as they use smart contracts to facilitate trading for users.
How Does DEX Derivative Trading Work with Smart Contracts?
Within decentralized exchanges like StormGain, users are able to utilize smart contracts to easily trade cryptocurrency derivatives. The process of doing this is incredibly easy, with the platform outlining a number of steps that the user should take:
- Connect a Wallet – Users need to first connect their crypto wallets, using a service like MetaMask or whichever wallet they prefer to connect their accounts.
- Select a Cryptocurrency – Next, users select the crypto that they want to trade with. At present, there are over 50 distinct cryptocurrencies on the platform that people can choose from.
- Confirm the Trade Amount – After selecting a cryptocurrency, users only need to confirm the amount that they want to trade. Once they’ve confirmed, the capital will be sent via the blockchain. Upon reaching the StormGain smart contract, the trade is open and active.
- Close at Will – Whenever the user desires to close the trade, they need only select this option and execute the transaction. From there, the crypto that they sent returns to the user’s wallet through the same StormGain DEX smart contract.
There’s a reason that StormGain already has over 2.5 million traders using their DEX platform. It uses smart contracts to make trading easy, effective, and completely controlled by the investor.
Because StormGain uses the CEX liquidity to open these trades, they are able to offer their decentralized exchange traders fantastic rates and conditions. This hybrid approach to cryptocurrency derivatives trading is known as CeDeFi, and is rapidly gaining popularity in this space.
An additional benefit to this system is that the tokens that a user trades with never leave the StormGains CEX wallet until all of the trade requirements are met. This intelligent system, based off smart contracts, is much more efficient than traditional trading, streamlining the process and preventing fraudulent activity.
Smart contracts are a revolutionary tool. While still primarily used in financial systems, their potential is truly endless. As a trustless system that allows two parties to create trading conditions and fill them in a secure manner, they’re one of the most exciting technologies to come out of the blockchain space.
Companies like StormGain demonstrate the true potential of smart contract-lead systems, carving out ways for users to trade cryptocurrency derivatives more effectively. As other financial systems learn the power of smart contracts, we’re likely to see a shift in the underlying technology that we use to trade currency on the global markets.