Smart Contracts: The Silent Engine Behind the Future of Lending
Here’s why the old way of signing loan agreements is quietly becoming extinct
Solvium3 min read·Just now--
Hello there!
Did you know that the concept of smart contracts is much older than we thought?
Everyone in DeFi is aware of smart contracts and protocols that have automated this mechanism. However, that wasn’t the case in 1994. That’s right! Smart contracts were proposed in 1994 and currently are one of the largest use cases of DeFi.
A computer scientist and cryptographer, Nick Szabo, thought of smart contracts in 1994. Most of us had not even sent our first email or had the internet, but Nick was already thinking way ahead.
For Nick, smart contracts worked as a self-executing agreement that was written in code. He wanted to automate the process of agreement between two parties. However, it took us two decades to catch up with this idea. Today, smart contracts are rewriting the traditional systems and how financial agreements work across the globe.
How does a smart contract actually work?
Smart contracts are like a vending machine for agreements. A person can put in the conditions and the outcomes of an agreement, but since it is written in code, it is executed automatically.
What does it mean?
No middleman
No paperwork
No unnecessary waiting
No bank
No broker
No trust issues
A smart contract is a piece of code that lives on a blockchain. When pre-set conditions between two parties are met, it self-executes to generate an instant, automatic, and permanent contract that cannot be changed or altered.
Why do we need smart contracts when we have traditional loan agreements?
A traditional lending agreement always involves multiple parties. We need banks; lawyers; notaries; and processing teams. All of this adds cost, a lot of waiting, and the chance for error. How many times have we waited for an agreement to be made! Imagine if that process took just seconds! That’s the power of smart contracts.
How are smart contracts powering DeFi right now?
Decentralized Finance, or DeFi, took smart contracts from a theoretical concept to a live, global financial layer. Today, smart contracts power some of the biggest financial flows globally. And this is all automated. Lending and borrowing protocols use smart contracts to match lenders and borrowers or automated agreements between a staker and a protocol. Staking protocols use smart contracts to lock user funds for a defined period agreed upon by the user and release returns automatically when the lock-in period ends with the staked amount and the interest earned.
The global DeFi flows operate and process trillions of dollars in transactions. And all of them have one mechanism that remains stronger than ever and as transparent and unalterable as possible: the smart contract.
How Solvium uses smart contracts to build a smarter staking system:
Solvium does not only think of smart contracts as a code or backend tool. They are the core engine of agreement between our users and our platform. Our entire staking ecosystem operates on this transparent mechanism.
Here is exactly how it works for investors and stakers on Solvium:
When you stake on Solvium, you choose between our 6-month pool or 12-month lending pools. Once you have decided the stablecoin you want to stake and the amount, you become a staker. From the moment you commit, a smart contract locks in your terms that include the amount, the duration, and your yield. This happens instantly and is so bulletproof that it cannot be altered. Not even by us. Once your lock-in period ends, the returns are settled automatically. The contracts execute at the end of your staking as well.
For Solvium, the goal is to create a staking and lending system that brings access to the underserved emerging markets.
We are building that access: one pool, one staker, one borrower, and one smart contract at a time.
Connect for more:
If you’re looking to make your investment purposeful while profitable, or you’re looking to partner with Solvium, we invite you to connect with us at [email protected]
We are also welcoming market wisdom and are looking forward to your suggestions and guidance! Get in touch with Solvium today!
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