Decentralized finance: On blockchain-and smart contract-based financial markets Flashcards
What are smart contracts and what are their characteristics?
Smart contracts are programs deployed on a blockchain that automatically execute specific actions when predefined conditions are met. Their characteristics include security, service-based application, no need for a custodian, and composability, allowing them to be built upon one another.
What is tokenization in the context of decentralized finance?
Tokenization is the process of representing real-world assets or assets from other blockchains as tokens on the Ethereum blockchain. These tokens can have different types of collateral, including off-chain assets, on-chain assets (such as stablecoins), or no collateral at all.
What are some opportunities and risks associated with Ethereum’s DeFi ecosystem?
Opportunities include efficiency, transparency, accessibility, and composability. Risks include code execution vulnerabilities, operational security concerns, dependencies on underlying smart contracts, illicit activity, and scalability issues.
