IDEAS home Printed from https://ideas.repec.org/a/anr/refeco/v15y2023p523-542.html
   My bibliography  Save this article

Smart Contracts and Decentralized Finance

Author

Listed:
  • Kose John

    (Stern School of Business, New York University, New York, NY, USA)

  • Leonid Kogan

    (Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts, USA)

  • Fahad Saleh

    (Wake Forest University, Winston-Salem, North Carolina, USA)

Abstract

We explain the mechanics of smart contracts. We then highlight the benefits of smart contracts, such as overcoming commitment problems. We also discuss limitations, such as the difficulty for smart contracts to access information external to the blockchain and the difficulty of integrating smart contract code with traditional legal enforcement. We further highlight how the absence of a trusted intermediary inflates implementation costs for blockchain applications. We conclude with a discussion of the most prominent smart contract applications in decentralized finance: token issuance (e.g., initial coin offerings, nonfungible tokens), decentralized exchanges, and protocols for loanable funds. Our survey covers both institutional details and relevant literature.

Suggested Citation

  • Kose John & Leonid Kogan & Fahad Saleh, 2023. "Smart Contracts and Decentralized Finance," Annual Review of Financial Economics, Annual Reviews, vol. 15(1), pages 523-542, November.
    • Handle: RePEc:anr:refeco:v:15:y:2023:p:523-542
    DOI: 10.1146/annurev-financial-110921-022806
    as

    Download full text from publisher

    File URL: https://doi.org/10.1146/annurev-financial-110921-022806
    Download Restriction: Full text downloads are only available to subscribers. Visit the abstract page for more information.
    File URL: https://libkey.io/10.1146/annurev-financial-110921-022806?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    smart contracts; decentralized finance; DeFi; decentralized exchanges; DEXs; protocols for loanable funds; PLFs; tokens; Ethereum;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:anr:refeco:v:15:y:2023:p:523-542. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: http://www.annualreviews.org (email available below). General contact details of provider: http://www.annualreviews.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.