Understanding Smart Contracts

Smart contracts are the foundation of DeFi, enabling trustless financial operations.

What is a Smart Contract?

Self-executing code on blockchain

Runs when conditions are met

Immutable once deployed

Transparent and verifiable

```

IF [condition is met]

THEN [execute action]

```

Example: Escrow

Buyer deposits funds to contract

Seller delivers goods

Buyer confirms receipt

Contract releases funds to seller

Accepts deposits

Tracks interest owed

Manages collateral

Executes liquidations

Holds token pairs

Calculates swap rates

Collects fees

Distributes to LPs

When you use DeFi, you're calling contract functions:

**approve()**: Allow contract to use tokens

**deposit()**: Add funds to protocol

**swap()**: Trade tokens

**withdraw()**: Remove your funds

Bugs in code

Exploits and hacks

Upgradeable proxies

Audits by security firms

Bug bounty programs

Time-locks on changes

Multi-sig admin controls