What are smart contracts and what are Smart Vaults?

Smart contracts are a logical extension of blockchain technology. They can be used for various purposes and execute automatically when predetermined conditions are met. A smart contract is aking to a program that performs specific behavior but only when the correct terms exist on the network.

In most cases, a smart contract will automate the execution of an agreement to ensure participants immediately know the outcome. Various conditions and events can trigger that outcome, and every aspect will be fully transparent.

Another benefit of smart contracts is triggering automated workflows, allowing the following action in the chain to occur automatically when conditions are met. There are many possible use cases for such contracts across various industries and sectors.

How Do Smart Contracts Work?

The structure of a smart contract isn’t that different from a typical “if/when… then…” composition one may find across all programming languages. A decentralized network of computers executes the actions coded into a smart contract after verifying the necessary conditions have been met. Acts can include releasing funds to a user, registering products or a change in ownership, sending notifications, etc.

Once the conditions are met, and a transaction is completed, it will become visible on the blockchain. Once visible on the blockchain and confirmed by the network, one can no longer alter the data. In a permissioned environment, only parties who have received permission can see the results of these actions.

However, a smart contract can have as few or as many stipulations as is required. Participants may have different needs and expectations to ensure a task is completed satisfactorily. Establishing the terms is a crucial process that requires participants to determine the representation of their data and transactions. Moreover, they need to agree with the “if/when…then….” rules governing these transactions. Additionally, a framework to resolve disputes needs to be established.

Once all of the above has been taken care of, it is up to a developer — or multiple developers — to put together the smart contract. That process has become simpler over the years thanks to the deployment of templates, web interfaces, and other online tools. However, it is essential to make this technology as accessible as possible before mainstream adoption can occur.

The Benefits of Smart Contracts

There are many reasons why developers, projects, and corporations want to explore the concept of smart contracts. The technology provides speed, efficiency, and accuracy in a way that would otherwise not be possible. Contracts are self-executing when conditions are met. Their digital nature ensures there is no need for paperwork or time wasted on reconciling errors that often occur when handling documents manually.

Another significant benefit of this technology is the trust and transparency it brings to the table. Smart contracts remove the need for third parties or other intermediaries. Moreover, all transactions serve as encrypted records for participants to compare and verify. No one can alter information once the network confirms; there is no need to question data validity.

Perhaps the most crucial benefit to smart contract technology is security is critical to any business setting. Whether it is between two individuals or two corporations, security always needs to be a priority. Blockchain transactions, through their encrypted nature, make them nigh impossible to hack. Additionally, every record is connected to the previous and subsequent record on that blockchain. Thus, they would have to alter an entire chain to modify a handful of records for hackers to impact.

Lastly, there is the cost — or lack thereof — to consider. As there is no need for intermediaries or paperwork, smart contracts are far more cost-efficient. Additionally, they reduce time delays and fees incurred because of such delays, creating a compounding effect of cost-cutting.

Use Cases For Smart Contracts

There are many ways for businesses to explore the potential of blockchain technology and smart contracts. Various companies are already experimenting with the technology to streamline business processes in one way or another.

Better Supply Chain Transparency

Consumers worldwide show an increased interest in figuring out where products come from, the working conditions, how they got to their store, and so forth. Of course, all of this data has to be stored somewhere, and a decentralized solution is a logical outcome. Through blockchain technology and smart contracts, supply chain transparency results in trusted, reliable, and accurate data from origin to endpoint.

Moreover, by incorporating correct data on the blockchain, retailers can resolve any disputes with vendors. There is an option for real-time communication and increased transparency. It is a viable way of strengthening relationships between retailers, vendors, suppliers, and consumers. Through these accessible means, there is more time to focus on work and innovation.

A New Financial Paradigm

Perhaps one can find the most significant use case for smart contract technology in the financial sector. It is an industry where overhead costs and administrative processes can cause delays and other headaches. However, financial services and products can be reshaped and modernized with a hands-off approach through this technology. Moreover, it paves the way for broader global access to these instruments.

One example is the error-free processing of insurance claims, which is notoriously time-consuming with much room for errors and issues. Assessing the legitimacy of a claim is tedious, although a smart contract can — based on the coded parameters- perform this task autonomously. Moreover, it can then process the appropriate action — payment or otherwise- if the claim is deemed valid. It is an automated process that only needs to be set up once, and it can keep doing this thing behind the scenes.

Another example is real-time remittance, a concept that almost seems impossible to achieve in the current financial landscape. Sending money to another part of the world often takes one business or more and costs a lot of money. Payment processing can be achieved near real-time through blockchain technology and smart contracts while providing sufficient accuracy and transparency. Moreover, the independent verification clauses in a contract can speed up transaction settlement, providing a much better user experience.

However, the most prominent use case for smart contract technology in finance comes through decentralized lending and borrowing. Users can interact with a smart contract, provide the necessary collateral, and obtain a loan. It does require credit checks, a credit history, paperwork, or even knowing the other party. There are many ways to incorporate this technology into a viable alternative financial setting.

The Standard & Smart Vaults

At The Standard, we aim to redefine the concept of lending and borrowing through a unique approach. Our protocol supports cryptocurrencies and real-world assets as collateral, with a strong focus on precious metals, such as gold. Users can leverage these existing assets through our Smart Vaults and obtain a loan in Standard Euro; a stablecoin loosely pegged to the value of the Euro.

The Standard uses native tokens and public tokens to provide this functionality. Native tokens are backed by assets requiring a centralized organization — a vaulting facility for precious metals — to secure assets. Once assets are contributed to this organization, users can tokenize them through our decentralized protocol, and an amount of Standard Euro will be issued to the person supplying the asset.

Our support for public tokens — cryptocurrencies such as bitcoin, Ethereum, etc. — lets users leverage those assets as collateral through a Smart Vault. In addition, users can withdraw public tokens from the Standard Protocol.

How Do Smart Vaults Work?

Every user submitting assets will receive a randomly generated Secret ID when creating their Smart Vault. Those secret IDs will be registered on a public ledger by every native custodian to provide transparent records of assets held and the amount outstanding Standard Euro per Secret ID.

Users can close their Smart Vault at any moment, as long as they repay the amount of Standard Euro generated. It is possible to earn or buy S-EURO off the secondary market and send it to the smart contract. Once the amount is settled, collateral tokens are unlocked from the Smart Vault and available for withdrawal.

However, if a user fails to repay the outstanding amount or the collateral value falls below the minimum required for other assets, the Smart Vault will be liquidated. The process involves an amount of Standard Euro to be repurchased by the Standard Protocol to liquidate the Vault’s collateral.

Liquidated Smart Vaults can be acquired by users participating in the automatic Smart Vault acquisition mechanism. The liquidated collateral will be sold 5% or lower below the spot value and can be purchased with Standard Euro. Native custodians will always receive preferential acquisition rights. Users who hold 10,000 Standard Tokens (TST) and a sufficient S-EURO balance will be eligible for acquiring the liquidated assets through the automatic mechanism. Manual participation requires having at least 100,000 TST.

When a user creates a Smart Vault, they have several options at their disposal. Customization is crucial when providing a new financial environment. For example, users can enable a stability fee (akin to interest rates charged by banks) discount of 50% if they use Standard Tokens to cover the cost. Additionally, they can set up alarms when their Smart Vault drops below certain collateralization levels to prevent liquidation. Through the dashboard, users can manage their assets, set payment terms, and much more.

Closing Thoughts

There is tremendous potential for smart contracts across various settings. It removes the need for manual processes and paperwork, making the financial sector likely to adopt this technology before anyone else. Solutions like The Standard pave the way for decentralized lending and borrowing through smart contracts and support for precious metals and crypto assets. A hybrid approach is necessary to attract as many users as possible.

Moreover, the concept of acquiring liquidated Smart Vaults provides broader access to financial assets for those willing to diversify their portfolio further. The Standard is a solution for users of any economic status or background, as we open the doors to products and services that might otherwise remain inaccessible. With the help of our smart contracts, you can unlock immediate liquidity in a currency that is not tied to or backed by US Dollars.