# A Review on Decentralized Finance Ecosystems
## 4 The Taxonomy
### Technology
#### 4.1.2 Smart Contract  
DeFi utilizes smart contracts to eliminate intermediaries, ensuring transparency and trustworthiness while enhancing its operations' security and integrity [18; 55]. Smart contracts, operating on blockchain technology with encoded terms, ensure transparency and immutability, guaranteeing security and resistance to tampering. They automate intricate financial transactions, thereby minimizing manual intervention, streamlining operations, and accelerating processes in the DeFi ecosystem. These contracts secure and reliably execute deals by integrating logic into their functions, enabling direct P2P transactions. This approach reduces costs, eliminates third-party manipulation risks, and enhances transactional efficiency. These contracts feature variables that can be modified based on the implemented logic. Smart contracts are written using programming languages like Solidity [27]. Smart contracts are pivotal in enabling automation, programmability, and decentralized governance, forming the core of technologies like DAOs and DApps in the DeFi ecosystem. Smart contracts facilitate the creation of programmable financial instruments, expanding the possibilities for DeFi applications. Developers utilize smart contracts to deploy diverse DApps, covering lending, borrowing, decentralized exchanges, derivatives, yield farming, and more, thereby allowing tailored solutions that foster greater customization and innovation. Additionally, smart contracts significantly contribute to decentralized governance, prevalent in various DeFi protocols. Through these contracts, token holders or community members can automate decision-making processes, preventing excessive control by any single entity, encouraging community participation, and establishing a more democratic and transparent ecosystem [14]. Smart contracts serve a crucial purpose in the creation of DApps, allowing developers to construct applications on blockchain networks. Furthermore, using smart contracts in DApps aims to store all application programs on a blockchain network, ensuring that the source code is openly accessible to everyone in an open-source manner. A decentralized autonomous organization (DAO) is a decentralized organization that operates on a public blockchain, allowing entities or organizations to establish self-governance and coordination among individuals based on predetermined rules. It is frequently characterized as a blockchain-based organizational structure, resembling a crypto-cooperative or a financial entity with the capacity for decentralized decision-making [56]. DAOs enable continuous functioning and operations synchronization through computer code or smart contracts [30], which are self-executing contracts with terms directly written into code on a blockchain network. These contracts define organizational rules, execute decisions, and allow for public auditing of proposals and voting. The backbone of a DAO is its smart contract, which holds the organization's treasury and ensures that rule changes and fund spending require group approval. Smart contracts contribute to the autonomy, transparency, and security of DAOs by providing verifiability and visibility through public audits [30; 89]. In DAOs, investors typically maintain anonymity and may experience a lack of trust among one another. The decision-making process of a DAO operates on-chain and is executed automatically, ensuring transparency through a visible voting process on a public blockchain. Successful proposals are implemented automatically, eliminating the need for human intervention [61]. DAOs excel in managing digital assets within DeFi by leveraging self-governance and coordination via autonomous code [90]. DAOs utilize decentralized blockchains to achieve consensus on the allocation of funds. The advantages of DAOs encompass decentralization, security, transparency, participation, efficiency, rewards, and flexibility. _MakerDAO_ serves as a successful example of a DAO operating DeFi protocols such as the _Dai stablecoin system_.