Decentralized Finance, Smart Contracts, and Financial Stability in Nigeria’s Halal Industry
DOI:
https://doi.org/10.28918/jhc.v1i1.14502Keywords:
Blockchain, Decentralized Finance (DeFi), Financial Stability, Smart Contracts, Halal IndustryAbstract
Decentralized Finance (DeFi) represents a significant disruption to the global financial system, transforming financial intermediation through blockchain technology and smart contracts in Nigeria’s halal industry. Unlike traditional financial systems, which rely on centralised institutions, DeFi operates through Decentralized networks where smart contracts automatically execute financial agreements. These innovations promise greater efficiency, transparency, and financial inclusion, but they also introduce new risks that may impact the financial stability of Nigeria’s halal industry. This research examines the economic role of smart contracts within DeFi ecosystems and analyses how they reshape risk distribution, market dynamics, and systemic vulnerability. Using a systematic review of peer-reviewed literature, policy reports, and empirical studies, the paper evaluates the impact of intelligent contract automation on transaction costs, liquidity provision, leverage, and contagion in Decentralized markets. The findings suggest that smart contracts significantly reduce operational inefficiencies by eliminating intermediaries and enabling real-time settlement. However, their rigid, code-based execution can amplify market stress during periods of volatility through automatic liquidations, feedback loops, and protocol composability in Nigeria’s halal industry. The research also highlights governance challenges in DeFi, including concentrated decision-making power, dependence on price oracles, and vulnerabilities to coding errors and cyberattacks. Given the rapid growth and interconnectedness of DeFi protocols, these risks pose challenges to existing regulatory and macroprudential frameworks. The paper concludes that while DeFi enhances financial innovation and efficiency, its unchecked expansion may threaten financial stability unless adaptive governance and stability considerations are integrated into protocol design.
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