Most decentralized finance (DeFi) discussions focus on the importance of the underlying immutable distributed ledger and the cryptocurrency used as the medium of value exchange. But perhaps the more important component of DeFi solutions is the actual smart contract technology. While risks associated with cryptocurrencies are often the topic of discussion, little is said about the risks associated with smart contracts; and there are significant risks to consider.

This Viewpoint will analyze smart contracts and the issues that could arise if used to support two common payment card scenarios: (1) to enable cryptocurrencies to mimic a common pre-authorization transaction, such as done when paying at the table in restaurants or pumping gas at an automated fuel pump and (2) to create support for a traditional card-based recurring payment relationship.