The term "smart contracts" refers to computer code that is deployed to a public blockchain (usually Ethereum).
Smart contracts are powerful because they are deterministic, which means that given a certain set of inputs, they always return the same set of outputs.
They can also be immutable, meaning that no one, not even the original publisher of the code, can change the code once it's been deployed.
Taken together, these two attributes make smart contracts extremely powerful: code that executes the same way, every time, and can't be changed by anyone. These properties can guarantee a fair, transparent, and reliable financial system, which is why DeFi applications are built using smart contracts.