On the Convergence of Internet of Things and Decentralized Finance: Security Challenges and Future Directions

Abstract

The rapid convergence of the Internet of Things (IoT) and decentralized finance (DeFi) is reshaping the digital economy by enabling autonomous, trustless, and value-driven interactions among connected devices. This paper provides a comprehensive survey of the emerging paradigm that combines IoT's pervasive sensing and communication capabilities with DeFi's programmable financial infrastructure. We first discuss the motivation behind this convergence and explore key opportunities, including autonomous machine-to-machine (M2M) payments, decentralized data marketplaces, and trustless IoT service provisioning. Despite its potential, IoT-DeFi integration introduces significant security and privacy challenges related to smart contract vulnerabilities, consensus protocol risks, oracle manipulation, and constrained device capabilities. We review existing mitigation approaches such as lightweight cryptography, secure contract design, and decentralized identity management, and critically assess their limitations in heterogeneous, resource-limited environments. Building on this analysis, identify research gaps and propose future directions emphasizing formal verification of IoT-integrated smart contracts, robust oracle design, interoperability frameworks, and privacy-preserving trust models. This survey systematically maps opportunities, threats, and open issues. In doing so, it guides researchers and practitioners toward building secure, scalable, and energy-efficient IoT-DeFi ecosystems for next-generation decentralized applications.