Just because finance is decentralized doesn't mean the law doesn't still apply. I don't know where you get that idea from. Also not sure what you mean by "dumb contracts" - crypto contracts can contain code on top of text, whereas traditional contracts can only contain text. So obviously the crypto contracts are strictly superior.
The counter-party to both the borrower and the lender is a dumb contract. A dumb contract is not a legal person, and therefore it cannot initiate legal action, nor legal action can be initiated against it. Furthermore, there's no legal agreement between the dumb contract and its counter-parties, since, again, a dumb contract doesn't have a legal personality which is required to enter into legally-binding agreements.
Depends on the service, but I would think (ianal) if somebody publishes a smart contract and says "you can buy my house via this smart contract", then that person is the counter party, not the smart contract.
Of course you can burn your crypto and send it so some random contract. You can also take traditional money, go to the woods and burn it.
If the borrower and the lender sign a loan agreement with an intermediary, or among themselves, then sure, but this is conventional finance, not decentralised finance. In this situation the dumb contract becomes redundant. It doesn't do anything.
In my country at least, the government charges lots of money (several thousands) to change ownership of real estate in a government managed ledger. That obviously could be replaced by crypto, which (in its basic form) is a distributed ledger. Ownership can be proven via the blockchain.
So far you've been using the present tense, "the [dumb] contract replaces the solicitor", or such.
Obviously it doesn't. Or could you tell me in which countries in the world you won't, at present, have to pay the government to register real estate ownership changes in its ledger just because you paid the seller in a crypto-"currency"?
