Microgrids are regarded as vital components in contemporary realm of energy system improvement, resilience, and sustainability. In this paper a novel decentralized peer-to-peer energy trading system leveraging blockchain technology is proposed. The proposed model not only demonstrates the implementation of blockchain technology in microgrids but also transforms the energy sector by emphasizing decentralization, security and efficiency. This research aims to enhance the energy trading system by including smart contracts written on the Ethereum network. Energy Token and Demand Response contracts are integrated to enable dynamic interactions inside microgrids, which leads to a transparent, secure, and efficient energy trading system. Moreover, automation of energy transactions and elimination of intermediaries ensure cost effectiveness and utilization of excess energy potentially reduce dependency on the main grid. A microgrid system is designed in Simulink for distributed energy trading. Energy credits are represented by standard ERC-20 digital token and then demand response contract dynamically adjusts rewards and energy prices based on energy production and consumption. the ERC-20 contract manages the token transaction and then demand response contract enforces governance rules. The purpose of a demand response contract is to enable the automatic and efficient control of energy usage in response to changing demand and supply conditions. The use of the Web3 library further facilitates a direct and smooth connection between the blockchain network and microgrids. The results demonstrate the successful implementation of both smart contracts, making trading possible at noon when the combined generation from solar array and energy management system exceed the energy demand.