Are you looking for DeFi lending and borrowing platform? Read on and learn more about DeFi development and the benefits it provides.
DeFi P2P lending & borrowing platform development
The rapid advancement of blockchain solutions and their inclusion into several industries already sees these sectors reaping the benefits. Another sector poised to benefit from blockchain integration is the financial sector. The development of DeFi products saw several new participants enter the area with accessible, reliable, and flexible solutions for the audience’s benefit.
Hence, DeFi development is at an all-time high, and every industry wants to unlock its potential. In 2020, the total value for every DeFi development platform exceeded twenty billion USD, and that number is sure to increase by 2021.
It is understandable why many industries are looking into DeFi development after seeing how the system benefitted several businesses. Also, it is clear that blockchain inclusion in this sector shows promise and can transform the industry. DeFi development could forever change the way people borrow, lend, store and exchange money.
A promising sector of DeFi development is the DeFi lending and borrowing platform development. It is a blockchain resource type that gives users access to financial features they typically cannot utilize. Typically, DeFi and DeFi platforms are vitally beneficial to people who have no access to banks or established financial services. This article will cover the topics like the working mechanism for DeFi and the benefits of DeFi lending platform development.
Overview of a DeFi lending platform
The traditional financial model followed this process for borrowing and lending: clients with enough funds share their wealth with lenders in exchange for a set interest rate. This method enabled users to earn money from letting others use their money. A centralized institution managed the process and ensured all parties agreed to and followed the required terms.
DeFi or Decentralized Finance is an online space where users can loan their money to other users without external involvement. The utilization of smart contracts guarantees a user’s compliance with the loan’s terms. These contracts execute under specified conditions and exist on the blockchain.
DeFi also provides several ways of lending and borrowing options to users. Imagine a user holding various cryptocurrencies but not using them for trading or exchanges. That user can lend those assets to another party at an interest rate encoded in a smart contract.
Now, let’s look at the working model of these platforms.
Working model of a DeFi P2P lending & borrowing platform
DeFi platforms operate independently of third-party involvement. However, some experts caution against associating every blockchain-based financial app as a DeFi app. It is essential to remember the differences between Cefi and DeFi before proceeding.
DeFi or Centralized Finance is a blockchain-based financial platform with lending and borrowing services. Here, the platform owner retains control of operations and asset security. These sites typically require KYC forms for security purposes and to minimize risks.
DeFi also utilizes blockchain in its processes. Here, the platform conducts operations through P2P transactions. The user retains control over their funds and stores their assets in the available crypto wallet. DeFi platforms provide greater privacy and confidentiality to users without the need for KYC compliance. It can provide this while also ensuring the users hold up their obligations through smart contract integration.
DeFi loans and why they are different from traditional finance
Traditionally, borrowing and lending took place through fractional banking. Fractional banking is where people with excess money give their funds to banks as deposits. People lacking money borrow that money at an agreed-upon interest rate. Here, the bank acts as a guarantor and ensures the lender will receive their money within the specified term. The borrower will meanwhile return the required funds along with additional interest for borrowing this money.
This process remains the same in the crypto world, with people who have an excess of funds lending their resources to other users. The most significant difference here is that these transactions take place without a credible intermediary.
The lending process works as follows:
◆ Users wishing to lend their assets come to the platform and deposit their tokens in a location called the ‘money market.’
◆ A smart contract organizes the deposit and stipulates the terms for the borrower. The borrower accepts the terms and activates the contract.
There are several reasons why these platforms use crypto assets instead of fiat currency. Some traders wish to hide their expenditures incurred on the platform. Other users may not want to sell their holdings as cryptocurrency prices can fluctuate at a moment’s notice.
Also, token sales in most countries come under capital gain taxation. Paying this taxation amount makes no sense for investors looking to repurchase their assets.
How DeFi lending and borrowing platform development provided financial innovation
The introduction of DeFi protocols forever changed the financial industry’s working principles. These changes include the way users borrow and lend funds. Users see DeFi as a source of financial innovation and provide coverage to unbanked populations who typically cannot access bank loans.
Decentralized Finance System- A Complete Guide
Here are the several benefits provided by DeFi borrowing and lending
Efficiency and speed
DeFi platforms enable the timely and quick provision of funds to borrowers. The process takes place almost instantly rather than having to wait for days for the decision.
Utilization of different lending principles
Banks and other financial institutions use a conventional balanced scorecard approach and prevent several individuals from getting loans. This approach typically excludes users who have no credit history established. DeFi uses fair and transparent credit policies and automatically becomes more accessible to a broader audience.
Any lender or borrower on a DeFi platform must comply with the site’s AML and KYC regulations. These processes ensure total transparency and the asset owners get assurance that they will get their money back.
The nature of blockchain principles and characteristics means that the ledger documents every operation connected with asset ownership transfer. This way, every participant remains aware of their fund’s status, can track their transactions, and see the users who view their assets.
Using a DeFi platform is understandable and accessible. Here, a user can connect their wallet to the site and conduct their transactions anywhere in the world.
Most Defi systems come with interoperable functionality. It ensures that users can access their funds on one platform and use them for exchanges or trades on another platform. This cross-platform feature makes the DeFi sector a global interconnected network with streamlined processes and several user benefits.
Inclusion of smart contracts
Another benefit DeFi has over traditional finance is the utilization of smart contracts. These self-executing blockchain-powered protocols ensure that individuals can conduct transactions without requiring a central authority.
Essential features required for DeFi lending and borrowing platform development
The popularity of DeFi platforms and the services they provide prompted businesses to enter this sector. They saw the potential from DeFi lending platform development and wanted to maximize it. Any successful DeFi development platform goes through the following stages.
Research and project specification
This step requires the business to contract a research team and determine the current market landscape. That way, they can decide on the project’s requirements. During this stage, it is essential to have a focused idea of what the platform looks like, the target audience, core features, etc.
This phase of DeFi lending platform development is where you define the protocol underlying the platform. You select the blockchain network to power the site and build the solution based on its functionality.
Designing UI and UX
This section deals with creating an intuitive, user-friendly user interface. Ensure that the platform remains sleek so that users keep coming back to it.
QA and bug testing
A QA period is crucial to test the developed features and ensure no bugs or security flaws. This process requires an experienced QA team who can analyze the product from start to finish, find any glitches and rectify them as needed.
Your DeFi development solution can have everything to become a trending sensation, but without the required advertising and marketing, no one will use it. This approach ensures the maximum number of people learn about the project and develop an interest in it. The market launch is a crucial moment in the site’s success so ensure that everything works as intended.
The increasing number of DeFi platform launches alongside the platform’s benefits ensures that DeFi is a very profitable industry. Lenders especially can tap into this potential, and nearly anyone can become a lender, regardless of their location, capital, and other factors. Businesses also see the potential in this sector and look at DeFi development to harness that potential.
The Best Way To Approach DeFi Lending And Borrowing Platform Development was originally published in DataDrivenInvestor on Medium, where people are continuing the conversation by highlighting and responding to this story.