Safe lending and borrowing has been limited to banks and traditional financial institutions. Whenever people have needed a loan, have planned to invest their money in something, they have reached out to banks or their financial advisors. However, it has changed now. The introduction of Decentralized Finance (DeFi) has simplified not only the lending and borrowing process, but the financial process at large. . It has allowed any user to become a borrower or lender without having to hand over personal information or undergo KYC procedures. DeFi doesn’t remove the traditional finance processes but imitates and improvises on them. It’s impossible to imagine the global financial system without borrowing and lending, and the same applies to the decentralized financial system as well.
Before getting into the nuances of lending and borrowing, let’s first understand what DeFi is. Decentralized Finance is a financial technology that uses blockchain and cryptocurrency to manage financial transactions. This also allows users to lend or borrow money from one another without going through the bank process or any third-party involvement. It is an open-source financial ecosystem where the transactions are transparent. There are many decentralized applications in the crypto market that provide DeFi Peer to Peer lending options.
How Does DeFi Lending Work?
DeFi lending platforms are open source, decentralized platforms for the purpose of lending. On decentralized lending platforms, users deposit their money (cryptocoins) and receive interest when someone borrows those digital assets. DeFi lending platforms dictate the loan terms as with any other banking protocols. When a contract is deployed on a blockchain network, its operations cannot be stopped unless both buyer and seller conform with the terms. As DeFi relies on blockchain, all transactions on DeFi lending platforms are transparent and immutable. The lenders can get very high interest and the risks are often assessed clearly. The standardization of the DeFi lending platform can control the value of the general system.
How Does DeFi Borrowing Work?
Like traditional borrowers, here crypto loans are moved to the borrower’s account and the borrower pays the interest to the lender. After the full amount is paid, the lender will provide the collateral which will act as a security. Collateral is nothing but the cryptocurrency asset that the borrower pledges as a guarantee that the loan will be repaid. DeFi lending platforms offer borrowing services without any middlemen involvement. This allows borrowers to use fiat as collateral to earn crypto assets. Fiat currency or money is a legal tender (eg: cheque) whose value is tied to a government-issued currency like US Dollar, Indian Rupee, British Pound, Euro and so on.
DeFi Lending And Borrowing vs Traditional Lending And Borrowing
- In traditional finance, lender deposits money to receive interest. In DeFi, crypto assets act as liquidity.
- In the traditional method, loan approval and interest rate depends on borrower’s risk profile. In DeFi, there is no involvement of third-party, the assets are lent and borrowed directly.
- In traditional finance, transactions can happen only during bank working hours. In DeFi, transactions can happen any time.
Advantages of DeFi Lending and Borrowing
There are many advantages of DeFi lending and borrowing:
- Speedy fund transfer
- Visibility in transactions
- Very high interest rates for savings
- Decentralized processing
- Flexible lending and borrowing process
- Improved market efficiency
- Cost-effective operations worldwide
DeFi lending platforms have a very high potential to restructure the entire financial system. It challenges to decentralize core traditional finance services like trading, payments, investments, lending and borrowing. It has a huge potential to transform the global financial landscape.
How Does Brugu Help You In Providing DeFi Services?
Brugu Software Solutions provides DeFi lending and borrowing platform development services with several inbuilt benefits for both borrowers and lenders. This makes the platform more compatible and attractive in the crypto market. Following are our wide range of DeFi development services:
- Blockchain-driven borrowing and lending platforms
- Clone of any popular DeFi lending platform
- We help you to earn safe DeFi yields based on your favourite tokens
- We assist you in lending your crypto assets at a fixed interest rate
- We follow industry best security practices and protect your DeFi journey with insurance protocols
- We help you to draw interest-free loans
- We engage experts particularly to refine your offering with the best technical approach
- We help you set up communities and campaigns
- We trace a clear roadmap to ensure smooth and accelerated deployment
- We provide complete support and services focusing on the future growth
- We ensure to bring meaningful outcomes from your investments
To explore more about Defi Lending And Borrowing Platform Development, reach out to our experts.