Secure lending and borrowing has been limited to banks and traditional financial institutions. Whenever people needed a loan or planned to invest their money in something, they turned to banks or their financial advisors. But that has now changed. The introduction of decentralized finance (DeFi) has simplified not only the process of lending and borrowing, but the financial process in general. . Any user can now become a borrower or lender without having to disclose personal information or go through KYC procedures. DeFi does not abolish traditional financial processes, but mimics and improves them. It is impossible to imagine the global financial system without borrowing and lending, and the same is true for the decentralized financial system.
Before we delve into the intricacies of lending and borrowing, we should first understand what DeFi is. Decentralized finance is a financial technology that uses blockchain and cryptocurrencies to manage financial transactions. This also allows users to lend or borrow money from each other without going through a bank or involving third parties. It is an open-source financial ecosystem where transactions are transparent. There are many decentralized applications in the crypto market that offer 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 lends these digital assets. DeFi lending platforms set the terms of the loan just like other banking protocols. When a contract is used on a blockchain network, its operation can only be stopped if both the buyer and the seller comply with the terms. Because DeFi relies on the blockchain, all transactions on DeFi lending platforms are transparent and immutable. Lenders can receive very high interest rates, and risks are often clearly assessed. The standardization of the DeFi lending platform can control the value of the general system.
How does DeFi Borrowing work?
As with traditional loans, crypto loans are transferred to the borrower’s account and the borrower pays the interest to the lender. After the full amount is paid, the lender provides the collateral that serves as security. The collateral is nothing but the cryptocurrency value that the borrower pledges as a guarantee to repay the loan. DeFi lending platforms offer lending services without the involvement of middlemen. This allows borrowers to use fiat currency as collateral to earn crypto assets. Fiat currency or money is a legal tender (e.g., a check) whose value is tied to a government-issued currency such as the U.S. dollar, Indian rupee, British pound, euro, and so on.
DeFi Lending and Borrowing vs. Traditional Lending and Borrowing
- In traditional finance, the lender deposits money to receive interest. In DeFi, cryptocurrencies serve as liquidity.
- In the traditional method, the lending and interest rate depend on the risk profile of the borrower. With DeFi, no third party is involved and assets are lent and borrowed directly.
- With traditional financing, transactions can only take place during the bank’s business hours. With DeFi, transactions can take place at any time.
Advantages of DeFi Lending and Borrowing
There are many advantages of DeFi lending and buying:
- Quick transfer of funds
- Visibility of transactions
- Very high interest rates on savings
- Decentralized processing
- Flexible lending and borrowing process
- Improved market efficiency
- Low cost operations worldwide
DeFi lending platforms have a very high potential to restructure the entire financial system. They rise to the challenge of decentralizing core traditional financial services such as trading, payments, investments, lending and borrowing. They have enormous potential to change the global financial landscape.
How does Brugu help you deliver DeFi services?
Brugu Software Solutions provides development services for the DeFi lending and borrowing platform with several built-in benefits for both borrowers and lenders. This makes the platform more compatible and attractive in the crypto market. Below is our wide range of DeFi development services:
- Blockchain-powered borrowing and lending platforms.
- Clone of a popular DeFi lending platform.
- We help you achieve secure DeFi returns based on your favourite tokens
- We help you borrow your crypto assets at a fixed interest rate
- We follow industry best security practises and protect your DeFi journey with insurance protocols
- We help you obtain interest-free loans
- We hire experts to refine your offering with the best technical approach
- We help you build communities and campaigns
- We create a clear roadmap to ensure a smooth and accelerated launch
- We provide comprehensive support and services focused on future growth
- We ensure that your investments lead to meaningful results
To learn more about the development of Defi’s lending and borrowing platform, Contact Our Experts.