Lending and borrowing crypto assets is the main business among decentralized applications. Using Ethereum wallets, decentralized lending platforms allow users to share crypto-assets and borrow from anyone, anywhere. DeFi lending platforms implement the security and trustless benefits offered by blockchain and cryptocurrency and serve as the newest financial service provider.
Through a distributed and decentralized system, DeFi Lending allows investors and lenders to lend or deposit fiat against a set interest rate. This option is beneficial to users, as they can earn a relatively low-risk interest rate on their current holdings without the involvement of third-party providers.
The Defi Lending marketplace is considered a more valuable and innovative platform that represents a fundamental breakthrough for the future of finance and cryptocurrency.
What is a DeFi platform for lending and borrowing?
A decentralized financial platform (DeFi) for lending and borrowing takes all the drawbacks of traditional banking and fills the gap that traditional banking lacks.
It offers loans to its investors or lenders or lets them deposit their currency against a precise amount of interest in a highly decentralized application. DeFi lending and borrowing platforms are integrated with all DeFi protocols such as DApps and Smart Contracts.
DeFi lending workflow:
Users can lend their crypto assets to others and share in the loan amount. Anyone can become a lender under DeFi. A lender can lend their cryptocurrencies to other users on the DeFi platform and receive the contracted interest through lending pools.
Smart contracts allow customers to pool their crypto assets and distribute them to borrowers. Each pool has its own methodology for lending and borrowing.
The borrower must offer collateral that is higher than the loan amount. Smart contracts are used to store this amount of cryptocurrency in the same value as the loan amount. Any token can be used to trade borrowed cryptocurrency. For example, if a client wants to borrow a bitcoin, he should store the equivalent value of a bitcoin in DAI.
A situation may arise where the cost of collateral falls below the cost of the loan due to fluctuations in bitcoin prices.
Decentralized lending is like taking your money out of your own pocket to lend it to someone else. Both smart contracts and decentralized applications replace the need for intermediaries and negotiators. For example, if you want to make a $30000 loan through a DApp, you only need to make a few clicks.
The entire process is straightforward and simple. Users can select any DApp application that supports a smart contract and borrower. They can set the interest rate for the loan amount, update it in the app and borrow it immediately. Once a suitable borrower is found, a smart contract automates both the lending and borrowing process.
Key features of DeFi lending platforms:
- DeFi lending platforms allow their users to lend their assets to other users in exchange for interest, similar to traditional lending platforms. DeFi platforms operate without intermediaries and users receive their financial rewards directly in cryptocurrencies.
- Users can avail a loan without undergoing KYC or AML verification and without disclosing their identity to third parties. This makes financial services easier and more accessible.
- The main advantage of DeFi platforms compared to centralized lending platforms is their high level of security due to blockchain applications.
- DeFi platforms are anonymous, and users must provide collateral that is higher than the loan amount.
Why is decentralized lending better and more convenient than the traditional system?
DeFi platforms offer a wide range of lending options and attractive benefits for both lenders and borrowers, giving this service a new meaning. The main advantages of decentralized lending are described below:
Transparency – All transactions are recorded in the blockchain system and can be verified on the blockchain network. This increased transparency ensures effective data analysis and verified access for all users of the system.
Interoperability – All processes related to decentralized finance and applications are interconnected and aligned through the networked software stack.
Faster lending – Digital lending speeds up the lending process. Some key features such as cloud-based support, fraud detection analytics, and AI calculations for ideal loan terms and risk factors support decentralized lending and act as pillars. All of the above advanced features help speed up the loan process. Once the loan is validated, lenders can send offers via electronic contracts.
Receive interest for holding crypto assets – Users can lend their crypto assets at good, contracted interest rates and do not have to sell their crypto assets. In this way, they can earn money along with interest within a certain period of time.
Less documentation – DeFi platforms do not require as much paperwork as traditional banking systems. Only a few clicks are required in a decentralized application.
The above discussion shows that defi-lending has a high potential to transform the entire financial system. It seeks to decentralize core traditional financial services such as payments, trading, investment, insurance, lending and borrowing. Because defi- lending involves fascinating technology, it offers tremendous opportunities to revolutionize the global financial landscape.
Why should you hire Brugu to develop your DeFi Lending platform?
- Brugu, a leading DeFi development company, has more than 10 years of experience in blockchain technology
- Our pool of blockchain architects and DeFi developers are sure to deliver quality DeFi development services to launch your DeFi lending/borrowing platform.
- We tend to integrate your DeFi platform with all the important features and functions such as loan origination fees, late payment fees, bounced payment fees, prime yields, and many credits.
- Get in touch with our experts and see how your idea of defi lending app development can become a reality.