Lending and borrowing crypto-assets is the major business among decentralized applications. Using ethereum wallets, users can share and borrow from anyone and anywhere on decentralized lending platforms. DeFi lending platforms implement the security and trustless benefits that blockchain and cryptocurrency provide and serve as the newest financial service provider.
Through a distributed and decentralized system, DeFi lending allows investors and lenders to issue loans or deposit fiat for some interest rate. This option benefits users because it allows them to earn a relatively low-risk interest on current holdings without the intervention of third-party services.
Defi lending marketplace has been considered as a more valuable and innovative platform creating a fundamental breakthrough for the future of finance and cryptocurrency.
What Is A DeFi lending And Borrowing Platform?
A decentralized Finance (DeFi) lending and borrowing platform take over all the drawbacks that traditional banking had and fills the rift that traditional banking lacks.
It offers its investors or lenders loans or lets them deposit their currency in return for an exact amount of interest in a very decentralized application. DeFi lending and borrowing platforms are integrated with all the DeFi protocols like DApps and smart contracts.
Workflow of DeFi lending work:
Users can lend their crypto assets to others and get interested in the loan amount. Anyone can become a lender within the realm of DeFi. A lender can loan their cryptos to other users on the DeFi platform and obtain the interest as mentioned in the contract through lending pools.
By using smart contracts, Clients can pool their crypto assets and distribute them to borrowers. Each pool has its own methodology for both lending and borrowing.
The borrower should offer collateral higher than the loan amount to borrow. Smart contracts are used to store this amount of currency of equal value to the sum of the loan. To trade borrowed cryptocurrency, any token can be used. For example, if a client wants to borrow one bitcoin, he should store the equivalent value of one bitcoin in DAI.
A situation may occur when the collateral cost comes under the cost of the loan because of fluctuation in Bitcoin prices.
Decentralized lending is like taking your money from your pocket to lend someone. Both smart contracts and decentralized applications replace the need for mediators and negotiators. For example, if you want to give a $30000 loan via DApp, you would have to do a few clicks.
The entire process is straightforward and simple. Users can select any DApp application that supports a smart contract and borrowers. They can decide the interest rate for the lending amount, update it in the app, and lend it straight away. A smart contract automates both the lending and borrowing agreement once a suitable borrower is found.
Key features of DeFi lending platforms:
- DeFi lending platforms allow its users to lend their assets to other users for interest like traditional lending platforms. DeFi platforms function without any intermediators and users receive their financial rewards in cryptos directly.
- Users can avail of a loan without undergoing any KYC or AML checks, without disclosing their identity to a third party. This makes financial services more simple and accessible.
- The main advantage of DeFi platforms compared to centralized lending platforms is their high-level security because of the blockchain applications.
- DeFi platforms are anonymous and users are required to provide collateral higher than the loan amount.
Why is Decentralized lending better and more convenient than the traditional system?
DeFi platforms offer a lot of lending opportunities and attractive benefits to lenders and borrowers, giving this service a new meaning. The main advantages of decentralized lending are described below:
Transparency- All transactions are recorded on the blockchain system and available for verification on the blockchain network. This increased transparency guarantees effective data analysis and verified access to all users on the system.
Interoperability- All procedures involving decentralized finance and applications blend and match with one another by the interconnected software stack.
Increased speed of loan process – Digital lending speeds up the loan process. Some key features such as cloud-based assistance, analytics for fraud detection, and AI computations for ideal loan terms and risk factors support and act as a pillar for decentralized lending. All the above-advanced features help speed up the loan process. Once the loan is validated, lenders can send offers using e-contracts.
Avail interest in holding crypto assets– Users can lend their crypto assets at good interest rates mentioned in a contract and no need to sell their crypto assets. By doing this, they can earn money along with the interest in a predefined time.
Less documentation – DeFi platforms do not require much paperwork like traditional banking systems. It involves just a few clicks in a Decentralized application.
The above discussion shows that Defi lending has a high potential to reshape the entire financial system. It attempts to decentralize the core traditional finance services like payments, trading, investments, insurance, lending, and borrowing. Defi lending being involved with the intriguing technology truly has vast opportunities to revolutionize the global financial landscape.
- Brugu, a leading DeFi Development Company, has 10+ years of expertise in blockchain technology.
- Our pool of blockchain architects and DeFi developers is certain to deliver quality DeFi development services to launch your DeFi lending/borrowing platform.
- We tend to integrate your DeFi platform with all the vital functions and features like charge loan origination fees, late fees, bounced payment fees, top-performing rate of returns, and many lending.
- Get in touch with our experts and experience your idea of developing Defi lending apps getting converted into reality.