Does DeFi really solve the challenges of Crowdfunding?

DeFi crowdfunding platform development services

Crowdfunding brings flexibility and democracy to the funding process. For this reason, it became mainstream in 1997 and has since become a thriving industry. Business projects raise a small amount of money from a group of individuals using crowdfunding. Crowdfunding is a popular way for entrepreneurs to raise money. Learn Bond, a business website, has collected some data that seems very promising. Learn Bond has predicted that the value of crowdfunding transactions will increase by 12 percent annually over the next two years. At this rate, global crowdfunding transaction volume will reach $11.98 billion by 2023.

How does crowdfunding work?

There are many types of crowdfunding models, but some of them are very popular:

– Reward-based crowdfunding

– Equity-based crowdfunding

– Donation-based crowdfunding

– Peer-to-peer crowdfunding

These models make crowdfunding effective and provide the following benefits to participants:

– Marketing is made easy

– More revenue and less risk

– Product validation

Major challenges facing the industry | Can DeFi solve them?

Only about half of all crowdfunding projects achieve their fundraising goals. This is due to issues such as trust, organizational efficiency, incentive delivery, and other issues affecting the industry.

Trust issues

Crowdfunding involving crowdfunders is on the rise. As a result, trust has become a major obstacle to the growth of the industry. In practice, it can be a major obstacle if a new crowdfunding site lacks sufficient legitimacy.

No one would be willing to invest money in a project if they don’t have confidence in the platform.

Infrastructure powered by DeFi can give you trust and credibility

Blockchain technology is used to build DeFi crowdfunding development services. Unlike traditional crowdfunding platforms, the decentralized crowdfunding website is powered by a network of distributed computers. As a result, the blockchain makes it nearly impossible for a developer to alter or corrupt the platform’s data and documents. As a result, the growth approach of the DeFi crowdfunding platform helps build trust between the platform and its backers.

Accounting issues

Accounting standards for funds raised through crowdfunding are somewhat unclear. As a result, buyers are unsure how they will be compensated and when they will get back their invested capital. Despite the fact that crowdfunding offers great profit potential, investors are reluctant to participate.

DeFi-based infrastructure to solve accounting problems.

Smart contracts can be used to manage accounts on DeFi sites. Essentially, the donor and the crowdfunding site enter into a contract. Then, the contract is converted into a smart contract. This should assure the investor that the terms of the contract cannot be changed at the discretion of the platform. Smart contracts would also simplify the payment of rewards. This will further increase trust.

Transparency

The organizational performance of a crowdfunding platform is critical to its sustainability. An investor is still curious about how their funds pass through the system and how they are used. Maintaining integrity on a traditional crowdfunding site is difficult because it requires a lot of manual monitoring and documentation. Not only that, but this type of monitoring is susceptible to tampering.

DeFi infrastructure for transparency

Blockchain technology is used in the growth of the DeFi crowdfunding website. In essence, blockchain is a decentralized ledger that allows us to see how funds are flowing, but no one can alter the documents or redirect the funds. To date, no technology has been able to reach this degree of organizational transparency, but blockchain can.

Summary of Benefits of DeFi for crowdfunding

A DeFi powered crowdfunding platform addresses most of the challenges posed by a centralized crowdfunding platform. Apart from that, a DeFi platform can help platform operators offer the following benefits to the investors:

• Low risk to their capital investments

• Access to how the capital is being utilized

• Aid in transparent marketing for trust-building

To wrap

The introduction of DeFi in crowdfunding marks a new era in crowdfunding. As blockchain technology promises to democratize capital, investors can be more confident about their investments. Thus, blockchain disruption is much required in the crowdfunding industry.

If you are planning to build your DeFi crowdfunding platform, Brugu can help. We offer customized blockchain development solutions to develop and deliver high-performance DeFi platforms that help businesses disrupt the market.

Connect with our subject matter experts to share your business needs.