Since cryptocurrencies first appeared in the latter part of the 2000s, there have been many use cases for them in popular discussion. While some visionaries proposed that they will completely replace traditional financial institutions, the crypto market we have witnessed over the years tells us a different story. A tangible option will be that both forms intend to coexist while the degree of centralization gets slowly reduced from the financial sector. DeFi lending platform development might be the root of such advancements in the financial domain, as an increase in crypto finances has been noted in recent times.
DeFi Lending Platform: What is It?
A DeFi lending platform is one where people can lend and borrow cryptocurrencies through collateralizing. These platforms function similarly to real-world banks, albeit with limited functionality and decentralized processes. DeFi lending platform development has become the trump card for ventures to grow in the aftermath of the NFT boom as more Web3 enthusiasts have found the need to lend/borrow cryptos and collateralize their NFT holdings. Such a platform model can also be a business’s gold mine as it can be utilized in ways that ensure win-win situations for all parties involved. Well, while the DeFi P2P lending platform development process might look complex, it is pretty easy to understand. Popular platforms in the space include Aave, Compound, Uniswap, and Maker DAO.
The Workflow of a DeFi Lending Platform
- Crypto holders first deposit their holdings in the DeFi lending platform’s liquidity pools, becoming liquidity providers (LPs) in the process.
- Borrowers then place a borrow request to the platform that will initiate a search that will match them to lenders using in-built matching engines.
- Once a borrower is connected to a lender, a smart contract detailing the transaction will be framed.
- The borrower should provide crypto collateral (typically higher than the borrowed amount) in the DeFi lending platform.
- After submitting the collateral, crypto funds are transferred to the borrower.
- The borrower will have to pay the interest regularly for the loan that will be transferred to the lender, serving as passive income.
- If the loan amount with interest is paid fully by the borrower, the collateral will be returned to the borrower. Otherwise, it will be transferred to the lender, who can utilize it.
Exquisite Advantages of DeFi Lending Protocol Development
DeFi lending protocol development offers numerous advantages to users and businesses alike. Some user benefits of a DeFi lending platform include the following:
- The ability to borrow almost any cryptocurrency without having to spend extra fiat holdings.
- The ability to borrow cryptos from anywhere in the world without geographical restrictions.
- DeFi P2P lending platform development allows transactions to involve only two parties – Lenders and borrowers – thereby abolishing the intermediaries and the fees incurred due to them.
- Secure and quick crypto transactions for loaning and repaying powered by smart contracts.
- Overcollateralizing to preserve the lender’s financial state to an extent in case of fluctuations.
DeFi Lending Platform Development’s Benefits for the Business-end
The business benefits of such DeFi lending platform development are plenty too, and some include:
- The possibility to gain a reputation in the Web3 circles quickly through Peer-to-Peer transactions.
- The ability to garner profits through various fees from borrowers and lenders.
- The possibility of making community financial governance a reality through decentralized autonomous organizations (DAOs), reducing much burden of the project owners.
- Since operating costs are minimal when using a public blockchain network, profiting and earning trust among users can be easy.
- They can extend their financial operations beyond lending and borrowing by providing opportunities for staking, exchanging, and yield farming, becoming DeFi banks in the process.
Hence, we can say that a DeFi lending platform is the most needed at the moment since many have adopted cryptocurrencies to their holdings and looking for opportunities to earn extra income. There are also people in need of cryptos to get their hands on the upcoming popular NFT drops. Linking both ends has become possible with DeFi lending protocol development. If you want to run such a platform, approaching a professional DeFi lending platform development company will be the perfect option, as such a firm can be helpful with its expert services and valuable insights related to the domain.