DeFi Lending and Borrowing Platform Development is the process of providing cryptocurrency assets as a loan on a permissionless decentralized medium which has complete decentralized smart contracts that would fully automate all the cryptocurrency lending transactions without the involvement of middleman.
In the world of decentralized finance (DeFi), one of the most emerging protocols is lending/borrowing platforms. It is mainly because a lending/borrowing platform removes all the existing difficulties in a conventional loan system. Also, the returns in this protocol are huge.
“If Bitcoin was disintermediation of payments, DeFi is the disintermediation of all other financial services,’’ Edmund Lowell.
Considering all the praises for DeFi, let’s explore deep into how DeFi’s lending and borrowing protocols are reshaping the world of finance.
If you wish to borrow a sum of an amount from a bank, the procedure involved is quite a tedious process.
It involves a lot of paper works that need to be manually filled at the bank, the credit score check, abundant wastage of time, and complexity in tasks. In certain banks and countries, loans are sanctioned based on race and status.
If not such conventional loans, then the other pathway is private lending and borrowing. But the people involved in private lending cannot be trusted. Hence, it often leads to issues.
Lending and borrowing practices are important to compound our assets and fulfill our urgent needs. So, is there a way to tackle the current barriers and make good use of a proper loan system?
Yes. Welcome to decentralized finance’s lending and borrowing.
DeFi’s surge in popularity is attributed to its automated functionalities and decentralized system. It promotes transparency throughout the process and lets users gain full ownership over their assets. Also, the intervention of third parties/intermediaries is entirely ruled out.
DeFi plays a crucial role in lending and borrowing protocols. Here's how it works for lenders and borrowers.
Without any discrimination, users can lend their crypto-assets to anybody regardless of their race or nationality. Lenders earn interest from the borrowers based on the amount lent. In certain lending protocols, lenders also earn supplementary DeFi tokens in exchange for lending in their platform.
Borrowers who wish to borrow digital funds are required to deposit their crypto-assets as collateral. This collateral must be higher than the sum borrowed due to the volatile nature of the crypto market. However, this is solved by stable coins (asset-backed) that are pegged to a constant value. Thus borrowers can borrow crypto funds. Their collateral is subjected to complete liquidation if they fail to repay the borrowed amount.
If the system is decentralized, without any middle-men, how exactly are these activities executed?
Yes, smart contracts are pre-coded conditions that execute functions based on the conditions. They collect, deposit, transact and liquidate funds based on the pre-set criteria. Smart contracts cannot be altered once set. Thus, the entire system is automated and made secure.
In flash loans, users can avail of loans, earn a profit using the loaned amount, and repay the borrowed sum in less than 10 seconds. If the user is found in a situation where he can’t settle the full amount, the entire process is blocked from happening. So, the lender retains his amount.
Total value locked in Compound
October 2018: $2.8 million (USD)
October 2019: $114.7 million (USD)
October 2020: $858 million (USD)
Evidently, the figures are scaling exponentially. It confirms DeFi’s growth is set to be massive in the upcoming years.
Blockchainappsdeveloper, a leading DeFi Development Company, has 10+ years of experience in blockchain technology. Our pool of blockchain architects and DeFi developers are guaranteed to deliver quality DeFi development services to launch your DeFi lending/borrowing platform.