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Everything You Need To Know About Defi Lending Platform

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Defi lending platform development

Defi lending platform development

The late 2000s was the era where blockchain technology began. Numerous firms have been looking for ways to use the technology in various ways. The emergence of cryptocurrencies followed by the financial sector looking for ways to use blockchain technology solutions introduced the notion of Defi, commonly known as Decentralized Finance.

Defi referred to an idea that promises to be the banking sector for cryptos, without any need for intermediaries. In this blog, we will explain what Defi is, and how it works as a popular platform today.

What is Defi and how does it work?

Decentralized finance is a new-age financial system based on blockchain technology that functions without any use of intermediaries. The blockchain that hosts the system replaces the role of the central authority. However, it also functions as a peer-to-peer transaction system. The concept is to provide users with a transparent, open, quick, and permissionless transaction experience.

Smart contracts get entirely exploited here due to their self-upgrade feature depending on the received data with no third-party intervention. The two modes of Defi transactions include Defi lending and Defi borrowing. Let’s understand both modes.

How does the Defi lending and borrowing platform work?

The lending and borrowing occur as P2P lending platform’s transactions in the Defi environment. Crypto loans get initiated without the involvement of a third-party authority. Cryptocurrency owners can also lend their coins on these sites, with the interest produced to serve as a source of passive income. Borrowers can take loans directly from P2P lending services operating on Defi principles:

  • A borrower needs to first register an account on the Defi lending platform and link their cryptocurrency wallet with the account.
  • The borrower must then hold some crypto assets as collateral to obtain a loan in fiat money, which is often greater than a loan value due to the volatile nature of cryptocurrencies.
  • When the borrower paid back the loan amount plus interest, the borrower’s crypto collateral gets returned.
  • Since the borrower pays back the loan with interest, the money reaches directly to the lender, who gets profit from the entire arrangement
  • When the borrower paid back the loan amount with interest, the borrower’s crypto collateral gets returned
  • It can also happen in a role-reversal scenario, where a lender lends cryptos in exchange for fiat money and subsequently earns interest in the form of a passive income source.
  • It is crucial for p2p cryptocurrency exchange development to sit idle in a wallet that cannot generate any passive income. According to the current scenario, the speculative concept states that its exchange rate may rise in the future.
  • The present cryptocurrency market is highly volatile, a one-to-one collateral value may get rendered in case the collateral value falls below the lent amount.
  • The defi platform devised a solution to address the problem

What are the features and benefits of the Defi platform?

  • Since everything is written on smart contracts, there is no central authority handling Defi loans, which becomes its greatest advantage
  • Defi platforms typically give borrowers lower interest rates, relieving them of the burden of high repayment. For various cryptocurrencies, different portals charge different interest rates.
  • Lenders get benefitted from these platforms since their deposits earn them a great interest rates
  • Users can also get varied interest rates between stable and variable to protect themselves from the volatile nature of cryptocurrency
  • Many popular Defi platforms do not have any loan or borrowing limits in their portals

Summary

Blockchain and cryptocurrencies are growing at a fleeting rate. Businesses entering the Defi lending platform business as lenders, borrowers, or platform owners can do it with no hesitation. Also, make sure you are aware of the application legislation and how the local laws view such platforms.

Get in touch with our experts to know more about Defi and cryptocurrency.

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