DeFi Ecosystem Development – A Beginner’s Guide

  • by
DeFi Ecosystem Development

Defi ecosystem development services aim to break away from the shackles of the traditional financial system that involve powerful authorities like governments and banks. DeFi operates through smart contracts, DApps, and well-defined protocols established on the immutable blockchain network. According to DEFI Pulse, a web portal that keeps a close watch over the industry, a whopping $14.13 billion has been locked in various DeFi projects worldwide.

What Is the DeFi Ecosystem?

The DeFi ecosystem involves the process of building transparent financial applications on top of the blockchain. It includes all the financial projects covering different aspects like lending and borrowing, stablecoin development, investments, payments, insurance, staking, yield farming, prediction markets, decentralized exchanges, asset management, alternative savings with interest-earning mechanisms, and derivatives. Defi ecosystem development solutions are also referred to as an open ecosystem as financial tools and services are available for everyone in a decentralized manner.

The Main Challenges Faced in DeFi Ecosystem Development

  • Smart contracts can contain different vulnerabilities in the form of underflows, overflows, and reentrancy attacks that can lead to loss of funds for the users.
  • Overcollateralization is one important factor affecting the business of lending and borrowing in DeFi ecosystem development. Lenders will demand higher collateral to be submitted by the borrowers to avail of a loan. This leads to a fall in profits made on leverage trading and defeats the goal of serving the unbanked sections of the population as borrowing activities will be undermined.
  • DeFi applications lack enough liquidity in contrast to their centralized counterparts. Traders find it difficult to move their assets around seamlessly as so many diverse currencies and tokens are being exchanged in the entire decentralized finance ecosystem.
  • Most of the DeFi projects do not offer any insurance to their users. Since the market conditions are highly unpredictable, there is a real chance of the investors losing a large sum of money without making any fault.
  • Currently, Ethereum, where most of the decentralized finance applications are mostly being built, is facing some network congestion issues, leading to a longer wait time for users for transaction approvals. This compromises customer experience while using DApps.
  • Many users find cryptocurrency not so simple to use as they fail to understand the difference between an exchange wallet and a non-custodial wallet.
  • Funds of the users may be swindled if they do not use a hardware wallet or implement multi-factor authentication to protect their holdings.

The Major Platforms Where DeFi Ecosystem Development Solutions Are Being Created

  1. Ethereum DeFi Ecosystem
  2. Bitcoin DeFi Ecosystem
  3. EOS DeFi Ecosystem

Ethereum DeFi Ecosystem Development 

A whopping 197 projects have been developed on the ethereum DeFi ecosystem alone. It includes crypto wallets, asset management protocols, stablecoins, portfolio trackers, payment solutions, derivatives, and decentralized exchanges. Some of the most popular projects include Argent, Dharma, Coinbase Wallet, Huobi Wallet, InstaDApp, Uniswap, MetaMask, MyEtherWallet, and Trust Wallet. Ethereum has the highest daily transaction volume and application usage when compared to other networks. The assets deposited on Ethereum can be used either as a store of value or a capital asset or a consumable asset. The launch of Ethereum 2.0 in early 2021 would significantly boost the adoption of DeFi as there will not be any congestion issues anymore and transaction fees will be very low.

Bitcoin DeFi Ecosystem Development

Around 26 projects have been established on the Bitcoin DeFi Ecosystem. It has a well-defined native environment with security assurances and low trading fees. Users can earn a good yield without going through a centralized service. Bitcoin users can lend, borrow, trade, and earn interest on their Bitcoin easily. The main projects include stablecoin trading, staking, decentralized marketplaces, insurance, liquidity pools, wallets, and leverage trading. Users can experience a lot of freedom and unrestricted access to a large asset pool. The core financial functions are being provided by RSK, which is the second layer and the smart contract protocol of Bitcoin. It develops more sophisticated use cases for Bitcoin.

EOS DeFi Ecosystem Development

21 DeFi projects have been built on the EOS DeFi Ecosystem alone. EOS has a strong developer community and delivers high performance. Some of the popular projects on EOS are EOS REX, a lending and borrowing market, Chintai, a leasing market, Equilibrium, where different tokens can be staked, and VIGOR Protocol, a low volatility stablecoin. Tethered assets on EOS can bring a lot of speed, scalability, and intuitive programmability when compared to other blockchain networks constrained by technological limitations. Since the EOS token listings are significantly less on the leading centralized exchanges, the liquidity within the EOS space is a big problem.

What Is the Difference Between Ethereum, Bitcoin, and EOS Platforms Related To DeFi?

  • Ethereum uses the proof of stake consensus mechanism for maintaining a decentralized payment network and to store computer code that is used to power tamper-proof decentralized financial applications. The primary purpose of Ethereum is to establish itself as an alternative monetary system.
  • Bitcoin is a new form of digital money free from the interference of any central authorities. It is used both as a medium of exchange and a store of value.
  • EOS is more of a blockchain platform. It has compromised a bit of decentralization to improve its scalability and to ensure lower transaction costs. It uses the delegated proof of stake model.

What Are the Benefits of Decentralized Finance Ecosystem Development?

➼ Users have 100% control over their assets and need not rely on any intermediaries in the Decentralized Finance Ecosystem. This is due to the presence of decentralization and blockchain technology.

➼ Since the DeFi protocols are fully open-source, anyone can build new financial products and applications on top of them easily.

➼ DeFi applications offer a higher return on investment than traditional financial instruments like savings accounts and fixed deposits.

➼ DeFi ecosystem projects are highly interoperable, and two or more applications can be seamlessly integrated.

Scope of Decentralized Finance Ecosystem Development

The movement started by Decentralized Finance is still in its infancy with miles to go regarding technical experimentation. It needs a better user experience and uniform industry standards. The user base of DeFi is increasing very fast as it provides a frictionless experience for users to transfer value across different blockchain networks and DApps.

More institutional players are showing interest in investing in Decentralized Finance applications amidst the severe economic crisis. DeFi acts as an alternative avenue as it is highly resistant to transaction censorship, facilitates worldwide participation, and eliminates the role of third parties within the financial ecosystem.

Users can experience low-cost transactions and retain complete control over their assets rather than depending on any institution. Those who embrace the growing trend of decentralization will be in a better position to maintain their relevance.

Why choose Blockchain App Factory?

Blockchain App Factory offers a wide range of services related to Decentralized Finance Ecosystem Development, such as market-making consulting, decentralized crypto banking, DeFi lottery system development, decentralized fund management, DeFi yield farming platform development, DeFi staking platform development, DeFi token creation, DeFi wallet integration, and DeFi smart contract development. We ensure a high level of security, transparency, and interoperability in your business operations with our customized solutions.

Talk To Our Experts

To hire the top blockchain experts from Blockchain App Factory send us your requirement and other relevant details via the form attached underneath.

+91 63826 65366

[email protected]

WhatsApp: +916382665366

Skype: james_25587

Get in Touch