DeFi Lending And Borrowing: Transforming Traditional Financial Services

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DeFi Lending And Borrowing


Decentralized Finance or DeFi is the latest innovation in the cryptosphere. By building on the advantages of blockchain technology, DeFi has revolutionized lending and borrowing. DeFi Lending Platform Development completely circumvents middlemen and simplifies fund transfer between stakeholders.

Problems With The Present Financial Sector

Before we venture into the benefits of DeFi lending and borrowing development services, it is pertinent to examine the current state of affairs in the financing sector. In a traditional setting, any individual seeking to take a loan has to overcome a series of hurdles even before they begin. For instance, they might not have the required credit score that qualifies them or lacks access to basic financial services. Even after they overcome these setbacks, the individual is burdened with further documentation and interactions with intermediaries that increases the costs, time, and efforts spent. It should also be noted that as a fiat-backed institution, most traditional financial institutions are also susceptible to manipulation. Unfortunately, the losses incurred from this manipulation are eventually borne by the common man.

How DeFi Changes Things?

However, this process is changing quickly. Thanks to cryptocurrency, and DeFi lending and borrowing platforms, in particular, the entire workflow has become simple and optimized. This is because decentralized finance products imbibe the benefits provided by the underpinning technology, blockchain. Therefore, all transactions are recorded in a secure, transparent, and immutable manner. This not only helps track fund movement but also identify and avoid malicious participants. The users also possess much more control over their assets, which is not possible in a traditional setting.

In a nutshell, the DeFi lending and borrowing protocol are a step-up from peer-to-peer lending practices. The latter is a manual process and still requires a trusted intermediary to act as an escrow. However, decentralized finance offerings make use of smart contracts to streamline the process. This initiative achieves two factors – 1) completely eliminates the need for middlemen, and 2) ensure fast transactions that are immune from human-based errors.

DeFi-based Borrowing And Lending Simplifies Operations

The working of DeFi-based deposits and loans works on the basis of a common bank. Here, individuals can park their cryptocurrency assets and earn interest whenever someone takes a loan on the platform. It should be remembered that the terms of borrowing and lending are dictated by the pre-programmed smart contract.

Taking DeFi based crypto loans is as simple as it gets. Just like a typical bank loan, where a borrower places an initial down payment, similar collateral is required when acquiring a DeFi loan. In this case, the collateral accepted is pre-approved cryptocurrency deposits such as Ethereum, Bitcoin, etc. In exchange, the borrower will receive funds in stable coins, such as USD Coin, Tether, and more. Individuals taking loans from DeFi borrowing platforms should ensure that they pay back the loan within the stipulated period. Otherwise, their mortgaged position will get liquidated.


The DeFi Market Cap

DeFi has transformed the way we approach financing. By simplifying the procedure and removing barriers, DeFi is helping usher in a new-found interest in cryptocurrency. A testimony to this fact is the ever-growing investment in this sector. At the time of writing this article, over $12 billion has been locked in DeFi assets. This sum has grown from a meager $538.72 million in 2019.

Among lending-based Defi tokens, Maker DAO, Aave, and Compound hold the top positions with a total value of $2.09 billion, $985.4 million, and $968.8 million respectively. It should be highlighted that within the lending space, Maker DAO controls a whopping 49.02% of the market.


In the following section, we shall look at the top earners in the DeFi crypto loans space in detail:

Maker DAO: This DeFi lending protocol uses a combination of two cryptocurrencies – MKR and DAI to distribute loans. By staking Ethereum, users can unlock new DAI coins and the interest rates on loans are decided by the MKR governance tokens.

Historically, Maker was one of the first instances of DeFi. Introduced in 2017, the coin has grown from a market value of just $1.90 million to an astounding $2.08 billion in a very short span of time. At the time of writing this article, over 2.7 million Ethereum tokens are believed to be locked in the Maker DAO ecosystem.

Aave: This platform uses algorithms extensively to balance the borrowing and lending books and to adjust the interest rates for the different financial products on offer. It allows non-collateralized loans and also offers stable as well as variable rates of interest.

A relatively new entrant in this sector, Aave was introduced in January 2020. However, despite its relative newness, this project has posted phenomenal growth. The total value locked in the Aave ecosystem has grown from roughly 320 thousand dollars to more than $987.3 million. During August 2020, Aave peaked at $1.69 billion. Pundits believe that this token will break its previous record in the coming months. At the time of writing this article, more than 334 thousand Ethereum tokens have been staked in the Aave ecosystem.

Compound: This ecosystem allows users to stake and earn returns on Ethereum investments. At the same time, it provides loans to users to purchase real-world assets, including vehicles, real estate, and more.

This is yet another successful DeFi token that enjoyed steady success from October 2018 to June 2020. However, after introducing a governance token, its value shot up by manifold and it is inching the billion-dollar valuation mark very quickly. At the time of writing this article, more than 920 thousand units of Ethereum have been pledged into the Compound ecosystem.

DeFi And The Future

DeFi opens the doors to inclusive financial systems, one that does not discriminate or exploit users. Moreover, by simplifying access to cryptocurrency, DeFi is helping individuals use crypto in their everyday lives as well as enjoy the benefits of this technology. You, too, can become a harbinger of change and opportunity to millions of people around the world. By launching a crypto lending platform with DeFi, you can change the dynamics of the game. Avail of our exceptional DeFi lending and borrowing platform development services to get started right away!

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