Is developing crypto DeFi lending platform prospective? There is a lot to explore in the world of digital assets over and above crypto trading and investing.
With the rise in the DeFi apps or dApps and different DeFi protocols, you can do a lot to earn quite a lot from the crypto space. All you have to do is make the best use of the blockchain technology.
One such useful way is to develop a DeFi lending platform. This is quite a prospective avenue that you can take given the fact that there has been a significant rise in the number of DeFi lending and borrowing platforms of late.
Typically, according to several survey reports, developing a DeFi lending and borrowing platform is one of the five top ranking projects that makes the best use of the innovative blockchain industry.
As of now, there is a huge interest in developing such solutions and a lot of companies are engaged in developing DeFi lending platforms.
Not only the companies, even a lot of individuals are also on the lookout to exploit the benefits the blockchain technology has to offer by developing a DeFi borrowing and lending platform.
If you too are interested in trying out this new avenue and want to gather some useful insights and information about DeFi lending platform development and how to go about it, this is an article that will be very helpful to you.
Apart from telling you how to develop a DeFi lending and borrowing platform, you will also come to know about the best practices to follow, the reasons to develop such a platform, the benefits, the working model as well as the building process to follow.
Therefore, look no further and read on.
Is Developing Crypto DeFi Lending Platform Prospective?
When you ask people to name the two most outstanding use cases of crypto they will inevitably name crypto trading and holding.
Right they are but if there is no reliable platform in the first place these activities cannot be performed since it will be impossible to bring the traders and holders together.
It is the same with DeFi lending and borrowing, which people at large are not well aware of.
However, it is only a good DeFi lending platform that can bring the lenders and borrowers together.
In simple words, this means it is precisely through the DeFi lending apps that the lenders and borrowers can interact and perform their necessary and desired activities.
These DeFi apps are also referred to as decentralized money markets.
Through these platforms the lenders offer their crypto assets to loan them out and in return realize interests on their loans over time.
On the other hand, the borrowers get a chance to access these loans easily and also get a chance to make quick gains due to crypto volatility.
Typically, DeFi or Decentralized Finance refers to the idea of all financial and economic services that run on the blockchain network.
The process usually involves owning digital assets and managing them.
A DeFi platform usually uses a combination of the most extensive protocol called the smart contract mechanism and the Decentralized Applications or dApps.
As of now, most of the DeFi projects are built on Ethereum, one of the most popular crypto blockchain networks.
When you develop a DeFi lending and borrowing platform it may be updated, merged, and applied with this blockchain network so that it meets the specific needs of the users.
However, apart from Ethereum there are also a few other major blockchain networks that are also good enough to develop a DeFi lending and borrowing platform on and you may consider.
- Binance Smart Chain
- Solana and
The good thing about these specific financial services is that they also make to the top rated dApps list.
It is very important to have a comprehensive knowledge about the working process of a DeFi lending and borrowing platform before you start to develop it.
In Decentralized Finance, smart contracts and blockchain are used in combination, as said earlier, which ensures safety and security of the platform as well as its efficient functioning.
Therefore, when you develop a DeFi lending and borrowing platform you should ensure it enables making decentralized financial transactions and also handles them efficiently while recording on the transparent, permissionless, distributed, and highly encrypted blockchain network.
The DeFi lending and borrowing platforms are rivaled only by the crypto exchanges.
This is because both these come with a user-friendly user interface and are easier to access.
Therefore, these can be considered as the leading Decentralized Applications or dApps.
Statistically, the Total Value Locked or the TVL of the DeFi lending and borrowing platforms is close to $50 billion, and that is no joke.
It indicates a pretty obvious inference – its popularity and preference among the users.
The crypto experts give a solid justification for the rise in popularity of the DeFi lending and borrowing platform.
They say that, typically, the next best thing to any form of traditional finance and its instruments trading is savings, and crypto is no different.
As soon as people get into crypto trading, they realize that it involves a lot of risks.
It is primarily due to this reason most of the crypto traders and investors do not want their balance crypto to lie idle in the wallet and generate no further income.
Since crypto never sleeps, they think that it is much better to put it to use and earn more money instead of the coins lying dormant in their crypto account.
This is where the DeFi lending and borrowing platforms come in which typically offer anywhere up to 20% APY or Annual Percentage Yield.
This high rate of APY may sound pretty absurd to a beginner or to them who are familiar with the types of loans they typically get from a traditional bank.
However, on the other hand, for someone who has been in the crypto space for a while and knows a lot about crypto volatility and has experienced it, this kind of APY is simply OK.
While building a DeFi lending and borrowing platform there are a few things that you should keep in mind.
One of the most significant things is that the platform should have no issues with scaling appropriately for the web as well as the mobile platforms.
In addition to that, you should also focus on three most significant things while developing your DeFi lending and borrowing platform.
- Its design and features
- The tokenomics and
- The smart contracts on which it will primarily operate.
The list of requirements simply does not end there.
It is also very crucial to take into account the power of the agile and innovative blockchain technology.
It will prove to be the key element that will ensure the success of your DeFi lending and borrowing platform.
- The speed
- The flexibility and
- The transparency.
With so many things to keep in mind while developing a DeFi lending and borrowing platform, it is needless to say that it is not an easy process.
However, gaining a comprehensive knowledge is the only way in which you can make the process relatively easier.
Reasons to Develop
Start by knowing some of the good reasons to develop a DeFi lending and borrowing platform.
Given the current scenario, developing a DeFi lending platform along with native mobile apps is a very good strategy once you get the real traction.
Now, you may ask why developing a DeFi lending and borrowing platform is the most exciting business opportunity of today.
Well, the first and perhaps the most important reason is that the Decentralized Finance or DeFi world is one of the most preferred protocols of today that has all the power and ability to rule the whole DeFi ecosystem.
This gives rise to the conception of developing a DeFi lending and borrowing platform.
Moreover, the DeFi solution can eliminate all of the existing flaws in the banking sector due to its one-of-a-kind method.
Add to that, the DeFi lending and borrowing business offers a lot of opportunities to businesses to amass huge amounts of profits.
That is why developing a DeFi lending and borrowing platform has been attracting businesses, modern bankers and all the believers of blockchain technology and crypto along with it as well.
Typically the DeFi lending and borrowing platforms provide a lot of benefits to the lenders and borrowers which they usually do not get through the traditional forms of lending.
That is why companies try to prove their users with these unique benefits of the DeFi lending and borrowing platforms by developing them.
DeFi lending and borrowing has in fact changed the entire financial system and it seems to be significantly poised to decentralize the foundation of conventional financial services.
In short, the DeFi lending and borrowing platforms can transform the economic environment of the globe completely.
Therefore, if you want to reap the rewards by tapping into this profitable industry, now is the right time to do it by developing a DeFi lending and borrowing platform which has become the hottest craze in the digital world.
Since the financial services all over the world have made notable changes in their operations, it is very important to know the perfect and most suitable working model before you start developing a DeFi lending and borrowing platform.
If only you make the best use of the blockchain technology you will be able to develop a DeFi lending and borrowing platform that will solve the issues with the traditional financial systems.
You will be able to provide a completely new perspective on money management, which is one of the primary objectives of the DeFi solutions.
The DeFi lending and borrowing platforms typically rank among the most popular and widely used DeFi projects which are primarily due to the effective and seamless working model which is found lacking in the centralized lending and borrowing platforms.
Remember, Decentralized Finance is the most important player in the Defi borrowing and lending procedures.
There are two major participants of a DeFi lending and borrowing platform namely:
- The lenders who offer their crypto assets to loan out to others and earn interest on them and
- The borrowers who can access these loans directly through the DeFi protocols and P2P lending and pay interest on them.
This working model is completely different from the traditional lending systems where typically the platform offers the loans to the borrower.
The working model of the DeFi lending and borrowing platform is typically peer to peer lending which eliminates the need for a third party to facilitate the lending procedures.
Therefore, in short, the working model of the DeFi lending and borrowing platform involves:
- The borrower initiating the process by depositing collateral in the form of crypto assets
- The platform disbursing the loan by using self-regulating smart contracts
- The borrowers paying the interest on the borrowed crypto coins and
- The interest earned by the platform being disbursed among the lenders.
And, allowing the lenders of the crypto assets to earn interest, the working model of the DeFi lending and borrowing platforms benefit both the borrowers and the lenders.
Now, it is time to focus on one of the most important aspects of developing a DeFi lending and borrowing platform.
Typically, those who want to use the services offered by a DeFi lending and borrowing platform will need to have a crypto wallet in the first place.
Therefore, it is important for you to ensure that the DeFi platform you develop supports different types of crypto wallets. Make a list of them and decide which one to integrate.
Your DeFi lending and borrowing platform should also support offering flash loans in which no collateral is required.
This is an important feature to include because flash loans have gained immense popularity.
Rate switching is another important feature that your DeFi lending and borrowing platform should have.
It will be highly appreciated by the users of your platform because the crypto market as such is highly volatile by nature.
This feature will allow them to switch between fixed and variable rate of interest to protect them from the impacts of a sudden movement in the market offering a lot of stability to the borrowers while borrowing.
Similarly, you should also include a fiat gateway in your DeFi lending and borrowing platform so that the users can make purchases of digital assets with fiat currencies as well and not need to move to a third party site.
This feature will add to the user experience as it will meet their needs and also simplify the boarding process for the new users.
Make sure that the DeFi lending and borrowing platform provides investment rewards.
This feature will motivate the users to put in more funds to borrow.
If the rewards are reasonable, the users will consider it as a nice opportunity to make some passive income from digital assets.
You may also incorporate some useful reward strategies that will entice the lenders to make investments for a long term on the site.
Apart from these major features, there are also a few other features that you should incorporate to your DeFi lending and borrowing platform. These are:
Fiat on-ramp – Though this may need the users to go through the KYC procedure and lose their anonymity, it is a priceless feature to have.
Margin trading – This feature will allow the trading with the borrowed money on the same platform and increase the profit potential. However, make sure that the mechanism is written well in the protocol.
Recapitalization – This feature will help the users to stabilize when there is a notable movement in the market which may make the collateral system insufficient. Just make sure that the logic of the system is nicely embedded in the smart contracts.
Also consider incorporating features that will ensure:
- Balanced support of crypto assets
- A favorable collateral ratio
- A stable interest rate offered on deposited liquidity
- A better supply and demand ratio and
- A better working with exclusive governance tokens.
Add to that, make sure that you include a few advanced options such as yield swaps, staking and credit delegation.
Of course, these are not the only features that you may implement in your DeFi lending and borrowing platform. There are several others to include.
Remember, the more features and facilities you provide to the users the higher will be the chances of success.
The best way to ensure this is to stay abreast with the latest crypto news, events, and trends and get new ideas from there. Research is therefore the key.
There are lots of benefits of developing a DeFi lending and borrowing platform. Some of the most significant ones are:
It will offer loans very quickly since these will be executed automatically by the smart contracts.
All the users need to do is connect their crypto wallets to the platform and make the loan request.
It will eliminate the need of intermediaries to facilitate the process which will further streamline the loan approval process ensuring integrity and putting everything on the fast track.
With a better oversight of the autonomous protocols, agreements between the borrowers and lenders will be better established and executed.
The DeFi lending and borrowing platform will allow the borrowers to borrow at a low interest rate and the lenders to earn high returns on their crypto assets.
The permissionless DeFi platform ensures more transparency and an open ecosystem where anyone having a crypto wallet can join in making the entire system and products more easily accessible.
All they have to do to become a borrower or lender is to meet the requirements of the platform.
With higher levels of transparency offered the DeFi lending and borrowing platform ensures maintaining trust among the users.
Since everything happens on the blockchain everyone can see how the system operates and the smart contract code as well.
And finally, the users will have more control over their funds and data and protect them when they use a Decentralized Finance lending and borrowing platform.
All these factors indicate that it is quite beneficial to develop a DeFi lending and borrowing platform for your business.
Now, it is time to discuss the most important part – the building process of the DeFi lending and borrowing platform.
Typically, there are only five major steps of building a Defi lending platform but all these five should be well understood and followed precisely for better results and success.
Do not fret thinking that it is rocket science.
In fact, building a DeFi lending and borrowing platform is nothing different from building a house or painting the wall. All you need is:
- To strategize
- To execute
- To refine and
- To maintain.
However, building a DeFi lending and borrowing platform is a bit more interesting.
Step #1- Strategize:
This is the first step without any doubts. Just like building any other software, first you have to decide who you are building the DeFi lending and borrowing platform for.
This means that you should first know your target audience. This will further help you to know their needs.
Typically, when you know more about the users, you will be able to deliver better and create a better traction to your app.
In this step, you will have a lot of things to discover such as what type of platforms the users will prefer to use while interacting with your solution. This stage is therefore also called the discovery phase.
In this phase you typically focus on the business logic. This can be done by you but it is better done by a business analyst.
In this process you will need to discover and describe a lot of different things such as:
- The primary aims of the project and
- The core features.
This will help in creating the overall sketch of the project and lay a proper foundation for whatever that comes next.
This stage is very useful to optimize your budget and reduce the risks involved in the project.
Now, is it a web app or a mobile app you should stick to?
Well, there is a high chance that you will be better off if you stick to a web app rather than a mobile app and there are several good reasons for it such as:
- It can cater to both desktop and mobile use cases
- It will save your budget
- It will be easy to iterate more quickly and
- Releasing updates will be faster.
If you go for a mobile app while developing a DeFi lending and borrowing platform it will call for some additional developmental efforts such as building a committed crypto wallet.
Moreover, there is also a high chance that it may affect adoption negatively.
However, when you strategize, make sure that you choose a blockchain network that is compatible with the features you want to incorporate in your DeFi lending and borrowing platform and also works smoothly with the rest of the technology framework.
Also, make sure that you prioritize the features based on the ROI expectations and the tokenomics that should typically include the fees, rates, and all other rules of the platform.
Step #2 – Design:
The next important step to follow for building the DeFi lending and borrowing platform is the user interface or user experience, referred to as UI and UX respectively. It is all related to the design of the site.
Once again the knowledge of the needs of your target audience will come to your rescue in this matter.
It will help you immensely in crafting the most compelling sketches of hi-fi wireframe or screen of the app.
You can compile the screen into a clickable prototype which will surely guarantee higher traction.
You may even use it to gather more feedback from the users so that you can make the user interface more intuitive to give a much better user experience.
Here, one of the most important things that you should remember is the scalability of the site.
Typically, it should be more flexible to allow and support including more features to it over time.
Also, ensure that you take mobile platforms into account while designing your app so that it supports both iOS and Android devices.
The final thing to consider at this stage is to get the UI and UX verified by dApp developers.
This will not only save you from putting in additional effort but will also help you to ensure that the app is technically sound.
Step #3 – Develop and Test:
When you are done with the above two steps, now is the time to start coding.
This is a very important step and is therefore divided into several stages for your better understanding.
First, just like all other software development processes, you should make sure that you are working with an agile team.
The team leaders should be in regular touch with you to keep you posted.
You should have a full visibility of the working process and also be aware of who is doing what at any given moment.
It is also required that you are updated about the process on a regular basis and you are allowed to look at the updated version of your app maybe after every couple of weeks.
It is also very important to have a team fully stacked with experienced people who have all the necessary expertise and also are not afraid to challenge some of your assumptions and opinions should they find something or a way better than that.
In short, there should be a lot of transparency and flexibility in the methodology.
Next, you should focus on smart contracts and tokenomics.
The smart contracts are the self-executing contracts that will power and ensure the success of your DeFi lending and borrowing platform.
Typically, you must make sure that the smart contracts contain all the necessary logic for the platform to operate smoothly and effectively.
The smart contract code should typically include:
- The requirements of the platform
- The mechanism to calculate the interest rates
- The system for investing rewards and
- The kind of credit pool.
Coding the smart contracts needs considerable knowledge and expertise about the blockchain.
This will ensure that the code is free from bugs and is secure from other vulnerabilities.
This will make your DeFi lending and borrowing platform more reliable.
It should also be flexible to leave enough room for future improvements and most importantly, the gas fee should not be too high to drive the users away from your DeFi lending and borrowing platform.
As for the tokenomics, make sure it is logical and useful.
It should consider important factors such as:
- Whether or not to incorporate fixed or variable interest rate
- Whether or not to use isolated or combined lending pools
- Whether or not to accept crypto as collateral
- Whether or not to include partial liquidation rules and
- What should be the optimal fee structure and the gas expenditure optimization.
Though these are not all, it will surely give you a proper direction.
You will need a dependable source of crypto prices when you set up your DeFi lending and borrowing platform.
This is important because the prices of crypto coins fluctuate wildly due to the extremely volatile nature of the market and it may affect the value of the collateral held adversely.
It is best to employ oracles in order to deal with this significant issue.
Ideally, the developing process is where you incorporate the logic and operations of your DeFi lending and borrowing platform into the smart contracts.
Finally, once you have incorporated all the features you should test for the functionality of the DeFi lending and borrowing platform.
Typically, the best approach is to test the app after writing a couple of important blocks.
Your development and testing should ideally go side by side.
This will ensure that when the entire app is ready to be deployed it can actually simulate the testing networks fully.
Remember, regular testing is very important because once the blockchain app is released it is nearly impossible to augment it due to its immutable nature.
Regular testing will ensure that you detect the flaws and weaknesses immediately right from the start to finish so that the hackers do not get a chance to exploit them.
Now your DeFi lending and borrowing platform is ready to be deployed.
Step #4 – Deploy:
The next step involves deploying your DeFi lending and borrowing app on the chain, which, arguably, is the most straightforward step of all.
It is usually done by deploying the smart contracts to the blockchain and switching the front end to a production environment.
This means that your DeFi lending and borrowing platform is now live.
At this stage, you may use several useful online and offline marketing techniques to ensure that your DeFi lending and borrowing platform reaches the target audience.
Also make sure that you have a dedicated and knowledgeable customer support network that will be happy to take the calls of the users to clarify their doubts, if any.
Step #5 – Maintain:
Finally, it comes to maintaining your DeFi lending and borrowing platform.
This can be done by releasing regular updates with the new features included, if any. It also involves fixing the remaining issues.
When it comes to updating the immutable smart contracts, you can use a specific one that supports the admin keys.
Otherwise, you can release upgraded smart contracts by leaving the older version as it is and shipping new releases as new versions of the protocol.
This second option is in fact a more feasible one to go for if you want to stay away from adding backdoors to the smart contracts.
DeFi rose rapidly in terms of popularity and became a revolutionary concept that attracted people and businesses to develop a DeFi lending and borrowing platform.
However, it is not easy without proper knowledge as it is pointed out by this article.