The development of the DeFi lending and borrowing platform has been ranked among the top five projects in the blockchain industry. There is a lot of interest in developing these solutions and companies are looking at developing a DeFi lending platform. This article tells you how to develop a DeFi lending and borrowing platform using best practices.
➤ Business Model for DeFi Lending Protocols
Recently, financial services have undergone significant changes in their operations. The introduction of blockchain technology allows developers to solve the problems of traditional financial systems. At the forefront of these innovative solutions is DeFi, a concept that provides a new perspective on financial management. Lending and borrowing platforms are among the most popular types of DeFi projects. This popularity is thanks to the benefits it provides over centralized platforms. Let’s first look at the business model these platforms use before looking at the benefits.
DeFi lending protocols are where users can lend and borrow crypto assets. The traditional system is where the platform offers a loan to the borrower. However, here, the platform enables P2P lending between network participants and removes any need for third party sharing. The platform allows lenders to earn interest for lending their crypto assets. Also, the platform provides an opportunity for long-term investors to earn high interest rates. Thus, borrowers and lenders can take advantage of the DeFi lending protocol.
A notable advantage of DeFi lending protocols is that anyone can become a lender and earn interest. In addition, users can become borrowers by registering on the platform and linking their digital wallets.
The business model that these websites follow is as follows,
The borrower initiates the process by depositing crypto assets as collateral
The site disburses loans through self-regulating smart contracts
Borrowers pay different interest rates to borrow cryptocurrencies
The interest paid by the borrowers goes to the lenders
This is how these platforms work. Now that you know the business model, it’s time to look at the benefits offered.
➤Benefits of developing a DeFi lending platform
Better borrowing speed
Smart contracts on DeFi platforms mean that users get their loans quickly. The only requirement for users is to connect their digital wallets to the site and place an order. Not involving a third party here simplifies processes and quickly tracks the loan approval process.
Smart contracts are independent protocols that are activated without any oversight. Through smart contracts, lenders and borrowers can enter into agreements. The lack of third-party supervision speeds up the loan issuance process. Now borrowers can borrow at low interest rates while lenders get high returns.
without prior authorization
DeFi platforms are transparent and open ecosystems where anyone with a crypto wallet can join. There are no geographic restrictions or credit history requirements here. The user can become a lender or borrower by fulfilling the requirements of the platform.
These platforms have a high level of transparency and maintain user trust. DeFi lending platforms run on blockchain technology and allow users to see smart contract tokens and how the system works.
Take control of crypto assets
It shouldn’t surprise anyone that some centralized platforms are open to hacker attacks or system bugs. Here, users retain control of their assets and take the required steps to protect their data.
The above paragraphs point out the many benefits of developing a DeFi borrowing platform. You may see this and want to develop a DeFi platform for lending and borrowing as well. A successful DeFi platform is one that is equipped with several essential features. Listed below are those features.
➤Necessary Features Required While Developing a DeFi Lending and Borrowing Platform
First and foremost, users must have a crypto wallet before they can start using the site. Thus, it is necessary to list the types of wallets supported by the site. Determine which integrations your site requires before proceeding. Here are the basic features.
Urgent loans are an example of lending without collateral. This feature gained popularity with the advent of DeFi lending platforms. Here, the user can borrow money without providing collateral. However, these loans have a limited duration and are automatically canceled if the user is unable to pay within the given deadline. Smart contracts regulate the process and do not allow the transfer of funds if conditions are not met. Hence, the borrower must repay the loan and complete the transaction. If not, the smart contract cancels the loan.
The crypto-asset market is volatile by nature. Hence, users can appreciate the rate switch feature. Here, users can switch between stable and floating interest rates and protect themselves from sudden market movement. This feature provides some stability to borrowers when borrowing.
This feature allows users to purchase digital assets with fiat currencies. This way they will not be overwhelmed by the complexity of the site and head to a third party site. This feature improves user experience and meets customer requirements. In addition, it simplifies the setup process for new users.
One way to motivate users to save money for borrowing is to give them reasonable investment rewards. Lenders see these platforms as an opportunity to earn passive income from crypto assets. Consider developing several reward strategies for lenders and encourage them to make long-term investments on the site.
➤DeFi Lending and Borrowing Platform Development Process
1. The discovery phase
This step is where you build the business logic for the product. Here, business analysts identify and describe the primary objectives of a project, identify key features and create an overall diagram. This information forms the basis of everything that comes next. Statistics show that this stage helps users to optimize the budget and reduce project risks.
2. UX and UI Design
User experience is often cited by many users as a weakness of DeFi applications and thus they move to centralized platforms. Here, you should work with seasoned UX and UI designers who can create a functional and intuitive user interface.
You can partner with a DeFi lending platform development company with the Interior Design department.
3. Product development
This process is where you put the platform’s logic and operations into smart contracts. These are self-executing protocols that are activated under specific conditions. Here, you implement the interest calculation mechanism, credit pool type, investment rewards mechanism, etc.
Developing smart contracts requires developers with sufficient blockchain experience. Ensure that contracts do not contain glitches or flaws in the code. Next, make sure the smart contract remains flexible and functional. Finally, consider gas optimization as it can lead to the success or failure of the platform.
4. Test and launch
The DeFi platform is a transparent and open system with top-notch security protocols. The testing phase is where you make sure that the system is working as intended. Find here if the site has any security holes or flaws. This stage is where the experienced test team plays. They analyze the product from start to finish and look for any weaknesses that hackers can exploit.
After the testing phase, you have a complete product and ready to launch. Now, you are making several marketing plans to ensure that the site is launched to a large audience. After launching, make sure you have a dedicated customer support network that can remove any doubts your users have.
DeFi is a revolutionary concept that quickly rose to popularity. DeFi lending and borrowing platforms offer many advantages that users cannot get enough of. Every day, businesses and corporations look to develop DeFi lending protocols and reap the rewards. Hence, if you want to take advantage of this lucrative industry, it is time to do so. Find the right company that can help you develop your DeFi lending and borrowing platform.