How DeFi Will Change Lending and Borrowing Forever
Decentralized finance (DeFi) is making big waves not only in the crypto community – even Wall Street is now aware of what it is and how powerful it might be. It’s just that the big NYC street has no idea how to properly implement these things. All this, while indie hackers and small startup teams are building cutting-edge technologies in blockchain, DEXs (decentralized exchanges), token swapping, token transfer platforms and protocols that will surely make a large difference in the future world of finance.
Today it’s incredibly difficult for SMEs to get funding, either through grants or loans. This is what DeFi is about to change – decentralization and putting real-world assets on-chain is key to achieving a healthy ecosystem of lending, borrowing, or just sitting with your funds in a liquidity pool.
Here we will be discussing the ins and outs of these things and dive deep into the processes of getting these kinds of platforms ready to do the job.
What is DeFi?
DeFi is a public-oriented on-chain digital financial infrastructure that uses smart contracts to create tokenized assets. Anyone can become a part in the projects they back via these tokens, and this essentially solves the friction associated with going to banks and financial institutions to get financing.
Most people on the planet have to use financial institutions such as banks, or money transfer services to get loans, get financing, or access their money. But banks take long to process money transfers or credit lines, or sometimes even charge fees.
How does DeFi work?
Centralized Finance (CeFi) refers to traditional financial institutions. The banks, investment funds, insurance companies, etc. are not on chain yet. Banks will always have their risk – they need to be paid for.
Existing, institutionalized finance (like bank loans) is a complicated and very expensive process. You need teams of data analysts and accountants, and these are expensive.
Existing, institutionalized finance also has many steps. Loans often have to go through many committees, in many different locations, at different times, and often those teams don’t talk to each other. This makes it hard to get the loan approved in a timely manner.
When the loan is approved, there are often lots of bookkeeping, administrative, and compliance steps.
How will it change lending and borrowing forever?
While the process has been revolutionized in so many ways with blockchain technology, it’s always hard to know where to start when working with new technology – how should I even begin with these things, in a way that will benefit me and the next 100 customers of a platform.
That’s why DeFi is going to make sure it will revolutionize lending in a way that nobody would think of. First, what do these things actually do?
Lending in blockchain
Lending involves the use of your balance to try to get a higher return for your money when banks won’t let you invest it. On the other side, borrowing involves the lending of money at a lower rate. With the use of DEX, which provides an open and decentralized trading platform, money will be transferred from lenders to borrowers in a seamless way.
Who are the leaders in this market?
There is no doubt you are already familiar with Ethereum. But it’s no secret that this project, as great as it is, is a great example of how many hurdles exist. A huge amount of energy and resources are needed to run an early-stage tech project. The community surrounding DEX (decentralized exchanges) and other decentralized projects, however, has been around for a long time and is very dedicated and passionate about this field.
The financial future is bright and there is an endless supply of new and awesome ways in which blockchain and digital currencies can change the course of finance. It’s all very exciting and we hope you enjoyed this overview.