DeFi projects or tokens are launched in a decentralized financial solution environment. DeFi is an independent and related financial service. It is built with the help of smart contracts and Blockchain technologies. Initially, it is challenging to launch a Defi project due to limited resources on decentralized finance. However, in 2009 Bitcoin was built, and it emerged to be a huge success. The popularity of using Bitcoin as a payment method has been expanded.
Other Cryptocurrencies like Ethereum have also emerged as and proved a step forward towards blockchain technology development. In this pandemic situation, it is a much-needed thing. It may be a government or a private company. Everyone has to face the same substantial challenge. The best solution to overcome this challenge is to find an innovative solution to it. Everyone is searching for an alternative solution like Decentralized finance products like Cryptocurrency exchanges, trading, wallets, lending, deposit services, and many more.
The factors that have promoted DeFi in the market are high Return on investment and Returns on deposits. Borrowing loans without any KYC verification is also one reason that uplifted its anime in the market. DeFi is seen as an alternative to fiat monetary policy. The only difference with DeFi is that the entire system is decentralized, which means that banks or central authorities do not control it.
Benefits Of Decentralized Finance:
- Autonomy. Only you possess your money and assets in the DeFi ecosystem. No one can block your account or seize assets and block transactions.
- Decentralization. There is no need for intermediaries. Transactions are carried out directly.
- The transactions are fast and inexpensive.
- Secure private key.
- A transparency in an ecosystem where personal interests are governed by a transparent protocol.
- Single points of failure are eliminated. Data is written to the blockchain and distributed across thousands of nodes, making it nearly impossible to shut down services.
Launching A Defi Project
Any decentralized commercial, financial service can be considered a DeFi project. Any particular organization or its employees do not manage any projects. Instead, the rules of operation are written in code or smart contracts. The code is transparent, and everyone can track the details of an ongoing transaction.
The wide array of products involved in DeFi token development is also collectively referred to as available finance. It is an ecosystem where blockchains and digital assets are integrated with conventional financial structures.
Some Examples Of Defi Products:
- Open Lending Platforms
- Maker DAO
- Gemini Dollar
- Exchanges/ Open marketplace
- Binance DEX
- RADAR Reley
- Issuance/ Invest management platform
Where DeFi Projects Are Applied?
- Creation of financial banking services (for example, issuing stable coins).
- Providing peer-to-peer or pooled lending and borrowing platforms.
- Leveraging advanced financial instruments, tokenization platforms, derivatives, and forecast markets.
Key Features of DeFi dApp
- Decentralized P2P channel.
- The dApp user connects his crypto wallet to the decentralized blockchain network.
- Assets are 100% protected, and there is no user asset manager.
- Smart contracts process all transactions and application processes; a third party’s participation is excluded.
- No access restrictions.
Fulfill These Conditions Before Launching A Defi Project:
- Financial Banking Services Are Offered In The App;
In this technological era, it’s possible that apps may develop labels for DeFi apps. Due to which categorization of applications becomes difficult. Therefore, the DeFi App must provide all the services that fall under the category of financial services. This includes services like lending, borrowing, trading, and many more.
- Integration Of A Non-custodial Wallet To Enable Financial Transaction
A non-custodial wallet allows a smooth transaction without the involvement of a third party. It will enable users to possess their private keys, allowing users to store cryptocurrency and have access to funds. There are two types of private keys associated with non-custodial wallets- a mnemonic seed and a raw private key.
- A Complete Control Over The Assets To The Users
The users must get access to a private key for complete control over the assets. No one else except the user can use the key to store and manage the assets.
- No Intervention Of A Middleman
For completing the transaction, there should not be an intervention of a third party. A smart contract should be set up; the smart contract executes itself to produce the output. A smart contract is a set of computer code between two or more parties that run on the top of a blockchain and consists of a group of rules agreed upon by the involved parties.
- No KYC
Most of the DeFi apps will not require a sign-up process or any personal details to be provided.
- No Minimum Amount Of Transaction
There is no minimum amount to participate in DeFi applications. If there is a minimum, it shouldn’t go beyond 5-10 USD. You can earn the same rate in lending, irrespective of how much money you have. Applications like Compound allow you to lend a single Dai without any minimum.
- Global Access To The Services On The App
The entire point of DeFi is to provide access from anywhere around the world. DeFi apps are designed to be global, and users should have access to DeFi services and networks irrespective of their location. However, in some cases, this may not be possible due to local regulations.
Common Defi Applications
- Self-custody wallets ( Meta mask) – They are non-custodial and key-based. MetaMask is a popular DeFi wallet that is primarily used as a web browser extension. MetaMask is the gateway to access DeFi through any internet browser easily.
- Trading ( Uniswap) – Several DeFi trading applications require no KYC, no accounts, and have no trading limits. One such application is Uniswap. Uniswap is a cryptocurrency exchange run entirely on smart contracts, letting you trade popular tokens directly from your wallet.
- DEX aggregators (Totle) – It gives users improved visibility of the liquidity layers and includes functionalities such as exchange, lending, and other fintech functions. A commonly used DEX aggregator is Totle. Totle is connected to top decentralized exchanges and synthetic asset providers.
- Lending and Borrowing ( Compound) – DeFi lending and borrowing allows for better security, accountability, and transparency in the financial system. The Compound is a blockchain-based borrowing and lending Dapp. You can lend your crypto out and earn interest on it.
- Stablecoins and Stablecoins Swap (Maker) – Unlike other crypto coins with a volatile value, stablecoins are blockchain-issued tokens designed to hold on to a specific amount. Maker is a stablecoin project where each stablecoin (called DAI) is pegged to the US Dollar and is backed by collateral in the form of crypto.
Risks Associated With Defi Applications
- Smart contract bugs
- Admin key risks
- Liquidity crunch
- Stable coin loses its peg
- Leverage and trade in an unstable market.