How to Build a DeFi Lending and Borrowing Platform

In recent years, the financial sector has undergone a number of substantial changes. The use of blockchain now allows for the creation of an entirely new market, designed to alleviate the inconveniences of traditional systems. 

Holding and trading are the two most prominent use cases for crypto. When combined, it is possible to create a DeFi lending and borrowing platform. This is a new term in the sphere of p2p payments. DeFi is at the forefront of financial innovations, delivering clear benefits to users. Before we go into the development process, let’s find out what DeFi is and how it works. 

What is DeFi lending and how does it work?

DeFi lending, or decentralized finance lending, works similarly to the traditional lending service offered by banks. The main difference is that it is executed via decentralized peer-to-peer applications (dApps).

Within the traditional finance system, people open a savings account and deposit fiat money to earn interest on their deposits. But within DeFi, crypto investors lock up their funds to ensure the liquidity of liquidity pools and earn interest.

When trading cryptocurrencies, there is no central entity that provides sufficient liquidity for pairs being traded. Decentralized platforms take advantage of crypto investors and facilitate them to use their funds and provide this liquidity.

The DeFi lending and borrowing process is simple. These platforms aim to offer crypto loans in a trustless manner without any intermediaries. The borrower needs to deposit via a smart contract with a particular cryptocurrency and match the loan amount. This type of deposit is used as collateral and can work with a wide range of cryptocurrencies. 

For example, for a mortgage, your property is collateral. And when you stop paying, the bank can seize your house. Within a decentralized system, the borrower has to offer something more valuable than the loan amount. It can be fiat money or other crypto tokens that match the value of the loan.

There are no particular requirements for who can be a lender. The entire process is governed by a smart contract and can be arranged via lending pools. According to the lending protocol, lenders can earn interest. 

Benefits of DeFi lending

DeFi offers next-level financial products and services. They are roughly the same as brick-and-mortar banking services, including investing, borrowing, lending, and trading. Thanks to blockchain technology, DeFi is capable of transforming the financial sector with its:

• Permissionless nature
• High processing speed
• Immutability
• Transparency
• Self-governance
• Interoperability
• Programmability
• Consistency in lending decisions

Technologies behind DeFi lending 

DeFi offers many similar services as the traditional banking system but in a trustless manner. It provides one of the most straightforward lending and borrowing processes without time-consuming checks on a customer’s status. DeFi uses smart contracts, blockchain, and cryptocurrencies to provide trustless financial services. 

While using DeFi, all your funds are secured in a digital wallet. When you want to make a transaction, you can initiate it via smart contracts. Smart contracts ensure that all the specific conditions are met. Once a smart contract is set up, it cannot be altered, so funds cannot be re-routed or the conditions changed. 

Ethereum is the key blockchain used for developing DeFi applications, but other platforms like Solana, Binance, and Cardano can also be used for building similar apps. Blockchain technologies keep track of all the transactions and account status, while cryptocurrencies are used as assets. 

Key features of DeFi lending platforms 

Before beginning developing on a decentralized finance platform, you need to come up with a list of core features. Here are some basic features to include in your initial DeFi solution:

• Flash loans. With these features, users can borrow loans without collateral. These loans have time limits and some restrictions like borrowers cannot trade coins until the loan is repaid. 
• DeFi wallets enable users to deposit assets. You can take advantage of existing wallets or develop your own branded one. A wallet should support a spectrum of cryptocurrencies and stable coins. 
• The fiat on-ramp feature allows users to exchange fiat currencies for crypto coins. It can also simplify the experience for non-traders and expand your user base. 
• Rate switching allows users to switch between variable and stable interest rates. This plays an essential role in the highly volatile crypto market.
• Automated yield farming allows for better yield returns and maximizes user profits. 

The above features will help you lay a solid foundation for your DeFi platform. But in order to win over users and get to the top of the DeFi charts, you’ll need to find your unique selling point. It can be yield swaps, staking, credit delegation, and so on. 

A step-by-step guide to building a DeFi lending platform

Right after your first kick-off consultation and signed NDA, it’s time to turn your business idea into a full-scale DeFi lending platform. Here are five key stages of DeFi platform development:

• Discovery and planning. Like with any other software, you first need to decide why you are building a platform and who you’re building it for. Our team can help you find all the answers and choose the right technology and framework to achieve the desired results.
• Design. The next step is creating the UI/UX design for your platform. Note that it’s better to develop a flexible UI/UX as you will probably be adding more features in the future. 
• Development and QA tests. Finally, coding begins. At this stage, you have verified designs, a tokenomics model, and everything else to bring your platform to life. At Unicsoft, testing goes hand in hand with the development process to minimize the time required for bug fixing and enhancing the quality of the code. 
• Deployment. Once your DeFi platform is ready to see the world, our blockchain developers will deploy smart contracts to the chain, and it’s live. 
• Maintenance. A DeFi lending protocol requires regular updates to fix lingering issues and add new features. At Unicsoft, we provide life-long maintenance support for every blockchain project.  

Common pitfalls of DeFi platform development to avoid

A transparent financial system without banks mediating transactions and charging high fees is already a reality. But the big opportunities come with big challenges. Thanks to 10+ years of blockchain experience, our battle-tested developers know how to smooth out bumpy rides. 

• Hacking attacks and security breaches. All code is prone to hacking attacks, and a DeFi platform isn’t an exception. But there are some ways you can bullet-proof your platform — regular security and business logic audits, integrating hack-spotting bots, etc. 
• Bugs and coding errors. Inexperienced developers and auditors may be unfamiliar with the logic of smart contracts, which could lead to massive losses. With dozens of blockchain projects built, we are well-versed in the ins and outs of the industry. 
• Scalability. It’s often an issue for inexperienced blockchain developers. Building a DeFi lending platform requires specific skills and experience. With Unicsoft, you get the full package. 

Summing up 

DeFi lending and borrowing is a new financial ecosystem moving full steam ahead with more adoption and development happening every day. In a few years, the traditional banking system may vanish into thin air since DeFi platforms are steadily taking over the world of decentralized financial services. 

If you’re going to launch your own DeFi lending platform, contact us for a free kick-off consultation.