There’s been a lot of buzz among entrepreneurs, commercial leaders, and policymakers around DeFi (Decentralized Finance). DeFi applications (dApps) support institutions across the world to perform transactions autonomously through an accessible interface. While it’s still new for many businesses, let’s understand how the Ethereum platform helps to create an innovative financial infrastructure.
Ethereum acts as the backend infrastructure for DeFi products and services. Also, businesses associating with the right Ethereum app development company can make low-cost financing possible.
How? It’s the peer-to-peer mechanism of the DeFi system that eliminates third-party intermediaries for businesses to perform large-scale transactions. Moreover, DeFi helps businesses to create alternate financing measures and yield generating opportunities than the TradFi crypto banking system. Some of the successful DeFi apps built on the Ethereum platform include Aave, Uniswap, and Compound for loaning, borrowing, swapping, hedging, staking, and yield farming.
Let’s look at some of the prominent use cases of Ethereum enabled DeFi system:
Marketplaces
DeFi is also impacting the way businesses exchange their goods and services online. A recent example of this is the development of decentralized exchanges (DEXes) platform, which enables peer-to-peer exchange of digital assets. The DEXes concept helps businesses to include conventional financial mechanisms and even physical goods, and services as well.
The Uniswap dApp is one of the key players in this category. The earnings produced through liquidity providers in the Uniswap platform can be traced on a per-second level. Investors can exploit this data to choose how to allot capital, providing for more effective price discovery and resources allocation. Also, regulators can use real-time transaction data to understand user trading activity.
Asset lending and borrowing
The Ethereum DeFi platforms transform the finance sector. It offers several lending and borrowing opportunities, benefits to end-users. An Ethereum app development firm can enable these services with cryptographic authentication mechanisms and smart contract integration to disregard intermediaries like banks that usually validate and perform lending and borrowing transactions.
Asset lending and borrowing dApps are one of the most upcoming DeFi applications trusted by institutions. Because, DeFi applications make the process faster and affordable, while still ensuring that the counterparties involved in a contract are secure. Other advantages are greater accessibility and instant clearance of transactions. One of the leading apps that help end-users to supply or borrow assets is ‘Compound’. Lenders on the Compound app can supply crypto resources to different lending pools that are accessible for other users to borrow from.
Savings
The rising reputation of DeFi lending applications has unlocked many new ways for users to organize their savings. As mentioned previously, by investing their crypto assets into lending platforms like Compound, people start receiving interest on those assets. This practice led to the development of DeFi saving apps by businesses that can be integrated with diverse lending protocols to magnify their customers’ ability to earn interest. This increasingly popular practice of customers investing their idle crypto assets in different lending platforms only to gain higher returns is called ‘yield farming’.
Tokenization
The Ethereum evolution from a few years back led to the development of one of Blockchain’s most imperative trends called ‘Tokenization’. Tokenization is the process of transforming materials of value into a digital token that's serviceable on a Blockchain application. The distribution of crypto tokens enables robust smart contract capabilities on a Blockchain platform and can support various properties and practices. These range from security tokens that can be traded for digital shares, dApp utility tokens, real estate tokens allowing fractional proprietorship over physical assets, and more.
Tokens can also offer significance to physical and digital assets like oil, gold, cryptocurrencies, and fiat currencies. A right Ethereum software development can link the on-chain and the off-chain world by providing the characteristics, financial value, and rights to assets.
Final words
Associate with the right Ethereum app development company for a smart DeFi onboarding experience. The developers with a deep understanding of Blockchain metaphors can support your business with instantaneous knowledge about how to work with the user interface. The digital transformation is highly introducing new challenges, but with awareness in DeFi, businesses can experience many smart opportunities.
