DeFi Development Company

Today, one of the most promising and rapidly growing crypto industry segments is DeFi — decentralized finance. They are becoming an accessible alternative to most of the usual financial services, such as lending, insurance, escrow, as well as investment and risk management.

Development of decentralized finance leads to destruction of the traditional model of the financial system, which has always had shortcomings. In the new model, financial processes will work more efficiently thanks to smart contracts. In transparent transactions that are verified and executed independently, there will be no room for intermediaries and fraudsters. The next step in the financial technology revolution that began in 2008 with the advent of blockchain technology has arrived.

What DeFi is

Decentralized finance has been in the spotlight since all markets crashed in March 2020, but few people understand its essence so far. At first, the term was used to refer to analogues of traditional financial instruments that are implemented in a decentralized architecture. Now they have grown into a widely-accessible ecosystem consisting of decentralized services and applications powered by public blockchains.

The goal of decentralized finance is to create a financial system that would be open to everyone and wouldn’t require user trust, as well as to promote the self-sustainability principle. Conservatives consider this principle a disadvantage, but it accustoms to taking responsibility for DeFi investments.

The difference between DeFi and FinTech

At first sight, decentralized finance seems similar to financial technology (FinTech) that is also aimed at modernising financial services. However, while FinTech is just based on a conventional financial infrastructure, decentralized finance includes a number of novel components.

Let’s recall a popular international payment service TransferWise. Though it charges way lower fees than most banks, it still employs bank accounts and other infrastructure elements (which are possibly outdated). What makes TransferWise unique is that the banking accounts opened in many countries across the globe hugely facilitate transactions. When you send euros to someone living in another country, a fintech service captures your money, and to the recipient, it gives the funds from the corporate account in the recipient’s country. This is how transaction processing gets many times faster and fees lower.

And now let’s compare the above model with a DeFi transaction—for instance, Dai. You don’t need to trust a fintech company or a bank with your money to transfer Dai. Instead of centralized intermediaries, ether miners verify new Dai transactions, and then include them into new Ethereum blocks. Miners will process your transaction for an amount equalling one US dollar, and this will only take around 15 seconds (the period required to create one block in which all verified transactions are recorded).

As a cherry on top, you can send your tokens (Dai in this case) to any person who has a wallet that supports Ethereum’s ERC-20 tokens. No matter where your recipient lives: even if they live in a sanction-covered or obsolete-financial-system country, they will get your tokens within 15 seconds.

Where DeFi is used

Decentralized finance is an accessible alternative to most traditional financial services, allowing anyone who has an internet connection and some awareness of cryptocurrencies to interact with the DeFi ecosystem and manage the assets deposited therein. For that, blockchain developers have created a hundred new DeFi projects with their own protocols, distributed networks, decentralized apps (dApps) and services.

When we take on DeFi, we start with the terms of reference for the project development. Without detailed ToR, we won’t be able to evaluate and start creating your future DeFi project.

Stablecoins

DeFi first started to be used in stablecoin projects. Stablecoin is a cryptocurrency, the price of which is pegged to the price of a reference financial instrument (fiat currency, commodity, raw material). Thus, all the issued stablecoin units are backed by a reserve stored at a reliable custodian. The value of the USD-pegged stablecoins is ensured by the issuer, while their purchase and sale are subject to AML/KYC procedures.

Examples of DeFi projects with stablecoins: Liquity USD (LUSD), USDD, Wrapped Bitcoin (WBTC). The latter is pegged to the price of bitcoin, but is powered by the Ethereum blockchain.

Decentralized autonomous organizations

Another type of crypto projects often associated with stablecoins are decentralized autonomous organizations (DAO). Amongst them, MakerDAO is considered the most popular. It runs on Ethereum and has a native stablecoin DAI. In addition to using it, any participant can issue their custom stablecoins via the DeFi protocol. Their issue can be compared to the issue of fiat money backed by gold, only here ether is used instead. A participant sends a certain amount of ETH coins or approved ERC-20 tokens to a smart contract that creates a new stablecoin. This is called collateralized debt positions: the created DeFi tokens are basically a collateral-backed debt payable to MakerDAO.

Any developers and owners of crypto startups can establish their own DAO. It’s not much more difficult than developing and deploying a smart contract. There is even such a platform, DAOHaus, which allows you to create a DAO on the open-source framework Moloch. It aspires to be a thoughtful and convenient service for DAO members and founders, as well as to reduce coordination expenses to zero.

Decentralized exchanges

Thanks to DeFi, decentralized exchanges (DEX) regained their popularity. Unlike centralized ones, DEXs don’t store users’ crypto and data on their servers. Operating on the blockchain, they only bring together buy and sell calls. Such a trade model helps avoid KYC procedure and doesn’t depend on the interests of major traders.

Here are a couple of interesting and not quite ordinary DEXs:

• Uniswap DeFi. This is both a DEX and an Ethereum-based decentralized protocol that provides liquidity and simplifies token exchange thanks to automated market making.
• 1inch.exchange. An aggregator of various DEXs that divides an order between non-custodial platforms to minimise slippage and find the most favourable price for order execution.

Prediction markets

P2P prediction markets have captured a separate niche. They are platforms that allow placing bets on various events, prices, elections, etc. Their purpose is similar to sports betting, so the principle doesn’t need much explanation.

Here are the most famous prediction markets:

• Augur. A platform for creating P2P prediction markets and an Ethereum-based decentralized oracle. Its collective intelligence (the wisdom of the crowd) predicts the outcomes of upcoming events on which the users can place bets.
• Gnosis. This platform comprises 4 products: Conditional Tokens (a framework for creating event-based tokens); Protocol (a DEX with round trips that maximise liquidity); Safe (a wallet for digital assets); GnosisDAO (a DAO that manages the platform and prediction markets).

Decentralized services

Apart from stablecoins, DAOs, DEXs, and prediction markets, there are 7 other fields of decentralized finance:

1. Crypto loans, or DeFi lending.
2. Decentralized insurance.
3. DeFi asset storage and management.
4. Liquidity pools.
5. Banking and payments.
6. Marketplaces.
7. Entertainment platforms (lotteries, online betting).

As good examples of decentralized finance services and applications successfully operating in these fields, we would like to highlight the following.

Aave (DeFi loans)

A protocol based on Ethereum smart contracts, through which users lend and borrow DeFi cryptocurrency at interest. Supports loan of ethers and 21 types of tokens, including stablecoins. Creditors invest their tokens in the liquidity pool and borrowers choose the most suitable terms and then get an instant DeFi loan. Interest rates are floating in both cases, corrected every 15 seconds—in line with creation of new Ethereum blocks.

Etherisc (insurance)

A decentralized insurance platform where users can create insurance products and cooperate with each other. Beside the platform itself, there are two layers: Generic Insurance Framework (smart contracts, microservices) and Decentralized Insurance Protocol (rules and standards of interacting with the framework). Etherisc’s mission is to make insurance accessible and totally fair—by virtue of transparency; and buying and selling insurance more efficient—by cutting operating costs.

Huobi Wallet (asset management)

A multicurrency wallet and a dApp browser with a user-friendly interface that will be loved by everyone, especially newcomers. It supports over 1000 cryptocurrencies, coin staking, and multisignatures. Huobi team guarantees asset safekeeping, because it has several patents for data security, including those related to isolation and encryption.

Balancer (liquidity pools)

A decentralized automated market making protocol, liquidity provider, and price sensor operating on Ethereum. It’s a modular block with support for three types of pools to program liquidity. Allows users to create and customise pools, add liquidity to them, and get commissions for it.

Ramp Network (banking and payments)

A payment gateway that helps instantly buy BTC, DAI, DOT, ETH, STAKE, USDC with a debit card or a bank account. It advocates transparent financial activities, complies with laws and regulatory rules. For developers, it offers Ramp Instant SDK for integration with third-party web services, desktop and mobile apps.

District0x (marketplace network)

A network of decentralized marketplaces and communities operating on Ethereum. Its key goal is to facilitate coordination of P2P markets and community management. For developers, it offers the framework d0xINFRA for creating DeFi marketplaces or communities using smart contracts and front-end libraries.

DeFi advantages

Today, DeFi projects capture people’s attention almost as much as IEO in 2019. But why is there so much excitement around DeFi? What are the perspectives, benefits, and advantages of Defi for participants and organizers in general?

Decentralization

The main advantages of DeFi is pure decentralization. The rules of financial operations are prescribed in a smart contract, and once it is launched, the DeFi project can operate independently. Control over it is distributed amongst many independent participants, while the development team is deprived of the ability to manage it centrally.

Public accessibility

DeFi helps people who previously couldn’t use financial services to join the global economy. Until now, 1.5 billion people don’t have access to banking services; they haven’t opened a bank account and haven’t received cards. The main reason for this unevenness is that many unbanked people don’t have all the documents that financial institutions usually require. Also, it’s hard to get a decent credit score in some countries. In others, there are no bank offices outside of megacities at all.

Transparency

In DeFi, all information is open and available for familiarisation, helping anyone to choose secure projects and services from home. If you need a loan in real life, you have to go to banks, compare interest rates, and study the terms and conditions regarding hidden fees. It’s all different in the case of DeFi: all the information about lending protocols and conditions is posted in projects’ white papers.

Finance is under control

In DeFi, only the project participants themselves manage their assets. They have 24/7 control over finances in decentralized services and organizations such as MakerDAO. No regulator can freeze the accounts of dApp users or confiscate their funds.

And here are the benefits that businesses can get from DeFi:

• Ubiquitous accessibility
• Reliable smart contracts
• Programmable digital assets
• High security
• Investor appeal
• Widespread attention.

If you need a unique DeFi solution, we are ready to create it. Polygant develops DeFi apps and platforms of any complexity. Contact us to discuss all the details, and we will start working on your project right away.