DeFi, or decentralized financing, is a new buzzword in the crypto world. In the last two years, that term has, among other things, revolutionized borrowing and lending.
As long as you have an internet connection, you can borrow or lend, provided you play by the rules. DeFi has introduced a novelty in relation to the rules set by traditional financial institutions, including third-party and perpetual checks.
What is DeFi lending
DeFi is a term that describes the act of borrowing or lending over a crypto network. Technically, this lending space is similar to a traditional institution that offers financial loans to people and businesses. The only difference is that DeFi does it without intermediaries.
As a blockchain user, you can hand over your coins/tokens to a specific lending platform that can give them to another user at interest.
What manages DeFi’s lending are smart contracts. Basically, when you borrow or lend, you enter into a contract with the other party and sign a contract with it that shows all the details, such as the repayment period, interest rate and other details.
Compared to traditional lending, DeFi offers incredible benefits. The greatest transparency is the whole procedure, thanks to the absence of a third party.
It is also quite easy to borrow as well as lend to someone. As long as you have an account on one platform DeFi and a crypto wallet, you are ready to get started. Opening smart contracts and checking everything takes a few minutes.
In addition, the DeFi lending platform does not offer anyone special treatment.
How does it work?
For some time now, Defi lending space has been built around the Ethereum blockchain. However, Bitcoin has also recently entered that world, but Ethereum still has over 15 DeFi lending platforms.
Basically, when a borrower decides to take a loan in a blockchain, the network will ask him to add value equal to or greater than that he borrows. This is what is called collateral and can be in different currencies.
Most crypto platforms allow you to add funds via bank transfer, Apple Pay or card. You can also send Ethereum or Bitcoin directly from your wallet.
Once you put some coins in your wallet, you will have to sign a contract and process the loan through a smart contract. At the end of the repayment period, return the principal and interest to return your principal/deposit. So it’s simple.
There are several DeFi lending platforms and each has its own rules. The most common, Compound, allows borrowers and lenders to interact directly and receive a variable interest rate. Others include Maker, Aave and Nuo Network.
DeFi lending is certainly among the most amazing things that have happened in the crypto world. The investment rate is great. The process of lending or borrowing is transparent, simple and fair. All you need to do is simply open an account, buy some coins and sign a smart loan agreement.
Although the most well-known platforms are based on the Ethereum network, platforms based on the Tron Network(TRX) have also emerged in recent times, which may provide better conditions.