Benefits of DeFi Product Development for a Business: Stages & More

The area of business is enhancing, growing, and being exposed to new trends as each day passes. To give a general overview of what we will be talking about in detail in this article, the aim of DeFi products can be described as to create a new and decentralized way of finance that can offer any traditional service innovatively: From lending, borrowing to debit and credit cards, saving interest accounts and interest-bearing fund locking.

In fact, DeFi is quite a new concept, which came into our lives only three years ago in 2018, more specifically in a Telegram chat. Don’t get it wrong – it is true that DeFi is a newly created idea, but today, it is a big business that has the capacity of overruling the traditional finance system with the help of Blockchain. And even though this term was officially announced in 2018, its roots of it go back to 2008. 

So, what is a DeFi product in those terms, and how it can be beneficial when it comes to business development? Today, we will talk about those subjects in detail by giving references to stages and more information.

KEY TAKEAWAYS

• DeFi is short for “decentralized finance.”
• The essence of DeFi is to create a new way of financing. 
• DeFi eliminates the presence of intermediaries in financial protocols, allowing everything to happen peer-to-peer.
• The term was first used in 2018 in a Telegram chat.
• It is gaining popularity as each day passes since there are lots of benefits of using it personally or in businesses. 
• DeFi provides a fast, secure, transparent, decentralized, available, and profitable financing system. 

What is DeFi in a Simplest Way?

To understand DeFi product development, we need to start off with the definition of DeFi. When we think of finance, there is not much to think about besides the traditional terms (crypto finance is a thing today, but still!). Decentralized Finance, on the other hand, brings a new way of “financing,” where everything is based on the super-reliable, transparent and accessible Blockchain network instead of traditional means such as banks, exchanges, and other instruments. So, in a sense, decentralized finance allows people to manage financial belongings in a Blockchain network, instead of hiding their funds in banks that restrict their own right to act on them.

So, the concept might sound pretty similar to what we know as cryptocurrency. Indeed, some cryptocurrencies are DeFi products. Think about Bitcoin: the transactions are kept within the Blockchain system, and the Blockchain system keeps a record of each transaction made on various computers (distributed ledgers). Hence, it is “decentralized.”

• Distributed Ledger Technology – Recall that blockchain technology is based on distributed ledger technology. A copy of the entire chain is actually kept at each of the nodes in the network. To create a new block or confirm a transaction, nodes must reach a consensus: the 51 percent rule. This forms the basis of DeFi technology. To make a transfer, offer a loan, take out a loan or exchange your currency, you go through the approval of nodes on a blockchain or peer-to-peer network. A directorate, not a bank.
• Modular dApps and Functions – When it comes to DeFi, the logic is similar but better. The nature of DeFi can be described as “effectively modular,” in which the processes and protocols can be combined or added to each other. So, in those terms, DeFi allows more flexibility, which is a great plus when you think of the example we gave in Bitcoin. Still, you are getting all the benefits of Blockchain, though – but there is also more! 

In a simple brokerage or bank system, it is most likely the case that you need to provide a valid ID, proof of residence, and other types of identity proof. Well, in DeFi, there are no middlemen, so you do not need declare any of those. In other words, instead of a firm or organization mediating a transaction, buyers, sellers, lenders, and borrowers will engage person to person or with a fully software-based middleman. We call ‘’peer-to-peer’’ transactions to this.

5 Important DeFi Terms and Their Meanings

To understand DeFi, there is a vocabulary that you need to be familiar with. Of course, when you think of it in technical terms, there are lots of other terms. However, at an introductory level, it is enough to know the following terms: 

• Smart Contract: Smart contracts are the core element of DeFi. Think of smart contracts as code snippets that determine the conditions for the execution of transactions in the respective DeFi service and the output that will occur if these conditions are met. They are produced using code languages such as Solidity. Transactions that operate completely automatically in a DeFi system and take place without the need for any authority’s action are secure and unchangeable steps.
• DEX / CEX: DEX refers to decentralized exchange, and CEX refers to a centralized exchange. DEX is based on automatic protocols and smart contracts. They enable users to buy and sell their assets with no intermediates. In a developed DeFi platform, users also have the chance to offer crypto lending to the borrowers. Want an example? Uniswap is one of them! CEX is human-made machinery run by a company. Binance, for instance! 
• Liquidity Mining: Liquidity mining is one of the main concepts in DeFi, which allows people to deposit crypto generally on a DEX to collect awards later. 
• Collateral: In the context of DeFi, collateral means showing your assets as a way of mortgage to borrow another cryptocurrency. Especially in platforms that offer peer-to-peer crypto lending, it is very important for borrowers to show collateral at a certain rate in order to ensure the security of the lender user.
• DAO: DAO is a decentralized autonomous organization. In a DAO, the owners of the relevant asset become a kind of shareholders with voting rights in the decision-making processes. But everything from decision making to voting to the operation of the network runs completely decentralized.

Benefits of DeFi Product Development for a Business

We talked a whole bunch about DeFi up to now. But, how exactly does this process help your business? The way it helps might not be quite apparent with its all initially, but as we talk about the benefits of DeFi product development, you will also understand how much of a difference it can really make. Without further ado, now let’s see the benefits of DeFi product development for a business! 

Blockchain Technology 

You will see the benefits of DeFi product development integrated with Blockchain technology in the following benefits, but using Blockchain itself benefits businesses. Even today, it is still not that common to use Blockchain technology in businesses, although there are a considerable amount of businesses that use it. It is still not late; if you start now, you will be considered an early bird adapting Blockchain to your business. You will be reducing some difficulties in your business thanks to automatization, enhanced security, reduced costs, and human errors, which will inevitably result in increased and enhanced user experience. So, in all cases, implementing Blockchain technology in your business through DeFi product development will be in your best interest of you. DeFi is a great way to start! 

Easier Processes

Since we mentioned it several hundred times up to now, you should have been familiar with the fact that DeFi eliminates all the presence of third-party involvement and middleman in finance processes. When you think of it in those terms, the only possible result is a much smoother and easier process. 

• There are no banks involved, so no high transaction fees and long time required by corporate branches to transfer an asset. 

• There are no intermediates who approve, transfer, sign, or re-assign documents, so there are no errors resulting from third parties. 

• No for lots of papers, files, documents to store. Because, thanks to smart contracts, everything is progressing digitally and automatically. Even payments and insurance processes.

Increased Control of Peers

One feature of third-party involvement is that you are leaving some of the control over them. It is nearly impossible to ensure that everything will go according to your plan; there can be little to do if there is a technical issue or some sort of problem within the system of the third party that you are working with. With DeFi, you are taking all the control over your hands. The user will be in charge of where the money will go and to whom it will go. There is nobody to trust here and nobody that can break your trust; it is all up to you. 

Availability of Data and Services

DeFi products allow your business to be available. Available to everyone and every place of the world. International transactions in finance can be such a challenge when traditional methods are used; you should know if you have ever done such a transaction. With DeFi, those challenges are not even a matter of subject. Reduced and even eliminated fees will further make transactions available for everyone, and hence, more attractive. 

Transparency and Anonymity

One great deal about DeFi products for businesses is the enhanced transparency. DeFi is all about Blockchain, the most transparent system that one can find in the world. If you don’t know already, all information in the Blockchain system is shared with everyone; you can think of it as a notebook where it is impossible to delete notes, and everybody has a copy of it. The data that will take in Blockchain will be public. Moreover, DeFi ensures information authenticity before the recording process. 

At first glance, you may not comprehend how valuable this can be for your business. But think about it like this, would an investor be interested in a business that they are not sure what is going on in there? By using DeFi applications, you will give relief to investors about the transparency and fairness of your business. So, it is only a matter of time for you to attract more investors to your business. Additionally, the hassles of becoming an investor for your business will be reduced greatly, which is also a great contributor. 

Flexibility to Combine 

DeFi applications and products can be combined with each other since they are designed in the most compatible manner. This feature of DeFi is to maximize the benefit a business or person can get out of it. There are no permissions involved, smoothening the process as much as possible. Solutions and applications work perfectly balanced with each other. In fact, people call DeFi products “Money LEGOs” because they fit perfectly together. 

Permissionless

One of the most significant benefits of DeFi product development can be its permissionless nature. The lack of third-party involvement brings lots of advantages, and the fact that you need only internet access to use the DeFi product brings great value to the system as a whole. 

Market Efficiency 

As any business owner and a team member would know, at the end of the day, market efficiency matters the most – and that is what DeFi products can give you. as we mentioned earlier, costs are significantly reduced in DeFi applications and even eliminated in some cases due to the automatization of most parts. Inevitably, this would also increase the availability of lending services offered. 

As a business, implementing the DeFi way of borrowing and lending can create a great difference when it comes to managing finance operations. Small and medium-sized businesses (SMEs) that frequently suffer to obtain borrowed funds are among the first to profit from DeFi funding. This can create a significant boost to your business if you are suffering to expand your business. 

If your business’ funds are idle cash, DeFi products make it easier to keep them in the form of crypto and other digital currencies to be able to use interest and lending protocols. If you are uncertain about using crypto due to market volatility, it might make sense to use stablecoins which we mentioned earlier in this section.

Security 

Security is one of the strongest features of DeFi product development’s benefits to your business. When one is involved in finance, we can talk about some serious amounts of money. Even if it’s not that serious, at the end of the day, there are little to no people who are willing to lose their money or become a victim of fraud. Blockchain and the decentralized nature combined with tamper-proof data coordination create the safest environment. 

4 Important Stages for Developing a DeFi Product 

Now that you know about the benefits of DeFi product development, let’s talk about how you can implement them in your business. There are several stages when it comes to DeFi product development, which you may want to follow if you are seriously considering it. Each stage in this process carries a significant value for the DeFi product that is planned to be developed, so ensure that you are considering each step utterly and getting the most efficient result from each stage. It might take some time and effort, but it is better to deal with issues before you launch them in comparison to dealing with bugs and errors afterwards. 

Case Analysis 

The very first step of DeFi product development is case analysis. 

• For precisely what do you need a solution for? 
• What are your expectations regarding the DeFi product development? 

As you may already know, when we need to include a new product in a business, we need to start off with a plan. In this case, the case analysis will create your outline for the plan. This step might be the most important step of the DeFi product development stages since you will do every step according to what had been decided here. So, do not underestimate the value of defining problems, brainstorming, and being as detailed as possible here. But of course, you need to give space for flexibility, in line with the nature of DeFi. 

External Dependencies and Integration Analysis 

The next stage you need to go through is external dependencies and integration analysis. We have mentioned how DeFi works in a third-party-free fashion; however, you will inevitably need third-party involvement during the development stages. You need first to determine the ways in which external dependencies will play a role in this process and learn the requirements of DeFi product development through the third-party perspective. Moreover, this analysis will be necessary regarding the integrations that will take place within the external dependencies and your business. 

Smart Contracts Development and Testing 

After you have successfully completed the external dependencies and integration analysis, the process of smart contracts development and testing starts. A smart contract is a concept in which enables the third-party free nature of DeFi products and makes them automated while keeping the seamlessness. In fact, this step is what makes DeFi Defi. You should always remember that Smart contracts are designed in a way that is difficult to modify, and they are immutable for safety concerns. So, you will need to test the smart contracts utterly after you develop them to ensure that everything is going well, and you will not need to make any adjustments in the future. 

Front-end Application Development 

The last step before launching the DeFi product is, of course, front-end application development. After the front-end application is also developed, you will once again need to complete the necessary tests to ensure that it is working the way you want. Then, it is ready to go! 

How does DeFi’s Future Look Like? 

We have covered the different ways in which DeFi product development can be beneficial for your business. Since it is a relatively new concept in the finance environment, it is entirely normal to have doubts about it, especially if you are not quite familiar with the concept itself. However, you are not completely lost. There are some reliable predictions on how DeFi’s future looks like, which can give you an overview of what can possibly expect you within the course of DeFi product development. 

DeFi brought a new way of financing to the world, in which all the protocols are conducted by those who are involved with them, without the need for banks and other traditional ways that we are used to seeing in finance. As each day passes, DeFi is making up for the benefits of the traditional way of financing and leaving little space for traditional space to be a better option, even in the contextual manner. It is not quite possible to detect how DeFi’s future will look exactly, but from what we know now, it can be a good estimate to say that it will continue to grow and expand even more over time.

Types of DeFi Applications and Services

Up to now, hopefully, you have understood that DeFi aspires to create a new way of financing. In this newly introduced way of financing, there are different applications in which you can develop DeFi products, which include software, separate services, and basically everything that can fall within a finance ecosystem. Moreover, those products can also be used for various reasons since they can serve many different aspects of finance. Those aspects include lending platforms, insurances, new cryptocurrency varieties, and liquidity mining. More frequently, DeFi projects are designed to support customers through financial interfaces within the system of Blockchain and crypto. Now, let’s take a look at different applications of DeFi to understand the benefits of DeFi product development further. 

Stablecoins

A stable coin is a type of cryptocurrency that is tied to another stable asset. The stable asset mentioned here can be gold, any other cryptocurrency, or a fiat currency. Take Tether, for example; it is a stable coin equivalent to USD. Actually, stablecoins are technically are not DeFi products and projects, but they can be used as a funding method for DeFi projects, so they are essential to know. Stablecoins can come in the form of fiat-backed, commodity-backed, and cryptocurrency-backed, which refers to fiat currency, precious metals, and cryptocurrency, respectively. 

Prediction Markets – Decentralized Betting Platforms

One type of common DeFi project is prediction markets. Prediction markets allow everyone to trade the outcomes of events. As a DeFi product, the idea is pretty much the same. But of course, in the DeFi context, there will not be a middleman. 

Savings

Numerous DeFi app provides interest-bearing accounts that could also earn considerably upwards of typical savings accounts, depending on a dynamic rate of interest connected to supply and demand, by tapping into lending pool systems like Compound. One of the popular ways to gain passive income by using your assets is yield farming. Yield farming is a concept in which transferring blank crypto belongings to different liquidity protocols, would eventually maximize the return rates. 

Marketplaces

DeFi applications are designed in a way that can support marketplaces. In those marketplaces, users can exchange services and products, regardless of where they live in the world. This could include any form of exchangeable items, from physical ones to digital assets like NFTs.

Payments

One of the main milestones that led to the rise of DeFi was payments, with an aspiration to make it entirely peer-to-peer. Indeed, in the DeFi ecosystem, payments are conducted in a peer-to-peer format, where the payment is directed to the seller by the buyer without the presence of a middleman. 

Tokenization 

Another milestone in DeFi is tokenization, which also happens to be the native functionality of Ethereum. In this context, we need to look at the different functions of tokens rather than seeing them as a server for a network. Tokens are created in a way that makes it possible to be transferred and includes a variety of built-in functionalities. DeFi allows an alternative way of trade and storing value in a safer way, without a specific application. 

Borrowing and Lending 

One of the most common applications of DeFi is lending and borrowing platforms. Once again, DeFi allows those processes to happen peer to peer, meaning that there are no middlemen. Such platforms allow users to earn interest through crypto. There are some famous examples of borrowing/lending DeFi applications, such as Compound. The system automatically matches those who want to borrow and those who want to lend simultaneously.

Decentralized Exchanges (DEXs)

Decentralized exchange is the exchange system that you think of, but without the middlemen, as it is in other DeFi applications. DEXs are based on self-executing smart contracts, which are the lifesaver of the whole process. This also allows reduced costs when you compare it to the centralized exchanges, which are the traditional way of exchanging. 

What does it mean that the use of DeFi technology in the borrowing and lending processes eliminates the middleman?

• First of all, it means that you can get loan rates from decentralized lending platforms that you cannot get in traditional banking systems. Because there is no such thing as a credit score check or a detailed scan of all your financial behaviours. All you have to do is usually show a certain amount of collateral.

• In addition, the liberation of individuals who cannot access banking services due to the political and economic regime in the country they live in is achieved through DeFi lending & borrowing platforms. Now, asset shopping is much easier. And process approval is not under the control of an authority.

Asset Management

DeFi protocols allow its users to keep their assets safe without the need of trusting anybody else to do it for them. Crypto wallets that are based on a DeFi system are entirely decentralized, ensuring that only the owner is actually owning what is going on there: That’s true. Nobody can access your assets while you are keeping them on your account, unlike what happens in a traditional bank account. 

Gaming

DeFi’s modularity has enabled product developers to integrate DeFi technologies straight into platforms along with a wide range of industries. Due to their built-in economies and creative incentive models, Ethereum-based gaming has become a prominent use scenario for decentralized finance.

While in-game purchases are made with cryptocurrencies in such games, NFTs are also involved. Users, who create their avatars by purchasing NFTs in the game, step into a new point of imagination. Moreover, playing the games can also turn into a method of generating passive income by supporting a network.

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