DeFi is presently the most discussed topic in the community of blockchains and strewing sectors in the digital currency industry. In this blog, we will be discussing the top 5 DeFi based business models.
Understanding The Concept Of DeFi
DeFi stands for Decentralized Finance, and it is a combination of decentralized technology with the traditional banking system like blockchain, and it is important to note that DeFi can be constructed on the Ethereum network (ERC-20). It plays a crucial role in the emergence of the financial industry and aims to formulate alternatives to all the financial services including loans, savings and checking your account, insurance, asset trading, and many more. The users can directly interact with the ecosystem easily through decentralized applications (dapps) and also through the technology of peer-to-peer (P2P).
It mainly has a smart contract and is a digital contract that is constructed by using the blockchain platform for security and immutability purposes as also it is easier, faster, and decreases the risk of both parties.
Top 5 DeFi Based Business Models Of 2021
There are many benefits that DeFi has to offer. DeFi for business is an important benefit among many. With the advent of blockchain technology, the world has started to realize the requirement of faster and safer transactions. So businesses around the globe have started to adopt this technology for the betterment of their business. The projects of DeFi are predicted to increase by more than 50% to what it was at the end of 2020. The insurance industry is tied–up very closely with the idea of smart contracts to employ their users and also convince them with their association with smart contracts.
So with time, many DeFi based business models have emerged that allow these entities to operate in a systematic and effective manner. There are 100 business models, but not all are equally effective. So these 5 types of business models with DeFi will allow you to understand the working and implementation of this technology better.
DeFI Based Application
The first DeFi based business model forming the outer layer of the DeFi structure is the applications that are based on DeFi. These applications include:
It is one of the most important DeFi Platforms used for the purpose of collateralized borrowing money and tokenized lending market protocol for digital currencies and digital blockchain-based assets, without the requirement of any intermediary. This network functions its money market through a smart contract.
MakerDAO is the most famous DeFi based decentralized application that enables any user to receive a loan without any intermediaries at a crucial time.
Dharma can be termed as a pseudo centralized P2P (peer-to-peer) borrowing or lending
platform that is based on the Ethereum blockchain. This platform supports ETH, USDC for the purpose of collateralization. The interest rate can vary for each digital coin. It enables users to borrow and lend coins for a time span of 90 days at a fixed rate of interest.
This is among the most successful business models that DeFi offers. Every nation has varied tax implications. Based on the tax connotation, every country offers varied tax implications for its lending or borrowing structure. By using the technology of DeFi in the system of lending, the transaction fee rates and the interests can be decreased, and also all the records can be stored under the blockchain platform. From instant transaction opportunities to the option to collateralize your digital assets and no credit checks, DeFi advances the money transfers that take place internationally. Borrowing and lending marketplaces on the blockchain platform help in decreasing the risk of the counterparty, and also enables the complete process faster and cheaper.
Loan Management System
Another Defi business model includes the loan management system. In the traditional banking system, people could not take a loan without involving a bank or similar financial technology services. It needs a banking record or a credit score in order to be eligible to take the loan. In DeFi technology, lenders and borrowers are connected more easily, by allowing credit checks and digital assets to get transferred easily and quickly. It can be a more helpful opportunity for the students to opt for loans for their studies in the Decentralized system.
Decentralized Insurance Projects
As mentioned above, most of the insurance industries are ready to adopt decentralized technology to offer insurance to the clients.
Nexus mutual is formulating decentralized insurance by employing the network of Ethereum. This Nexus Mutual is primarily launching with the cover of smart contract and enabling anyone to receive insurance on any public smart contract of Ethereum, this implies that the DeFi users can easily receive protection to their funds.
It is required to create applications for decentralized insurance. It enables the users to formulate their own products of insurance and it also offers some production to the digital currency wallet of the user and also lending collateral protection.
It is among the exchange insurance, and here you can easily safeguard your funds from hacks on famous exchanges and it protects the crypto assets that you own.
This is again one of the most popular DeFi based business models. Decentralized payments act to ensure several conditions of accounts and also strengthen financial control, along with an economical and simple mode of payment and decreased credit needs. The benefits of the decentralized payment system are based on several criteria on the features of the users of the system and also the nature of their financial bonding.
By the end of this article, you know the concept of DeFi, its advantages, and also the top 5 DeFi based business models of 2021. The most effective among them is the decentralized payments as that offers the most secure environment and faster and cost effective as well.