The use of blockchain in the financial sector aims at creating a decentralized finance system commonly known as Defi that encourages speedy peer-to-peer financial transactions without the intervention of third parties. The financial sector started building blockchain-based applications to implement the concept of Defi and remove centralized control and transaction fees involved with it. For example, if you need a loan, you can now use some of the Defi lending platforms to obtain a loan speedily without approaching the traditional institutions that offer loans. Using a Defi app or decentralized financial application, you can enter your loan needs. The system processes your request by using some algorithms for matching with peers that meet your needs. Once you agree to the lender’s terms, you inch closer to the loan.
The working modality of Defi lending platforms
The system then records the transaction on a blockchain and verifies the data with the help of a consensus mechanism, after which you receive the loan. After disbursing the loan, the lender can collect payment per agreed payment terms. You pay the installments using the Defi app, and the system follows the same process in the blockchain for transferring the payment to the lender. Having understood Defi and how it works, here is a list of top Defi lending platforms that can come in handy. The platforms make it easy to avail of loans, but those with cryptocurrencies in their wallets can turn to lenders and lend their assets to someone else while earning interest. Users can pool their assets and use smart contracts to distribute, among others, while making a steady income. Defi lending is all about peer-to-peer lending.
Aave
Lending your assets is a great way to make them grow instead of letting them sit idle in your wallet. Touted as the best Defi lending platform, Aave is a liquidity market platform where users can participate as borrowers or depositors. You must first deposit the chosen asset and amount to use the Aave platform. You become a lender to the platform and earn passive income according to the market demand. Moreover, the deposited assets can serve as collateral if you want to borrow. Not only is borrowing easy, but the interest earned from the assets can offset the interest rate you have to pay for borrowing.
Compound
The compound is another Defi application that focuses on lending within the crypto ecosystem but uses a money-market approach that supports assets by using different pools of capital. Lenders or depositors can put their deposit amounts into lending pools for any desired duration without any limit and earn interests continuously.
MakerDAO
You can start using the DAI, a cryptocurrency and stable coin, enabled governance platform with a target price of $1. The decentralized governance community of the cryptocurrency platform MakerDAO manages DAI generation by using an embedded governance mechanism.
Defi lending platforms are still in the early stages of evolution and how they will take shape in the future is never easy to predict.
