Blockchain and cryptocurrencies are gaining wider acceptance from institutional investors and the wider community, which means there are finally the conditions for innovative projects to thrive. The DeFi ecosystem has exploded in popularity in the last year, making financial instruments automated and more democratic.

What Is the DeFi Ecosystem?

The DeFi ecosystem is simply all the products that allow users to conduct financial operations on blockchains. Decentralized finance is:

  • Efficient -- Generally DeFi promises greater efficiency through automation, with speedy and lower-cost transactions and settlement compared with traditional financial institutions.
  • Empowering -- You are in complete control, being able to conduct any desired financial operation 24/7.
  • Democratic -- No matter what country you come from, no matter your credit score, you have the ability to trade. If your country has an unstable financial system or charges exorbitant interest rates for loans, DeFi can be a much fairer place.

Of course, there are risks: bugs or failures in smart contracts leading to hacks, lack of help from a central authority if something goes wrong, and occasionally difficult platforms.

The DeFi industry's Total Value Locked (TVL) has risen from US$15 billion at the start of 2021, to $60 billion at the time of writing. Consensys, a company that creates Ethereum-based decentralized solutions, closed a US$65 million fundraising round, with JP Morgan, Mastercard and UBS as key institutional backers.

What DeFi Products Are There?

  • Lending platforms -- Smart contracts automate the lending of digital assets. Lenders gain passive income by locking up tokens in a liquidity pool. Maker, Compound and Aave are the most well-known. Others such as InstaDapp and Liquity are gaining significant investment.
  • DEXes -- Decentralized crypto exchanges operate without intermediaries. Users have full ownership of funds. Uniswap, Curve, and Sushiswap are popular examples.
  • Prediction markets -- Projects like Augur allow users to bet on the outcome of future events using cryptocurrencies.
  • Yield farming -- Providing liquidity to a protocol by locking up crypto assets in exchange for rewards. yearn.finance is one application that aggregates the best rates.
  • Derivatives -- Protocols like Synthetix allow users to purchase and trade derivatives linked to cryptocurrencies, fiat currencies and real-world assets.
  • Asset management tools -- Apps and browser extensions for interacting with DeFi products while keeping assets secure.
  • P2P marketplace -- Decentralized marketplaces offer the ability to trade goods using cryptocurrencies outside of centralized platforms like Amazon.

How Do You Make a DeFi Project?

Successful projects like Maker and Curve Finance saw a gap in the market. Providing a secure and user-friendly solution involves strategic planning and practical implementation, usually over 3-5 months. General elements to consider:

  • Planning, development and testing estimates -- Accurate planning helps budget and allocate resources.
  • Business analysis -- Determine whether there are competitors and whether there is sufficient demand.
  • Technical analysis -- Research which technologies will best meet the application's functionality.
  • DeFi integration -- DeFi applications operate in an integrated ecosystem, so plan which apps your project will connect to.
  • Gathering a team -- Software developers, front/back-end developers for UX and UI.
  • Continued upgrades and bug fixing -- How will the application be updated and maintained?
  • Promotion -- How will you gather a dedicated community?

The development process specifics:

  • Blockchain -- At the time of writing, DeFi Pulse lists all of the top 20 DeFi projects as being built on Ethereum. Despite Ethereum 2.0 promising increased scalability, there are competitors such as NEAR, Solana, and Polkadot worth consideration.
  • Development Environment -- An IDE makes writing and testing code much easier. There are many web-based and desktop IDEs created specifically for Ethereum smart contract development. NEAR Protocol says their online IDE allows users to run and deploy in one click.
  • Language -- The choice depends on the blockchain. C++ for EOS, JavaScript on NEO, Solidity for Ethereum. Rust was used to create NEAR protocol and is its preferred language for smart contracts.

Contact INC4 for All Aspects of DeFi Development

INC4 has been here before and knows the steps required to facilitate a successful lending platform, decentralized exchange, wallet, staking platform, or custom dApp. We provide complete outsourced teams for full-cycle development as easily as we can give you the one or two specialists needed to cover a skill gap in your existing team.