Decentralized finance or DeFi refers to financial services provided through distributed ledger technologies such as blockchains. These include lending platforms, payment systems, derivatives trading, stablecoins, etc. DeFi has become a buzzword over the last couple of years. Vitalik Buterin, the co-founder of Ethereum, described the term as “the next big thing in financial infrastructure after the invention of the Internet itself.”
In this article, we’ll discuss how to start a DeFi company and what it takes to create a mobile app that users can use to trade tokens. We’ll also discuss the cost of making a DeFi app, the development of a DEX (decentralized exchange) to exchange tokens, and other aspects of starting a DeFi business. While the crypto space is dynamic, this doesn’t mean that the steps of a DeFi app have to be rigid. In fact, we recommend an agile approach that allows for the flexibility to modify UX and technical features mid-project.
On this page, you’ll learn about the following:
- What is Decentralized Finance?
- How to Start a DeFi Company
- Step 1: Decide What Type of Business You Want to Run
- Step 2: Choose a Cryptocurrency
- Step 3: Build a Minimum Viable Product
- Step 4: Hire Developers
- Step 5: Get Legally Incorporated
- Step 6: Raise Funding
- Step 7: Launch Your Project
- Step 8: Scale Your Service
- Step 9: Monetize Your Project
- Step 10: Grow Your Team
- Step 11: Exit Your Startup
- How Does DeFi Work?
- DeFi Application – How to Start a DeFi App
- Cost of Starting a DeFi Company
What is Decentralized Finance?
DeFi is short for decentralized finance. It’s a new type of financial system based on blockchain technology. This means that there is no central authority involved in managing transactions. Instead, these transactions take place between two parties without any third-party involvement. The most common example of a DeFi product is a cryptocurrency lending platform. For instance, MakerDAO is a project that creates its own digital currency called Dai. Users can borrow Dai from MakerDAO at interest rates set by the Maker team. When borrowers repay their loans, they receive more Dai back than they originally borrowed.
Another popular DeFi application is Compound.io. It’s a decentralized lending protocol that enables anyone to lend out money to earn interest. Lenders can choose when to collect interest payments and whether to lock up their funds with a fixed rate or floating rate.
There are many other examples of DeFi products. Some of them include:
- Lending Platforms
- Dharma Protocol
- Derivatives Trading
- Kyber Network
- Payment Systems
Why Start a DeFi Company – Future of DeFi
DeFi companies are decentralized financial services built on Ethereum blockchain technology. They offer new ways for people to invest their money, save, borrow, or exchange value with each other without relying on traditional banks.
As mentioned above, DeFi is not just about cryptocurrencies. It’s about building financial services on top of existing blockchain networks like Bitcoin, Litecoin, Ripple, Stellar, EOS, Cardano, IOTA, and others. For example, Dharma Protocol is a decentralized loan origination network that uses smart contracts to automate the process of peer-to-peer financing. Stasis is a decentralized savings account that offers low fees and high returns.
While some projects focus on one specific area of DeFi, others aim to provide solutions for multiple areas. For example, Kyber Network provides instant liquidity for token exchanges, while Compound.io focuses on providing collateralized debt positions (CDPs).
DeFi is still in its early stages. However, it’s growing fast. According to DeFi Pulse, DeFi has grown over 300% since January 2018. The number of active wallets holding ETH increased from 1 million to 4.5 million during the same period. This growth shows that there is a huge demand for DeFi products. If you want your startup to succeed, then you need to consider launching a DeFi company.
How to Start a DeFi Company
To start a DeFi company, you need to go through quite a bunch of important steps. Here, I have tried to mention all the necessary steps for you to start your DeFi Company.
Step 1: Decide What Type of Business You Want to Run
Before starting a DeFi company, you must decide what type of business you want to run. You can either start an LLC or a corporation for your DeFi company. If you are going to set up an LLC, then read our guide on how to start an LLC. There are several different options, including cryptocurrency lending platforms, stablecoins, and decentralized exchanges.
Cryptocurrency Lending Platforms
These platforms provide access to short-term loans secured by cryptocurrencies like Bitcoin and Ethereum. They typically charge interest rates between 5–20%, depending on the lender.
Stablecoins are cryptocurrencies whose value is pegged to fiat currencies like the U.S. dollar or euro. These coins tend to fluctuate around a set price, so they’re useful when you want to convert your crypto holdings into cash.
Decentralized exchanges are similar to traditional exchanges, except that they operate over the blockchain instead of a centralized server. Users trade tokens directly with each other rather than going through a third party.
Step 2: Choose a Cryptocurrency
Once you’ve decided what kind of business you want to start, choose a cryptocurrency that best suits your needs. For example, if you plan to build a platform for lending out cryptocurrencies, you’d probably want to pick a coin like Ether (ETH) since it’s the token of choice for decentralized finance projects.
Step 3: Build a Minimum Viable Product
Now that you’ve chosen a cryptocurrency, you’ll need to build a minimum viable product (MVP). This is the first version of your project that allows users to interact with your service. Think of it as a prototype that shows investors and customers what your product will look like. You may also consider creating a white paper describing your idea before launching your MVP. White papers give potential investors and partners a clear picture of what your project is all about.
Step 4: Hire Developers
If you have an idea for a DeFi company, now’s the time to hire developers who can help you create your MVP. A good developer should be able to write code quickly and efficiently. To find someone suitable, use online job boards. Alternatively, you could try posting a job ad yourself. It majorly depends on which part of the nation you are starting your business in. If, for example, you are setting up a Florida LLC, you would easily get skilled developers there.
Step 5: Get Legally Incorporated
It is necessary for your business to get incorporated legally. If you are setting up an LLC, it would be more beneficial than other structures of business. First of all, you can start an LLC at a bare minimum cost (filing fee $50 minimum). On the other hand, LLCs have immense tax benefits. If you’re running an LLC in Texas or a California LLC, then you must pay a yearly Franchise Tax. If you have a Wyoming LLC, then you neither have to pay Franchise Tax or Sales Tax to the state. Similarly, for a Montana LLC, you don’t have to pay any of these two taxes. So, it is beneficial to have an LLC for your DeFi business.
Step 6: Raise Funding
After building your MVP, you’ll need to raise funding. The easiest way to do this is to crowdfund your project. Crowdfunding sites include Kickstarter and Indiegogo. Alternatively, you could apply for grants from government agencies like the US Small Business Administration.
Step 7: Launch Your Project
After raising funds, launch your project. Once you’ve launched your MVP, you’ll want to keep improving it until it meets your expectations. You might even consider hiring additional developers to help you improve your project.
Step 8: Scale Your Service
As your project grows, you’ll likely need to scale up your team. To do this, you’ll need to add more servers, storage space, and bandwidth.
Step 9: Monetize Your Project
Eventually, you’ll want to make money off your project. One option is to sell advertising space on your website. Another is to charge fees for transactions made by your users.
Step 10: Grow Your Team
Eventually, you’ll want to grow your team. If you don’t have any experience running a startup, you might consider recruiting people with relevant skills.
Step 11: Exit Your Startup
When you feel ready, it’s time to exit your startup. Before doing so, however, make sure you have enough savings to support yourself while working on another project. The process outlined above is just one way to start a DeFi company. Depending on how much time and effort you put into your project, you may end up starting multiple companies.
Congratulations! You’re now officially a DeFi entrepreneur. Now, go forth and prosper!
How Does DeFi Work?
Decentralized finance (DeFi) is a new financial system that allows users to borrow money from each other directly through smart contracts. The goal of DeFi is to create a decentralized banking system where anyone can access loans at any time, anywhere in the world. This means no banks, no fees, and no middlemen.
In DeFi, there are two types of assets: stablecoins and cryptocurrencies. Stablecoins are digital currencies whose value remains relatively constant over time. They are backed by fiat currency or precious metals. Cryptocurrencies, on the other hand, are digital currencies that aren’t backed by anything physical. Instead, they rely on cryptography to secure them.
Stablecoins are used to back loans between lenders and borrowers. When a lender makes a loan, he receives a certain amount of stablecoins. He then lends these stablecoins to borrowers. In return, borrowers pay interest using cryptocurrency. Cryptocurrencies are used to fund lending platforms. These platforms allow lenders to lend out their cryptocurrency reserves. Lenders receive interest payments in exchange for allowing borrowers to use their reserves.
There are many different ways to earn interest in your cryptocurrency holdings. Some of the most popular methods include lending, margin trading, staking, and investing in ICOs.
One of the simplest ways to earn interest in cryptocurrency is to lend it out. By lending out your cryptocurrency, you can earn interest on top of what you would normally get from holding it. For example, if you hold Bitcoin and lend it out, you could potentially earn 10% interest per year.
Margin trading involves borrowing funds against an asset. As long as the borrower has sufficient collateral, he can borrow additional funds. Once the borrower pays back his initial loan plus interest, he gets to keep the rest of the collateral.
For example, let’s say Alice wants to buy a house worth $500,000. She needs to raise $100,000 to purchase the home. To do this, she goes to her bank and asks for a mortgage. Her bank gives her a loan for $100,000 secured by the property. Now, suppose Alice earns $5,000 per month and spends $1,000 per month. Since she doesn’t have enough income to cover both her expenses and repay the loan, she must borrow the difference. If she borrows $4,000 per month, she will need to pay $400 per month in interest.
If Alice decides to invest the extra $400 per month, she will be able to buy the house sooner however, if she invests the $400 per month, her monthly payment will go down to $3,600. If Alice uses a margin trading app like Coinbase Pro, she can borrow up to 100x the value of her portfolio. For example, if her portfolio is worth $50,000, she can borrow $500,000. The downside of margin trading is that it requires high-risk tolerance. You may lose all of your investment if the market drops.
DeFi Application – How to Start a DeFi App
Defi apps are becoming increasingly popular due to the rise of cryptocurrencies such as Bitcoin. The concept behind a Defi app is to use blockchain technology to create a decentralized currency. This means that all transactions are recorded on a public ledger that cannot be altered. A DeFi app allows users to trade digital assets using cryptocurrencies like bitcoin, ether, litecoin, etc.
A DeFi app can be created for any type of transaction. It can be used to make peer-to-peer loans or even to invest in other projects. There are also DeFi apps that offer insurance services.
In order to start a DeFi app, one must first decide on the type of application they want to build. There are two main types of DeFi apps:
- Decentralized Exchange (DEX)
- Decentralized Finance (DeFi)
A decentralized exchange is similar to a traditional stock exchange. Users can place orders for various stocks and commodities. They can also sell their own cryptocurrencies.
Decentralized finance (DeFi)
In contrast to a decentralized exchange, a decentralized finance app offers financial products that have been built on top of blockchains. These include derivatives, stablecoins, credit cards, loans, insurance, etc.
Cost of Starting a DeFi Company
The amount of money needed to start a decentralized finance company depends on several factors, such as the market size, the regulatory environment, and the technology stack used. However, according to estimates from ConsenSys, the average cost per token for a project like MakerDAO is $1 million USD.
DeFi Apps Cost
A lot of the costs associated with developing a DeFi app are fixed. For example, the Ethereum network charges transaction fees every time a user makes a transaction. In addition, there are other costs involved in operating a decentralized application, including server maintenance, data storage, and security. For these reasons, the cost of developing a DeFi app varies widely. Some projects, like Compound, only take around 10 minutes to set up. Others, like Augur, can cost hundreds of thousands of dollars.
Decentralized Finance Platforms Costs
There are two main types of DeFi platforms: centralized and decentralized. Decentralized platforms run on top of blockchains, whereas centralized platforms operate using traditional databases. Centralized DeFi platforms tend to be cheaper because they use less computing power. They also offer fewer features compared to decentralized platforms. However, decentralized platforms are generally more secure since they rely on cryptography instead of third parties.
The best way to raise money is through angel investors who invest small amounts of money into start-up companies. Angel investors usually invest between $5,000-$50,000 per company. However, they tend to be risk takers and want to help entrepreneurs succeed. If you don’t know anyone who has invested in a company before, then you should consider using crowdfunding platforms such as Kickstarter or Indiegogo. These platforms allow individuals to fund projects that they believe in.
An LLC is better suited for a DeFi company because it provides limited liability protection for owners who may be sued. However, a C corp has tax advantages such as lower taxes and no double taxation. The choice between these two entities should depend on how much money you plan to raise from investors. If you plan to raise less than $1 million, then go with an LLC. Otherwise, consider using a C corporation.
The answer depends on how much money you need to raise for your business. If you don’t need any funding, then you should start building your MVP. However, if you want to raise some capital, then you should launch a product.
Why Start Defi Company is So Important
One of the key aspects that make starting a DeFi company so important lies in the fundamental shift it brings to the financial landscape. In traditional finance, intermediaries such as banks and other financial institutions play a pivotal role in the transfer and management of assets. This system has proven to be sluggish, prone to error, and is vulnerable to centralized control. DeFi, on the other hand, aims to eliminate these shortcomings through the use of blockchain technology and smart contracts.
By starting a DeFi company, entrepreneurs are taking an active role in democratizing finance. With traditional banking systems, individuals often have limited access to financial services due to various barriers such as physical location, lack of identification documents, or low creditworthiness. DeFi challenges these barriers by providing an open and permissionless financial ecosystem. This means that anyone, regardless of their background, can participate in a wide array of financial activities such as lending, borrowing, or trading digital assets.
Moreover, a DeFi company provides an opportunity to enhance financial inclusivity on a global scale. The traditional financial system has historically excluded individuals in developing nations who have limited access to basic financial services. DeFi presents a unique chance to bridge the gap between the financially excluded and the global economy. Through decentralized lending platforms, for example, individuals can access funds or provide loans without any centralized institution acting as a middleman. This disintermediation enables individuals to directly interact and transact with peers on equal terms, fostering financial inclusion and empowering previously overlooked communities.
Another vital aspect to consider is the potential economic growth that stems from starting a DeFi company. As the trajectory of blockchain technology and decentralized finance continues to surge upwards, the industry presents numerous employment and investment opportunities. Building a DeFi company not only fuels innovation but also creates jobs, cultivates new skills, and drives economic growth. From developers designing smart contract protocols to marketers driving adoption, each role plays a crucial part in advancing the DeFi sector. Furthermore, venture capitalists and angel investors alike are continually seeking promising DeFi projects to invest in, as the potential for exponential returns remains alluring.
In addition to its transformative potential and economic growth, a DeFi company plays an imperative role in addressing financial risks head-on. By leveraging innovative cryptographic protocols and decentralized technologies, DeFi offers an alternative system shielded from many of the risks present in traditional finance. Blockchain-powered transparency enables users to scrutinize and monitor their transactions, reducing the likelihood of fraud or mismanagement. Security vulnerabilities that are prevalent with centralized systems are minimized due to decentralized consensus mechanisms. This robust structure can mitigate potential risks associated with the centralization of power, such as market manipulations or sudden collapses.
The importance of starting a DeFi company cannot be emphasized enough. It embodies a paradigm shift that could redefine finance as we know it, fostering financial inclusivity, creating economic opportunities, and strengthening security measures. As the DeFi movement continues to gather momentum, entrepreneurs venturing into this field set out to reshape the financial landscape, ultimately leading us into a more inclusive and decentralized future.
Decentralized Finance is no doubt the latest and best way to handle your finances. Starting a DeFi company is not easy and needs a handful of money. This article tells you everything you need to start your DeFi company. Share your feedback with us in the comment section below.