Acquiring Drawn Into DeFi? Here Are 3 Major Considerations to launch your own DeFi platform
Tags: defi, defiplatform
Published: 2022-06-20 13:23:17

If you've had even half an eye on the cryptocurrency space in 2020, then you can't have missed the wave of news stories and emerging projects around DeFi. Short for decentralized finance, the followers of this segment hail it as a rebellious new financial technique in which anyone can become a borrower, lender, wagerer, or investor using decentralized smart contract protocols.

It's definitely true that there are no obstacles to entry. Unlike a traditional economic setup where users would have to overcome several KYC barriers to open a bank account, request a loan, or start trading stocks, decentralized finance is uncontrolled and, for the most part, free of any restraints. 

And it's not just users who benefit. Anyone with programming skills, or the capability to acquire them, can put their entrepreneurial skills to operate by specifying up a decentralized application and start issuing economic instruments on blockchain technology.

It sounds effortless enough in principle. However, before entrepreneurs run out and start creating their own DeFi applications, or start exploring their first DeFi investment, there are several considerations worth fetching into account.

## Existing infrastructure can't necessarily cope with market volatility

One of the Flagship DeFi projects called Maker - suffered one of the most high-profile DeFi happenings of this year during crypto's "Black Thursday," when the value of the world's markets plunged on March 12. Maker is the Ethereum-based project that gives a dollar-pegged stablecoin called DAI, founded on smart contracts called Collateralized Debt Positions. Users deposit ether as collateral and carry out DAI loans that they can stake in other decentralized applications to gain interest.

As the price of ether dropped remarkably, users of Maker suddenly found their DAI loans were undercollateralized and attempted intensely to enhance their ether deposits to stop the system from liquidating their positions. Ethereum is notably cumbersome during times of high traffic, and many of those who didn't make it on time had their loans liquidated. 

Some users lost hundreds of thousands of dollars due to the speed and scale limits of the Ethereum Network. Some of those positions that should have been liquidated weren't, because Ethereum couldn't update price data from exterior price oracles fast enough.

To make an already bad situation even worse, when Maker liquidates a contract, it does not cancel it. Rather, the loan is auctioned for DAI. 

## Ethereum scalability is a DeFi bottleneck

While the issue of smart-contract exposures isn't inevitably specific to Ethereum, the platform has been struggling with scalability points since 2017. The Upgraded version of Ethereum is Ethereum 2.0, which has been in the pipeline for various years now. However, the phased enactment means that the scalability challenge is the potential to persist for longer yet.

These scalability limitations make Ethereum vulnerable to other platforms developing more extensible blockchains. From a DeFi viewpoint, Ethereum's most notable advantage is that it's already home to so many applications, offering a high degree of interactivity. This is where competitor platforms such as EOS or Binance Chain attend to be at a disadvantage.

However, second-layer solutions created on the Ethereum base layer offer the ability to scale without needing to leave the overall Ethereum ecosystem. 

As second-layer solutions aim to solve the problems within the Ethereum network, many entrepreneurs are looking for greener pastures where the Ethereum blockchain falls short. 

## Ethereum transaction fees are presently sky-high

Another reason for utilizing a more scalable platform is the transaction fees on Ethereum. The current transaction pricing mechanism is a precise function of network congestion. The more elevated the volume of traffic, the more users will pay transaction fees.

Due to a dependency on complex smart contract transactions, DeFi fees can acquire excessive levels, as high as $99, according to some reports. The founder of decentralized derivatives application Synthetix reached as far as to warn that these high fees pose a risk to the expansion of DeFi.

## Adequate Infrastructure and More translucence Are Key to DeFi's Future

DeFi is certainly an exciting place to be right now and poses many engaging opportunities for intrepid entrepreneurs. Yet, it's worth understanding the regulations of Ethereum and exploring the respective project as much as possible before playing with these effects. As ever with cryptocurrency, the often-used advice to "do your own research on DeFi" is in no immediate danger of becoming outdated.

Thankfully, there are those in the crypto space who recognize that there's an information gap detail to DeFi, as users don't have any easy or transparent means of researching up-and-coming projects. MarketPeak is a fairly new entrant to the sector, a fundraising platform for DeFi entrepreneurs. Nevertheless, as part of an effectual fundraising technique, MarketPeak equips investors and market participants with in-depth research regarding the projects on its platform.

Even players from the centralized cryptocurrency space are seeing opportunities to get implicated with DeFi from the standpoint of helping to educate users. Jack Tao - CEO of  Phemex - a Singapore-based exchange, told that "DeFi opens a brand new world with its own set of rules, making an opportunity for specified firms to partake as a source of education and knowledge on how to right use these emerging products. The idea of DeFi does have a bunch of intrinsic value. Nevertheless, some of these governance tokens are just overpriced, and market participants must understand the risks."

In the earlier years of cryptocurrency, it was often stated as the "Wild West" of investing, and the same could be stated of DeFi right now. However, the crypto segment rapidly evolved, and it seems like only a matter of time before DeFi does the same. With speedier and more ensure infrastructure, along with more clarity and accountability from project operators, DeFi stands a good possibility of establishing a place for itself in the future of finance.

## In Conclusion - Why can't you Develop your own DeFi platform?

DeFi is a new, complex, and volatile technology. In the above statement, you can understand why DeFi makes a good opportunity for specified firms. Right! 

With the advantages of DeFi, many entrepreneurs are creating their own DeFi businesses. There are several considerations in DeFi which is helps to launch your own DeFi platform easily. 

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