DeFi Lending Explained: Your Beginner’s Guide

Discussions regarding cryptocurrency borrowing began almost immediately, although the main theme has been present since 2019. Agree, the notion of "bought cheaper — sold more expensive" without the multiple operations of the brokerage sphere entices and beckons. 

You need to consider everything from the interaction faces to the platforms. This requires you to get how cryptocurrency loans work. In this article, we will consider DeFi lending and borrowing platform development.

DeFi, an abbreviation for decentralized finance, is a dApp ecosystem and one of the fastest-growing segments in the blockchain and cryptocurrency industries. DeFi is thought to be capable of correcting the flaws of the old financial system via offering a faster, safer, more convenient, autonomous, and less expensive alternative.

DeFi is less expensive to service and has much smaller spreads. In economics, a “spread” indicates the disparity in price between an application and a purchase. The end user's product is less expensive because the blockchain does not require payment, and transaction commissions for miners and validators are lower. Thus, a combination of these elements dictated DeFi's market prominence.

You probably remember taking out a bank loan to buy a smartphone, a PlayStation 5, or a washer. Everything works the same way in the blockchain context. There is a platform that supplies a service, and there is an individual with assets. However, when it comes to DeFi landing, things become a little trickier. We shall discuss its aspects right now.

One of the most prominent trends of the last five years has been the growth of the decentralized financial market, or DeFi. The biggest competitor for DeFi, as you might expect, is centralized financial institutions, or CeFi. 

Liquidity is the ability to acquire or sell a cryptocurrency rapidly and at a market price without materially affecting its value. In its basic form, this is a test sign. DeFi versus CeFi is an ongoing discussion, with new arguments emerging each year. So, which one is better?

CeFi platforms, such as exchanges, often have noteworthy trading volumes and rapid order execution, resulting in high liquidity. In turn, DeFi employs liquidity pools, in which users contribute assets that facilitate trading, lending, and other operations.

Some DeFi projects may have less liquidity than CeFi. However, this is because of new initiatives and unpopular coins. Considering it is built on ETH and Solana, this matter is exceedingly unusual.

In DeFi, collateral refers to the security that consumers give while applying for a loan or other financial goods. In most circumstances, to obtain DeFi loans, the user must offer collateral that exceeds the loan amount. This is due to DeFi not having a traditional credit rating; the crypto collateral loan serves as a guarantee for the return of the money. ʼ

Typically, annual statistics can be used to monitor current values. A sample is shown in the table below.

There are two options: crypto loans with collateral and DeFi loans without collateral. In most circumstances, a secured loan is used: you put up cryptocurrency collateral (such as ETH) in exchange for a stablecoin loan. This protects the lender: if the collateral rate lowers, it is instantly sold. 

Loans without collateral are less popular and are offered in two ways. Instant (flash loans), where everything happens in one transaction, and if the loan is not returned, everything is canceled. On-chain reputation is realized when the platform trusts the borrower.

DeFi lending is collateral-based, meaning that to secure a loan, customers must offer collateral in the form of ETH coins. As a result, the subject of interest rates and their amounts emerges. An interesting tool for DeFi platforms is a rate calculator that displays the expected income right away. 

The Peiko team provides dApp development services that will have the necessary capabilities. This includes decentralized crypto assets, DeFi crypto loans, and even decentralized gaming applications.

In DeFi, the interest rate (APR or APY) regulates the amount of money the user receives for providing cryptocurrency through the protocol. This is similar to interest in banks, though within the context of cryptocurrency and blockchain technologies. If the rate exceeds 25%, there is a risk of fraud. Optimal values are about 5-10%.

Some novices to the space may confuse DeFi and FinTech. Both are blockchain-based, transparent, and pose similar risks. DeFi is built entirely on blockchain, while FinTech sometimes uses separate blockchain solutions. However, there is one fundamental distinction: the presence of an intermediary.

The word “FinTech” refers to technology that aims to strengthen the financial system. This includes online banking services, notably mobile payment apps and web-based investment software. FinTech requires the employment of intermediaries. For example, when you use your PayPal account to submit an order on an e-commerce site, you trust PayPal to act as an intermediary in the transaction.

DeFi platforms establish a direct contract between borrowers and lenders. The latter is great for individuals seeking privacy and enhanced security. They enable you to conduct anonymous financial transactions using advanced cryptography. 

DeFi is likewise suitable for consumers looking for low-cost, borderless transactions, as the elimination of intermediaries generally results in lower rates. There is the possibility of a DeFi loan without collateral. In 2025, we will have the biggest FinTech companies, such as Stripe, that are beginning to support crypto payments but still offer traditional financial rails.

DeFi systems create a direct agreement between the borrowers and the lenders. The latter is excellent in cases where the individual wants privacy and to be more secure. They help you carry out anonymous financial transactions with the help of advanced cryptography. 

DeFi is also ideal for consumers seeking low-cost cross-border transactions, since eliminating intermediaries tends to reduce fees. Unsecured borrowing options are emerging in the DeFi space. 

However, the sector now faces stronger regulation. In the EU, this is driven by the Markets in Crypto‑Assets Regulation (MiCA), which has been fully enforceable since December 30, 2024. It applies to crypto-asset providers such as exchanges and custodians. As of mid‑2025, over 40 licenses have been granted under MiCA, mainly in Germany and the Netherlands. By the end of the year, another 400 licenses are expected across the EU.

DeFi is more than just replicating traditional financial services; it is about inventing and creating new financial products that were previously impossible. Platforms such as Synthetix encourage users to trade synthetic copies of conventional assets such as stocks, commodities, and even real estate. Decentralized exchanges (DEXs), such as Uniswap and SushiSwap, are transforming the way cryptocurrency is traded, making it more adaptable and accessible to users.

From an objective perspective, the DeFi sector is unusually transparent. Anyone can analyze the data, investigate the circulation rules (smart contract code), verify the activities (transactions), and access other meta-information. Decentralized information exchange has merits over the old financial system, in which the majority of data is spread among private databases and is rarely accessible or objectively analyzed. 

The rules (smart contract code) and actions (transactions) are publicly available, and some additional meta-information can assist the observer in comprehending the data. This is the biggest benefit of private blockchains over the old financial system, in which the majority of data is dispersed over numerous proprietary databases and is sometimes inaccessible or cannot be examined meaningfully.

In traditional finance, transaction processing and confirmation times are slow.  This is related to the fact that the middleman can review the contract for a long time, while the system can confirm.  

Agreed, it is not acceptable when everything is delayed because the intermediary is taking a lunch break. There are no intermediaries in DeFi; thus, this is impossible. 

DeFi borrowing happens directly between the lender and the borrower. Therefore, everything will depend on the platform's capabilities. Peiko created Bitsten, a high-performance cryptocurrency exchange that can handle up to 10,000 transactions per second. We achieved remarkable scalability and performance by implementing a Node.js microservice architecture, allowing for a fluid trading experience even during peak traffic.

For enhancements to the platform's functionality, we used Fireblocks for asset storage, TradingView for advanced graphing, and SendGrid for notifications. 

The Bitsen platform incorporates extensive liquidity management tools like automated bots, as well as connectivity to top liquidity providers like Huobi and B2C2. This maintains consistent liquidity, reduces slippage, and supports numerous trading pairs, providing customers with a reliable trading experience.

To begin discussing the pool of platforms, it is necessary to first provide some background information. All cryptocurrency interaction platforms, without exception, are built on blockchain technology. 

Blockchain lending platforms are well-known as distributed ledger technology, as many independent users keep the whole chain of transactions and the current list of owners on their computers. Even if one or more machines fail, the data is not lost. The following table lists the most prevalent DeFi platforms in 2025.

The popularity of DeFi lending and borrowing platforms is defined by the following factors: the primary cryptocurrency and its turnover, the number of registered users, the loyalty program, and the number of closed transactions. If you want to borrow or lend a specific coin (ETH, Solana, or BTC), choose a platform that specializes in it.

DeFi borrowing is challenging to grasp in principle. These are economic components that require a specific level of admission. People from other industry sectors may struggle to understand why they should consider a DeFi mortgage or what crypto loans with collateral entail. Those who find it straightforward to interpret information consistently in practice should focus on this part.

The choice of wallet is the first step in every crypto engagement. You often come across a “hot” and a “cold” wallet. The first is tied to exchange trading via a browser page or mobile application, while the second functions as a safe and is meant for long-term investments.

By 2025, the share of the market of hot wallets is expected to remain leading up to circa 58.3%. This growth is facilitated by faster adoption of mobile-first crypto solutions as well as the presence of enhanced security rules in hot wallets. 

In the meantime, cold wallets have remained the gold standard of how to store your funds securely over a long period of time, with emerging new hybrid models incorporating cold storage security, with some connections to the outside world (in the form of a hot wallet) to make specific transactions. They are ideal for use in DeFi if you borrow cryptocurrency or deposit it with at least 5k USDT.

The most popular wallets are OKX, Coinbase, BitPay, Binance, and Zengo. They are the industry's heavyweights, with whom competition is both possible and required. 

Peiko develops cryptocurrency wallets ranging from MPC to private and multi-currency. Our company can further create closed wallets for personal usage, in which a single user controls the private keys and manages their cryptocurrency.

To begin chatting or trading, you must first synchronize your wallet with the exchange. This function is available on crypto loan platforms in three distinct ways: mobile, QR code, and browser-based. In either instance, you will be prompted to select a wallet to link and an active button. As a consequence, you will receive a message that the synchronization was successful.

Ideally, after synchronization, the wallet should display assets and actions on the exchange. Therefore, Peiko built a financial tracker that supplies you with all the relevant information. The Zoobdoo project achieves a perfect balance of speed, cross-platform compatibility, API integration, and economic knowledge. We added the Plaid API and the iEx API, which strengthened Zoobdoo's functionality and transformed it into a full financial hub.

How can you tell if the connection was completed successfully from the interface? The four-square logo in the lower right corner of the dApp icon indicates that you are linked to it via the browser within the DeFi wallet application. If you connect to the dApp in another method, such as by scanning a QR code or using your mobile device's web browser app, the symbol will not have the four-square logo.

DeFi borrowing and lending are the most competitive forms of decentralized finance. The turnover capacity exceeds bank levels, which is impressive given the amount of cryptocurrency trading and the number of closed transactions. What’s more, interest rates on 

DeFi loans range from 1% to 8%. Platforms are typically developed on the Ethereum blockchain, although they can additionally be implemented on BTC, Solana, or USDC. Let's look at some statistical metrics in the table below.

How do I read such a mix of letters correctly? The lending APY is the return on assets contributed to the liquidity pool. Borrowing APR/APY refers to the real rate charged by the borrower for the loan. Max LTV defines how much of the collateral value can be borrowed. Thus, borrowing and lending allow you to choose a comfortable platform for making money.

Profitable trades and statistics aren't the sole markers of position. The conflict between new and old versions is unfolding even in an environment where DeFi lending explained at the atomic level is the norm. If DeFi 1.0 replaced traditional financial services with decentralized options, the new version prioritizes scalability, security, protocol gains, and risk management.

DeFi 2.0 addresses the shortcomings of previous DeFi systems, making services more durable and available to a broader range of customers. For example, Aave was among the earliest loan and borrowing platforms in DeFi 1.0. However, the release of Aave V3 and DeFi 2.0 generally included several additional features aimed at expanding scalability while reducing fees and enhancing capital efficiency.

A smart contract is a program that automatically carries out the provisions of the arrangement. Its code is saved in the blockchain, a secure database that cannot be modified. Once launched, such a contract operates autonomously and does not require the assistance of intermediaries like banks or attorneys.

Unlike a traditional paper business contract, which is written up by lawyers, signed by the parties, and subject to court or other authority oversight, a smart contract on crypto loan platforms does not call for human execution. It monitors adherence to the terms and is executed automatically. Such a contract cannot be amended once it has been issued, making it particularly dependable and transparent.

A smart contract can be viewed without any programming skills. To do so, find its address, which is normally displayed in the DeFi application's interface or on the exchange. Peiko develops smart contracts and implements them in a way that meets all customer needs. 

A lot of smart contract buttons interfere with UX today by not having a consistent style or a bad placement. We will make sure these features seamlessly integrate with the interface so it is completely transparent about contract relationships.

Imagine a lending protocol where borrowers lock up USDC to get a loan in Ethereum. Estimating the optimum loan-to-value (LTV) is not easy because of the volatility in the assets, variations in liquidity, and the presence of arbitrage opportunities, particularly under the new 2025 rules:

1. DeFi platforms are now considered by the MICA of the EU to be CASPs and must provide solvency evidence and be subject to KYC/AML requirements when it comes to lending protocols.
2. In its 2025 Staff Statement, the SEC seeks clear risk disclosures (i.e., Form SPK) of staking-backed loans.
3. FATF Travel Rule requires the tagging of transactions above 1,000 Euros affecting cross-protocol liquidity flows.

A potential solution? Wallets with native DeFi integration. These act as streamlined financial hubs, or alternative DeFi platforms with built-in compliance, enabling borrowing, conversions, and lending in one click. They automatically adjust LTVs to regulatory thresholds while masking complexity from users.

Decentralized finance is a promising area for generating income. DeFi loans typically function with ETH and Solana, but there are sites that offer additional choices. Taxes, interest rates, and loan amounts vary, so consider the lender's or borrower's reputation. 

If the latter is up to you, Peiko implements DeFi lending and borrowing platform development. Contact us and find out how Bob becomes your uncle! Don’t let the market concerns stop your wishes!