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HOW TO START A DEFI COMPANY IN 2023 – GUIDE TO START DEFI BUSINESS

Last Updated on Jan 5, 2023Jan 5, 2023 by Steve Goldstein | Reviewed by
Editorial Stuff


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?
   * Why Start a DeFi Company – Future of DeFi
 * 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
 * FAQ


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
 * Compound.io
 * Dharma Protocol
 * dYdX
 * Stasis
 * Derivatives Trading
 * Kyber Network
 * Payment Systems
 * DAI
 * Stablecoin
 * MakerDAO


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.

STABLECOIN COMPANIES

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

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.

LENDING

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

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)

DECENTRALIZED EXCHANGE(DEX)

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.


FAQ

How do I raise money from investors for my DeFi Company?

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.

Should I have an LLC or C Corp?

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.

Should I build an MVP or launch with a product?

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. 

IN CONCLUSION

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. 

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IN THIS POST

 * What is Decentralized Finance?
   * Why Start a DeFi Company – Future of DeFi
 * 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
 * FAQ

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