How DeFi Is Creating New Avenues For Small Business Success

For a long time, smaller businesses and entrepreneurs have been held back by the rigid constraints of the traditional banking sector, which imposes burdensome requirements on those seeking capital.

With DeFi, small businesses can benefit from a more efficient and streamlined approach to financial transactions, with seamless payments, simpler lending and borrowing processes and much easier access to all-important capital. The innovations found in DeFi boost access while eliminating cumbersome approval processes and high transaction fees, and can potentially become a catalyst for much faster business growth.

Let’s take a look at how some of the most innovative DeFi protocols can shake up the small business world.

Aave: Generate yield on your crypto holdings

Aave is one of the best known DeFi protocols of all, and in many ways it can be thought of as a decentralized bank, as it provides an array of services that can be utilized by small businesses to streamline their financial operations.

Its core functions include interest generation, where businesses can deposit cryptocurrency to earn interest. It also acts as a source of funding, giving users the option to borrow a range of crypto assets through collateralized loans. The platform is notable for its flexibility, with features like collateral swapping ensuring businesses can utilize a variety of crypto assets.

For small businesses that already accept crypto payments, Aave provides a way for them to unlock the value of those holdings without having to swap them all for fiat. Businesses can deposit a range of crypto assets into Aave’s lending pools, with the potential interest adjusting automatically based on demand. If more people want to borrow a certain kind of asset, the rate increases to encourage more lenders to deposit, creating opportunities for businesses to generate substantial yield on previously idle crypto assets.

Centrifuge: Obtain credit fast using physical assets as collateral

Finding funding can be a major challenge for small businesses, as there are very few options available in traditional finance, besides wealth investors and conventional banks. Centrifuge gives businesses another option – the ability to tokenize real-world assets and use them as collateral to obtain credit in an instant at very competitive rates.

To borrow money from Centrifuge, businesses can use its associated decentralized application Tinlake, which is a marketplace for tokenized RWAs. It provides businesses with a streamline way to tokenize assets, such as invoices that have not yet been settled, or real estate owned by the business, so these can be used as collateral to obtain funding.

With Tinlake, investors can also trade these RWAs over its decentralized marketplace, and businesses can even participate as small investors, depositing crypto into its liquidity pools for other businesses to borrow against.

The great thing about Centrifuge is that its tokenization process is fast and efficient, meaning businesses can obtain capital in a fraction of the time it would take to secure a loan from a bank. It’s all about fast access to liquid funds, enabling entrepreneurs to obtain the capital they need to stock up on their inventories or invest in key parts of their business at just the right time.

Fuse.io: Grow your business globally with scalable crypto payments

The Fuse Network can be thought of as a business-to-business payments infrastructure network that supports the development of blockchain applications that can provide more streamlined and transparent services to users.

The platform achieves blazing-fast transaction speeds thanks to its delegated proof-of-stake architecture, which enhances decentralization and security. Payment transactions are offloaded to a layer-2 network to ensure rapid execution. The business model is similar in many ways to Visa and Mastercard, only its focused on Web3 payments, enabling businesses to create new applications that support crypto payments, or add this support to existing apps.

There are two key elements of Fuse that businesses need to know about, beginning with the Fuse SDK, which provides the tools to integrate crypto payments into existing client apps. It provides one of the simplest and fastest ways for businesses to upgrade legacy apps, saving on development costs.

Next is Fuse Charge, which can be thought of as a kind of merchant bank for Web3 businesses, providing access to various crypto and fiat-related payment services. Using Charge, businesses have a way to process payments, create invoices and manage cross-border transactions.

It paves the way for companies to integrate crypto payments alongside traditional fiat and manage everything under one hood, without worrying about complex installations and high development costs. What’s more, it’s a truly borderless platform, enabling companies to transact across different countries with complete autonomy in a compliant way.

Businesses benefit from more certainty too, with a flat fee of just 0.5% on every transaction, crypto or fiat, so they understand the cost of doing business. As a non-custodial platform, businesses always retain complete control over their funds.

Celo: Explore new business models powered by micro-transactions

A mobile-friendly crypto payments platform, Celo is aiming to make DeFi accessible to everyone, so businesses have a way to tap into markets where many people remain unbanked.

Perhaps the biggest advantage of Celo is the way it allows businesses to access new markets, with its focus on mobile wallets and low-cost transactions giving them a way to interact with the millions of people in the world that don’t own a bank account. In this way, Celo opens the door to new customer segments for businesses that are willing to try and tap into such audiences.

The other aspect of Celo is its support for frictionless micro-transactions. Businesses can take advantage of this to create new business models around micropayments, such as extremely low-cost pay-per-use services and content monetization, which have traditionally been cost-prohibitive beyond a certain level.

In support of this, Celo is focused on borderless efficiency, with its low-fees and rapid settlement times dramatically reducing the hassle of international payments. This can benefit businesses in many ways, such as helping them to create international supply chains to save on costs, hire remote workers or tap into new customers in foreign markets.

In addition, Celo aims to open the door to sustainable microfinance. Businesses can generate new revenue models by using their capital to provide small-scale loans to entrepreneurs and underserved communities. It’s about more than just generating interest, and such activities can fuel economic development and create new opportunities for growth by establishing links with up-and-coming markets.

MakerDAO: Deal in crypto payments without volatility

Many businesses reject crypto payments due to the volatility of digital assets, but doing so means missing out on what is likely to one of the fastest-growing financial markets of our times, and a key enabler of borderless payments.

MakerDAO provides businesses with a solution through DAI, an algorithmic stablecoin that’s designed to maintain a stable, one-to-one peg with the U.S. dollar. The advantage of DAI is that companies can deal in a range of cryptocurrencies, and quickly trade their holdings for the stablecoin to eliminate the risks associated with crypto’s volatility.

DAI remains stable because it relies on complex algorithms that ensure it retains its U.S. dollar peg no matter what the market conditions are in the crypto industry. Key to this is MakerDAO’s lending protocol, which enables users to obtain loans paid out in DAI by depositing other cryptocurrencies as collateral. The loans are overcollateralized, which means users have to deposit more money than they take out. This enables MakerDAO to protect the value of DAI when the tokens backing it, such as ETH and Wrapped Bitcoin or wBTC, experience high volatility.

The major benefit of DAI is that it enables businesses to transact using almost any cryptocurrency. Businesses no longer have to immediately convert their crypto funds into fiat and pay excessive transaction fees to do so. Instead, they can immediately swap their crypto for DAI at negligible costs, to avoid holding funds that could be subject to wild price swings.

In addition, the wide acceptance of DAI means that businesses have a way to transact across borders with low, predictable costs.

DeFi will define small business success

Running a small business is a hard thing to do and it has become progressively more difficult due to the restrictions of the traditional banking industry. In 2022, banks reached a new, all-time low in terms of lending activity, with tightened credit restrictions making it harder than ever for small businesses to obtain reasonably priced credit.

Businesses need access to credit. In a 2020 study, the U.S. Small Business Administration found that more than 80% of business failures occurred due to cash flow issues.

By tapping into the world of DeFi, businesses more opportunities to access the funds they need to maintain their cash flow, even when they’re waiting on customers to pay invoices. At the same time, they can benefit from streamlined payments with lower costs and expand their reach into new, global markets.

Don’t forget to like and share the story!