Does DeFi solve the challenges of Crowdfunding?

Crowdfunding brings opportunity and democracy to funding. This is the reason why it went mainstream and has been flourishing as an industry since 1997. By crowdfunding, business ventures can raise a small amount of money from a pool of people. For startups, raising money via crowdfunding has become a common practice. Data gathered by economy website Learnbond looks pretty encouraging. Based on the data, Learnbond has projected that the crowdfunding transaction value in the next 2 years will witness an annual growth of 12%. Based on this rate, by 2023, the global crowdfunding transaction volume will touch $11.98 billion.

How Does Crowdfunding Work?

There exist many types of crowdfunding models, however, a couple of them are very popular:
· Reward-based crowdfunding
· Equity-based crowdfunding
· Donation-based crowdfunding
· Peer-to-Peer crowdfunding

These models make crowdfunding effective, and it offers the following advantages to the participants:
· Marketing is made easy
· More revenue generation and lesser risk
· Product validation

Big Challenges of the industry | Can DeFi solve them?

Less than half of the crowdfunding campaigns reach their fund-raising goals. This is because the industry is plagued with challenges like trust issues, operational efficiencies, reward distribution, and more.

Trust issues
Crowdfunding scams are on the rise. As a result, trust has become a big roadblock in the growth of the industry. Effectively, for a new crowdfunding platform not having enough credibility could be a big challenge.

Without trust in a crowdfunding platform, no one would be ready to put in their funds in a project.

DeFi powered infrastructure can earn you trust and credibility

Defi crowdfunding platform is built using blockchain technology. Unlike a traditional crowdfunding platform, the decentralized one is managed by a network of distributed computers. As a result, blockchain makes it nearly impossible for the hacker to corrupt or mutate the data and documentation related to the platform. Thus, the Defi crowdfunding platform development strategy helps establish trust between the crowdfunding platform and the investors.

Accounting Issues
The accounting rules related to funds raised through crowdfunding are very uncertain. As a result, the investors are unable to understand how they will receive the rewards and when they will receive the capital investment back. Effectively, despite seeing a big gain-making opportunity, investors stay away from engaging in crowdfunding.

DeFi powered infrastructure to solve accounting issues
DeFi platforms are capable of using smart contracts to manage the accounting. Basically, a contract is set up between the investor and the crowdfunding platform. This contract is then programmed into a smart contract. As a result, the investor is assured that the terms of the contract will not be changed at platform’s whim. Additionally, the smart contracts will automate the reward pay-out. This will further increase the trust.

Transparency
The operational efficiency of a crowdfunding platform is the key to its success. An investor always wants to know how his funds are moving in the system and how are they being utilized. For a traditional crowdfunding platform to maintain transparency is a tough job as it requires a lot of manual tracking and reporting. Not all that, this kind of tracking is prone to manipulation.

DeFi infrastructure for transparency
Defi crowdfunding platform development services utilize blockchain technology. Basically, blockchain is a public ledger where everyone can see how the funds are moving but no miscreant can tweak the records or redirect the fund. To date, this level of operational transparency has not been achieved by any technology but blockchain can do it.

Summary of Benefits of DeFi for crowdfunding

A DeFi powered crowdfunding platform addresses most of the challenges posed by a centralized crowdfunding platform. Apart from that, a DeFi platform can help platform operators offer the following benefits to the investors:
• Low risk to their capital investments
• Access to how the capital is being utilized
• Aid in transparent marketing for trust-building

To wrap

Introduction of DeFi in crowdfunding marks a new era in crowdfunding. As blockchain technology promises to democratize capital, investors can be more confident about their investments. Thus, blockchain disruption is much required in the crowdfunding industry.

If you are planning to build your DeFi crowdfunding platform, Antier Solutions can help. We offer customized blockchain development solutions to develop and deliver high-performance DeFi platforms that help businesses disrupt the market.
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