Small Businesses — A vital step for DeFi

Small and medium enterprises are the backbone of many economies. According to a Small Business Administration (SBA) Report in 2019, small businesses alone account for about 44% of economic activity in the US. Perhaps even more impressively, small businesses create two-thirds of new jobs and deliver 43.5% of the United States’ gross domestic product (GDP). So, while large financial firms will be vital for institutional adoption, we mustn’t forget that small businesses will play an important part.

The problem is, obtaining loans for SMEs has always been a challenge. According to the World Bank, SMEs are less likely to get bank loans than large firms; instead, they rely on internal funds or cash from friends and family to kickstart their enterprises. DeFi could offer an opportunity for small companies to access loans that allow their company to grow. Many DeFi lending and borrowing protocols, such as AAVE and Compound, provide people with a broader scope of financing opportunities at a lower cost.

DeFi could offer an opportunity for small companies to access loans that allow their company to grow.

It seems obvious that all small businesses would jump at this opportunity to acquire funding, doesn’t it? If it is cheaper and easier to obtain, then why wouldn’t they? Well, as is often the case, things aren’t yet that straightforward. The problem is that many of these loans are vulnerable at the moment. We have spoken about “Rug Pulls” in previous articles, where scammers use coding loopholes to remove tokens without others knowing, and flash loan attacks, where dishonest actors manipulate the asset prices to their own advantage. These types of attacks can leave people in a hole — even experienced investors have been caught out. As it stands, these types of loans are too high-risk for small businesses, which often operate on small profit margins. For a small enterprise, a sizeable loss could be too much to recover from.

DeFi could be crucial for small businesses in the coming years, but not without the security and trust provided by Astra.

At Astra, we recognise the importance of DeFi and how it will inevitably reshape the financial landscape. However, we also realise that we need a decentralised legal layer that protects all participants, individuals and businesses alike. Along with regulations that make it clear what is and isn’t acceptable, we need a way to resolve disputes and bring trust to DeFi protocols. Astra can plug into any certified smart contract, showing prospective users that the loan is legitimate and secured against various attack types. If there is an issue at any point, the Astra platform can be used to verify data swiftly. The result is then fed back into the smart contract, ensuring the loan agreement can go ahead with minimal disruption. DeFi could be crucial for small businesses in the coming years, but not without the security and trust provided by Astra.

The Astra Protocol

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Our mission is to equip the DeFi world with a fully decentralised compliance layer. Unlocking the future growth of the industry. www.astraprotocol.com

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Astra Protocol

Astra Protocol

Our mission is to equip the DeFi world with a fully decentralised compliance layer. Unlocking the future growth of the industry. www.astraprotocol.com

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