DeFi dApp Development to Advance Your Business to the Next Level
Decentralized finance (DeFi) is the new word in the global financial industry. About a decade ago, Fintech startups pioneering in DeFi were considered exotic experimenters, while today, many DeFi projects are already well-established and lucrative. According to the recent Coindesk statistics, DeFi has exceeded the $100 billion market cap in 202 (with CoinGecko going even further to estimate it at $128 billion). In any case, the fact of DeFi gaining traction and attracting many new users every day is indisputable. And the good news is that you can embrace this market trend to your financial advantage.
In this article, the 4IRE development team explains the concept of dApp in a user-friendly way, showing step-by-step how you can get your customized dApp and gain revenue from its monetization on the DeFi market. Read on to discover what dApps are, how they are developed, the pros and cons of using a dApp, and how the dApp architecture operates in the blockchain environment.
What Is dApp?
In a nutshell, the difference between conservative apps and distributed apps (dApps) is clear from the term’s name. Since dApps are distributed, they don’t use the traditional client-server network. In a traditional app, all clients refer to a single data center via their ISPs, making the app’s work centralized. All users send data to and get it from the central server of the provider.
So, what does it take to make an app genuinely decentralized? The meaning of this feature is the absence of central control, ownership, or management by a single authority (person or entity). Following the pioneering cryptocurrency, BTC, all blockchain users now strive to make crypto assets and transactions with them flexible, accessible, and independent of any central authority, which is decentralization.
Thus, when we talk about dApps, we mean that anyone with an internet connection and access to a particular blockchain can view and authorize transactions within it. These active users (nodes) are reimbursed with the blockchain’s native currency for their effort, which they can exchange, save in crypto banks, or trade for other coins.
Another benefit of dApps is that they use decentralized servers. Thus, even one server’s failure won’t cause any disruption in the app use by its members, with many alternative servers operating as usual. Using dApps is also much safer in terms of private information. With usual apps being centralized holders of your private data, you can have concerns about their integrity and personal details for marketing purposes, data breaches and thefts by hackers, and other data-related concerns. With dApps, the problem is non-existent as your information is stored in an open, distributed system that doesn’t belong to anyone and that is thoroughly encrypted with high-end blockchain code.
Decentralized Applications: Examples
Understanding what is a decentralized application is easier with some practical examples. Here are the top 5 use cases of dApps that you can refer to.
MakerDAO is one of the top DeFi lending platforms today, enabling clients to get instant loans without third-party involvement by using the collateralized debt position (CDP) contracts. The platform uses a native coin, DAI, which is pegged to USD to reduce volatility in the system. Our company has recently established a strategic partnership with this platform to advance its technological capabilities.
Synthetix is a unique dApp allowing users to generate and trade “synths” – synthetic clones of BTC, ETH, other crypto, USD, gold, and many other assets. It is an investment platform offering unique tokenization and exchange opportunities.
Uniswap is a universal, user-friendly DEX that helps users exchange, trade, and invest a variety of ERC20 tokens with each other. Users also pool their assets into a liquidity pool of the platform, thus improving the exchange’s liquidity and gaining yield from those staked assets.
KYC-Chain is a type 2 dApp created by a Hong Kong developer to streamline customer onboarding procedures in the financial sector. It’s an innovative blockchain solution to identity management issues combining the personality identification and financial management components in an innovative ecosystem.
Factom is quite a simple type 1 dApp specializing exclusively in digital asset validation.
Decentralized Apps Explained: Classification
So, what is a dApp in blockchain, and what types of dApp can you consider? Typically, there are three types, or tiers, of dApps in the market. The first type is a financial dApp. It may be equated to a cryptocurrency or a token, as it is simply a financial/money management method. Users are the only owners of their assets within that system, and they don’t need to report to any authority about transactions within the system. Ideal examples of such systems are Bitcoin and some other altcoins.
The second type is semi-financial. These dApps also perform the financial function, but they also provide additional services and features, such as informational, transactional, or other. Thus, such dApps apply the first-type system and add something distinct to it. Excellent examples of such dApps are the ICO apps that combine the crypto asset per se with a related fundraising system.
The third type of dApps is non-financial. Such dApps can be used for any purposes – from blockchain-based state governance to tokenized waste recycling systems and voting management. So, this type of dApps appropriates the blockchain principles of decentralization, transparency, and peer-to-peer transaction validation, while at the same time not necessarily including any financial component (i.e., cryptocurrency).
Decentralized Applications Explained: dApp Features
Now, let’s discuss the core features that every dApp should possess to function properly.
In centralized apps, a central server needs to validate any user transaction. In dApps, the system works differently, with peers in the network (nodes) collaborating to approve the transaction. Once most active nodes confirm the validity of a pending transaction, it goes through without any central database’s confirmation or review. Consensus is traditionally established via proof-of-work (PoW) or proof-of-stake (POS) algorithms.
Most centralized apps have a closed-source architecture that no outsider can view or audit. Thus, the users joining such apps need to trust the app’s developer to share their identity information, banking details, and other personal details or media content that the developer can potentially misuse or manipulate. dApps are always open-source, which enables any network participant to audit the system and keep track of any transaction occurring there. Thus, an advanced level of trust and transparency is achieved.
dApps operate based on decentralized databases (e.g., BitTorrent or IPFS), which removes the central point of failure from their architecture. With nodes of the dApp functioning independently, the network’s failure is next to impossible.
Another vital feature of any dApp is the distribution of its native tokens among the users. Tokens are broadly used in blockchain systems for mining, fundraising, and platform development. As the project progresses and grows, the token value rises, and early investors receive fair gains from their input. Thus, a dApp should incorporate a token distribution and mining mechanism to regulate token transactions within the system.
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How Does a dApp Work? Essentials of Decentralized Application Architecture
Once the features discussed in the previous section are implemented and your dApp functions as a decentralized, open-source application fueled by native tokens generated via the chosen blockchain protocol, it’s possible to say that your project is successfully launched.
In terms of the overall dApp operation, however, you should consider the underlying blockchain architecture making the system work. Using the blockchain ledger for your dApp is a way to record all transactions, which is possible by adding the tokens mined with the help of POS/PoW algorithms.
Limitations of dApps
With the numerous benefits of using dApps, such as the absence of a controlling authority, greater security, no downtime, and easy payments, this type of blockchain-based app also comes with certain limitations. They should also be taken into account when considering such app’s development:
- Blockchains are non-scalable in most cases. Thus, most of them grow slower and less efficient as the number of users increases.
- Energy costs for the use of dApps are much more considerable than for usual apps. Thus, the end-users may eventually incur more significant expenditures related to the use of dApps.
- dApps process transactions and inquiries much longer than usual apps do because of a distinct validation mechanism enacted here.
Besides, if you want to develop a dApp, you will need to deal with many specific issues related to dApp creation and launch, such as non-user-friendly UX, security concerns, network delays and protocol’s sustainability, etc.
Stages of Decentralized Applications Development
Interested in how to create a decentralized app? Let’s proceed to the critical aspect you might be interested in – how to create a decentralized application and what is needed from you as a client to get things going.
First, you need to research the existing DeFi market to see what is available and what is missing among the current dApp offers. A shortcut to success is to see what gaps exist on the market, and what client needs are unmet. Another path is to design a product with an essential combination of features currently present only in separate apps.
Now that a business idea is ready, it’s time to shape it into a clear technical plan with details and specifications. At this stage, you need to find a development team that will undertake software development and blockchain architecture for your project. Explain your goals and design the final development plan together with them to be on the same page about the dApp’s technical features.
Another issue to clarify before the development process starts is the design of the front-end. Though UX/UI is commonly seen as the final element of the development pipeline, sometimes it determines critical development aspects. So, not to overlook any essential design elements, you need to negotiate and sketch the dApp’s UX early at the start of development.
This stage includes all technical work, including blockchain engineering and infrastructure development for your dApp. Your development team undertakes all these tasks and informs you about the significant milestones they’ve covered, such as token development, smart contract design, wallet design, etc.
Once the MVP is ready, you can test the dApp in a simulated environment to see whether it works well and correct any identified bugs and errors.
After all aspects of the dApp operation have been fixed, you can proceed to its market launch. It’s also recommended to hold a preliminary marketing campaign to fuel the customers’ interest and engage users with your product from day one.
Maintenance and Support
Once the dApp starts operating, it’s only the beginning of your development team’s work on it. It’s highly recommended to engage with your developers on a long-term basis so that they provide real-time support, troubleshooting, staff training for your employees, and regular dApp updates. That’s all that the 4IRE Labs team can provide to you on any blockchain dApp project.
What is a dApp, and how is it different from a standard application?
dApps are decentralized apps devoid of the traditional user-server model of operation. They operate with several decentralized servers and utilize the blockchain technology as their underlying architecture, with transactions within the app confirmed and validated by peers instead of a central authority.
How to build decentralized applications?
Those interested in building a decentralized app should consider the following steps: choosing the underlying blockchain, developing the set of features and back-end for the app, designing its front-end, and hiring a talented and experienced blockchain development team to develop and launch that project.
How to make a decentralized app user-friendly and popular?
Usability features of a dApp depend on the specifics and niche of this dApp’s application. For instance, lending and borrowing DeFi apps may require a minimalist design and simple registration for users to get loans quickly and simply. Crypto trading platforms should contain comprehensive dashboards with crypto exchange rates and commissions. dApps for communication should be intuitive and interoperable with other social media, and so on.