Decentralized finance or “DeFi” refers to the shift from traditional, centralized financial systems to peer-to-peer finance enabled by decentralized technologies built on the Ethereum blockchain.
From lending and borrowing platforms to stablecoins and tokenized BTC, the DeFi ecosystem has launched an expansive network of integrated protocols and financial instruments. Regardless of size, businesses are shifting their operations to the Ethereum blockchain to leverage DeFi’s transparency, security, and immutability advantages.
As the industry expands and grows more complex, developing robust decentralized applications (DApps) has become essential to success in the DeFi space. This article will explore what DeFi is, the benefits of developing a DeFi DApp, and the critical considerations for launching a successful project.
What is DeFi?
Decentralized finance (DeFi) is a financial system that runs on decentralized networks such as the Ethereum blockchain. DeFi protocols are open source and permissionless, meaning anyone can use or build on them. The DeFi ecosystem has launched an expansive network of integrated protocols and financial instruments, including lending and borrowing platforms, stablecoins, and tokenized BTC.
The goal of DeFi is to provide the same financial services that are available in the traditional, centralized financial system, but without the need for intermediaries such as banks or other third parties. By eliminating the middleman, DeFi protocols can offer these services at a lower cost and more transparency.
How Decentralized Apps Work?
A decentralized application (DApp) is a piece of software that runs on a decentralized network such as the Ethereum blockchain. DApps are open source and permissionless, meaning anyone can use or build on them. DApps are built on smart contracts, self-executing contracts that enforce the terms of an agreement between two parties. When a user interacts with a DApp, they interact with the smart contract that powers it.
The key benefit of DApps is that they are decentralized, meaning any central authority does not control them. Instead, they are powered by the network of users that use and contribute to them. As a result, it makes DApps more resistant to censorship and fraud and provides a higher level of security.
DApps use cases:
DApps offer multiple use cases across a wide range of industries. Some examples include:
Decentralized exchanges (DEXs) are DApps that allow users to buy and sell cryptocurrencies without needing a central authority. DEXs are often built on smart contracts, which automate the process of matching buyers and sellers and executing trades.
Lending and borrowing platforms:
These DApps allow users to lend or borrow cryptocurrencies from a decentralized liquidity pool. A smart contract enforces the loan’s terms, and another cryptocurrency typically collateralizes the loan.
Stablecoins are cryptocurrencies pegged to a stable asset such as the US dollar. The peg is typically maintained by collateralizing the stablecoin with the stable asset. Moreover, the supply of the stablecoin is often managed by a smart contract, which can automatically mint or burn the coin to maintain the peg.
Tokenized BTC is a type of cryptocurrency that BTC backs. The BTC is held in reserve, and the token can be used to trade or make payments on the Ethereum blockchain.
Why focus on DeFi dApp development?
There are many reasons why you should consider developing a DeFi DApp and hiring a professional company for DeFi dApp development. Some of the key benefits include:
DeFi DApps are powered by smart contracts, providing a higher security level than traditional, centralized applications. In addition, smart contracts are immutable, meaning they cannot be changed or deleted once deployed to the Ethereum blockchain. As a result, it makes DeFi DApps more resistant to hacking and fraud.
DeFi DApps are built on open source protocols, which allows for increased transparency. All of the code that powers a DeFi DApp is available for anyone to review. Moreover, all transactions that occur on a DeFi DApp are recorded on the Ethereum blockchain, which is publicly accessible.
DeFi DApps eliminate the need for intermediaries, which can help to reduce the overall cost of using the application. For example, decentralized exchanges don’t require users to pay trading fees to a central authority.
DeFi DApps are available to anyone with an Internet connection. Therefore, there is no need for approval from a central authority in order to use or contribute to a DeFi DApp. Moreover, the control over data is entirely in the hands of users.
Get started with Seven Bits!
Seven Bits is the best DeFi dApp development company offering complete decentralized solutions. We use the latest technology, tools, and platforms to develop high-quality DeFi applications. Our experienced developers have in-depth knowledge of DeFi protocols and can build custom DApps per your requirements. Get in touch with us at [email protected] to know more about our blockchain development services.