Technology is transforming finance with new trends and their use cases. Blockchain turned around the landscapes of the traditional ways of performing financial tasks, making the complete process architecture more independent and credible.
The finance industry is shifting towards the role of a centralized authority validating transactions and other entities.
DeFi, an acronym for decentralized finance, has emerged as a transformative terminology that is often seen as an elemental constraint in the future of the economy.
Technologies are tending towards reinventing the conventional economy infrastructure on the foundation of decentralized computing.
For business enthusiasts, the development of DeFi apps comes as an opportunity to utilize the potential growth of a decentralized economy.
As per the statistics on Statista, the market of DeFi has grown from 80,593.42 million US Dollars in September 2021 to 93,396.67 million US Dollars in October 2021.
In this blog post, we shall unfold the deets of DeFi, DeFi app development, and the scope opportunities it holds for the future.
Table of Contents
- What is DeFi?
- What Does a DeFi App Do?
- DeFi vs Traditional Finance
- Current State of The DeFi Market
- How Do We Use DeFi?
- Top 7 DeFi Apps
- The Structure of a DeFi App Development
- Technology Stack to Create a DeFi App?
- The Future of Finance Featuring DeFi
What is DeFi?
DeFi is a terminology shifting conventional financial processes to the decentralized networks of Blockchain. The use cases of DeFi may have conceptual similarities with that of cryptocurrencies but the former has a wider scope of opportunities.
Among the primary objectives of DeFi is to eliminate the role of intermediaries and put technology in the center of the process.
What Does a DeFi App Do?
DeFi apps act as the resources that we can use to deliver financial services through decentralized computing. These apps provide a publicly accessible infrastructure where anyone can avail of the services without any personal authentication.
DeFi apps provide users the facility to trade cryptocurrencies, lend or borrow funds, buy insurance policies, and a lot more. These applications utilize Smart Contracts as a digital intermediary for flawless and smooth execution of tasks.
DeFi vs Traditional Finance
Regulatory elements cause a significant distinction between the structure of decentralized finance (DeFi) and traditional finance. There are different sorts of fees charged on regular process segments.
Several things distinguish DeFi from traditional finance.
Let us find out.
With no regulatory institution, DeFi economy is independent. The data is received from and sent to the users directly. It is stored in a Blockchain where no one can alter any piece of information. Migrating data from one DApp to another DApp is fast and simple. A Blockchain development company can help you implement the foundation of these applications and escape any human intervention, so you need no papers or authority signatures to make your financial decisions.
The Blockchain development community can review the code, detect and report bugs in DeFi applications. You can view the interaction between accounts. Since every user account is shown pseudonymous by default, user privacy is not hampered.
DeFi app services are made accessible to everyone having an internet connection. Decentralization is all about creating independent service resources.
DeFi apps can run across several Blockchain frameworks, and these applications showcase high compatibility with other DeFi apps.
Current State of The DeFi Market
DeFi economy is still evolving and stretching its arms across different applications. A staggering increase of 50% in Q1 of 2021 in the userbase has benefitted sectors adopting DeFi.
Decentralized exchange (DEX) is a premier use case of DeFi which is growing at an unprecedented pace.
The transformative DeFi apps have also raised serious concern among a section of business experts who put questions on the support system. They ask who will be culpable in case of financial crimes in an independent, borderless yet encrypted platform like DeFi app.
Smart Contracts works on the concept of ‘code is law’. Some users have also raised concerns about conditions where there would be a malfunctioning across the platform.
How Do We Use DeFi?
Alongside being decentralized and independent, DeFi applications are used to execute a variety of operations. The use cases of DeFi focus on finding transformative alternatives for traditional finance processes.
Let us explore the functions of DeFi.
As the name suggests, Stablecoins relates to stable or nearly stable volatility in DeFi economy. One of the most risk-prone characteristics of any cryptocurrency is that it exhibits high volatility, which keeps the investors in suspicion if it is a worthwhile investment.
Stablecoins are pegged to prices of reserve assets which makes them a revolutionary crypto entity in the market.
DeFi tokens are mined on a pre-existed Blockchain where they can generally acquire the name of a native Blockchain. Moreover, they can also be pegged to an underlying asset such as gold, fiat currency, etc.
Cryptocurrency is at such a nascent stage that it requires a central authority like a digital wallet. These digital wallets would hold the key when cryptocurrencies are exchanged. One can argue how a third party is still intermediating in a distributed and decentralized process architecture.
With DeFi wallet, users can always retain crypto coins but remain responsible for private keys, and they cannot access them without a private key. Unlike a centralized cryptocurrency, you cannot request new keys when lost, which we could do with the passwords.
Liquidity Mining or Yield Farming
The process of liquidity mining or yield farming uses cryptocurrencies to provide liquidity. A decentralized exchange (DEX) uses Automatic Market Marker (AMM) to regulate trading. Users can swap tokens to trade cryptos in the liquidity pool and earn passive incomes.
Staking involves the utilization of idle coins to enhance computation energy for validating cryptographic transactions through the best staking platform. The process of staking is based on the proof-of-stake concept, which emphasizes ownership stake than work.
DeFi exchange apps allow users to trade cryptocurrencies without the participation of a third-party intermediary. These apps utilize Smart Contracts to initiate direct and peer-to-peer trading.
Lending & Borrowing
Lending and borrowing are two popular finance processes. Since DeFi is creating aplenty of alternatives for traditional finance, DeFi lending & borrowing apps are one more kind. Smart Contracts act as a technological intermediary in these apps, ensuring that the conditions are followed by both the borrowers and lenders.
DeFi insurance apps work on a risk or profit-sharing phenomenon where either you earn, or you lose everything. These apps invite investors to create an investment pool that tends to provide coverage to the users of certain DeFi insurance apps from risks related to cryptocurrencies.
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An evolving Blockchain app development infrastructure is leading the market towards futuristic opportunities for investments. There can be many more use cases that we may explore as the dynamics of DeFi reaches the next level.
Top 7 DeFi Apps
When we talk about the transformative economy trends these days, we always put DApp development, NFT Marketplace development, or even cryptocurrency trading app development among the primary use cases. Still, there is a lot more than decentralized computing is offering to the world.
In a growing DeFi app market, you need to be competitive, innovative, and technologically aware.
Understanding your competitors can be the simplest way to identify the ongoing trends of the market for early investors of the DeFi app development market.
Let us explore the seven most popular DeFi apps.
Founded in November 2018, Uniswap is a decentralized crypto trading platform. It uses Smart Contracts called Automated Market Makers (AMM) to manage exchanges. The Uniswap protocol determines the token prices by analyzing liquidity for involved tokens.
Maker is a collateral-based and decentralized credit platform. Users can borrow Dai, a Stablecoin pegging value to USD, with debt up to 66% of collaterals. The users open vaults to lock in collaterals such as ETH or BAT coins. The total value locked in the Maker platform reached $20.121 billion on December 1, 2021.
Aave is a decentralized liquidity protocol. It provides a features safety module, a liquidity pool designated to allow users to invest more tokens to earn and contribute in making crucial calls related to the overall functioning of the platform.
The platform lends money on over-collateralization where the value of collaterals needs to be higher than the value of the loan failing which can lead to liquidation of loans.
Launched in 2020, Curve (CRV) is a decentralized exchange platform that supports stability. The platform provides the facility to trade tokens at low fees and slippage by accommodating liquidity pools.
Convex finance is a platform rewarding CRV token holders and liquidity providers. Users can deposit exchange their CRV tokens with cvxCRV tokens.
Flexa is a decentralized payment system where users can pay using a wide range of cryptocurrencies i.e. ERC20 tokens, Stablecoins, and reward points. It supports dozens of currencies yet engage in simple and fast processing of payments.
dYdX is a non-custodial decentralized exchange platform where users can initiate fast, secure, and transparent trading. The platform uses Smart Contracts to stamp out a central intermediary.
The Structure of a DeFi App Development
Now that we understand various components of DeFi economy, it is time to know how we make a DApp become the medium to provide the intended services.
Currency is an integral part of any finance app, having your own currency is something blockchain facilitates. For DeFi, we can create our own crypto tokens or we can integrate them with other existing coins/tokens to facilitate purchase, exchange, or other operations.
Wallets provide a DeFi app that platform to store private keys and utilize tokens for different operations. Wallet ensures users that they can store currency and they can use it to perform operations on the Defi platform. Wallet ensures secure and authenticated transactions.
Browsers and application infrastructure interact directly with the wallets e.g., MetaMask, Trust, etc.
Setting Up Frontend
DeFi users communicate through the frontend of the applications which implicitly interacts with the backend APIs. This step will ensure you create an interface to access all functionalities within the DeFi app through Smart Contracts.
Smart Contracts are a self-executing set of codes that indulges in dedicated functionalities. This set of codes operates the execution of conditions that need to be followed upon transactions. You can set up your own rules and regulations for the proper functioning of your Defi App.
Integration With Backend
Once Smart Contracts are created, they can be integrated with a Backend API or directly with your frontend. Through this process, we integrate both the frontend and backend of the application into the Blockchain.
Technology Stack to Create a DeFi App
SMART CONTRACTS LANGUAGES
BACKEND API LIBRARIES
The Future of Finance Featuring DeFi
Although traditional finance has evolved significantly, the role of centralized authority has never been replaced. The hypothesis of the future of finance featuring DeFi comes with arguments debating that even the so-called decentralized finance would use Smart Contracts development techniques to set up a technological intermediary.
Despite an exceptional surge in the growth of DeFi apps, one can say that there is still a lot to address when it comes to DApp development.
How Can We Help You?
From discovery, integration, storage to product development, you need a DeFi development company that creates industry-oriented, feature-packaged, and user-oriented applications conforming to the needs of an advanced decentralized economy.
Our primary services in DeFi apps include the following;
- Designing & Integration
- MVP Consultation
- Decentralized Exchange Development
- Smart Contracts
- Wallets Development and Integrations
You can reach out to our DeFi experts to explore more.
Decentralized finance is still in nascent stages, evolving its customer-oriented landscapes and being used in general applications. Despite all security protocols, some experts are still skeptical of the limitations of DeFi apps. However, the DeFi is growing by leaps and bounds, showing no negative impacts on the technological infrastructure of the Blockchain economy.