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.
DeFi applications are built on decentralized applications (dApps) that run on blockchain networks, providing users with a variety of financial services, such as lending, borrowing, trading, and more. Building a DeFi dApp requires specialized knowledge of blockchain technology, smart contracts, and other related tools and frameworks.
In this article, our blockchain development team will provide a comprehensive guide to DeFi dApp development, covering the essential concepts and tools needed to build a DeFi dApp from scratch. Whether you are a seasoned blockchain developer or just starting with DeFi, this tutorial will provide you with valuable insights and practical advice to help you succeed in the exciting world of DeFi dApp development.
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 creating 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 development is that they use decentralized servers. Thus, even one server’s failure won’t cause any disruption in the app used 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.
Why Build DeFi dApps?DeFi dApp development has become very popular today in all digital industries, mainly due to the broad applicability of dApps for business purposes. The greatest advantage that dApps offer to businesses is security. With such apps operating on the blockchain, data is stored on multiple devices (nodes), thus preventing breach or theft. With the help of distributed storage, dApps thus achieve the ultimate safety of sensitive data transfer, such as financial operations.
Another benefit of decentralized app development for businesses is data privacy and anonymity. dApps are essentially self-governing software which doesn’t require centralized intermediary oversight or transaction confirmation. Therefore, dApps can guarantee user confidentiality and sensitive data protection from unwanted checks or disclosures.
Additional pros of having a dAapp are:
Understanding what decentralized application development 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: ClassificationSo, 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 FeaturesNow, let’s discuss the core features that every dApp should possess to function properly.
Consensus Mechanism
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.
Open-Source Architecture
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.
Decentralized Database
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.
Token Distribution
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 ArchitectureOnce 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 dAppsWith 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 decentralized application development:
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 DevelopmentInterested 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.
Market Research
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.
Project Specifications
Now that a dApp 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.
UI/UX Design
Another issue to clarify before the dApp 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 decentralized application design 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.
Blockchain dApp 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.
Testing
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.
Launch
After all aspects of the creating dApp 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 DeFi 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 team can provide to you on any blockchain dApp project.
Blockchain Platforms for Your dApp DevelopmentAs soon as you decide to build a dApp, it’s vital to choose the best blockchain for dApps that will feature all the pros you are looking for. At present, the top choices among dApp programmers worldwide are:
Many businesses are confused about the cost of building a dApp, as there’s no precise estimate for such projects. The dApp development cost usually depends on several factors that need to be considered during price estimation, such as:
The project’s budget may range from a minimum of $25,000 and stretch beyond $200,000 for large-scale, enterprise-level solutions. Thus, it’s always reasonable to consult experts, discuss the list of features and specifications you want to include in your dApp, and arrive at an optimal roadmap meeting your budget and deadline expectations.
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