Also known as Semantic Web, Web3 is the new internet iteration focused on making the web an open and decentralized space where users hold the real power. Web3 works on the blockchain and aims to mainstream decentralization, transparency, and peer-to-peer relationships on the internet.
The concept of decentralization started surfacing with the launch of Bitcoin in 2009. However, the launch of Ethereum in 2015 introduced a framework for blockchain technology to evolve into anything resembling web3. The ecosystem has witnessed a lot of progress since then.
Decentralized, open, permissionless, non-custodial, interoperable, immutable, and cryptographically verifiable with token-based economics and governance systems, web3 has been steadily revolutionizing the core nature of the internet. However, a few challenges still need to be addressed before web3 becomes mainstream. Scaling issues, energy costs, and computing power are the top 3 issues holding web3 back. But the way enthusiasts are working towards addressing these challenges, it won’t be long before the world has entirely shifted to web3.
But how is Decentralised Finance related to Web3? DeFi has been a key sector of the growth of Web3. By introducing a dynamic ecosystem, decentralized finance has enhanced the utility of the semantic web. Let’s quickly brush through the basics of DeFi.
Decentralized Finance, or DeFi, is an emerging financial technology that uses blockchain and cryptocurrency to manage financial transactions. DeFi aims to democratize the financial ecosystem by replacing traditional, centralized institutions with open and distributed peer-to-peer relationships that offer a complete spectrum of financial services—from everyday banking, loans, and mortgages to asset trading.
| DeFi | Traditional Finance |
| You hold your money. | Your money is held by banks/companies. |
| You control how your money is spent and where it goes. | You have to trust companies to manage your money properly. |
| Fund transfer happens in minutes. | Payments take days because of manual processes. |
| DeFi is open to everyone. | You must apply to use financial services. |
| The markets are always open. | Markets close. |
| Built on transparency—anyone can access data and see how the system works. | Closed book; users can’t ask to see their loan history or record of managed assets, etc. |
Decentralized Finance is a more transparent financial system supported by web3’s technologies. These systems are not dependent on intermediaries. That is to say, DeFi is rapidly becoming a paradigm that allows new value and utility within web3. Some of these are mentioned below:
DEXs are peer-to-peer marketplaces that allow interaction between cryptocurrency buyers and sellers. DeFi platforms differ from centralized exchanges because they are non-custodial, and users remain in control of their private keys while transacting. DEXs employ self-executing smart contracts to facilitate and record each transaction.
One of the most common utilities of DeFi is through multi-purpose P2P platforms that host a variety of products and services. Decentralized money markets allow users to lend, borrow, and stake crypto by adding liquidity to different protocols.
We can help you!
allow the creation of blockchain-based tokenized assets that mimic real-world assets. E.g., stocks, equities, commodities, fiat currencies, bonds, etc.
Non-fungible tokens are immutable and verifiable cryptographic assets representing anything from artwork to trading cards to special access passes. NFTs are one of DeFi’s largest markets and are regularly used within blockchain platforms to power systems such as play-to-earn games that incentivize users for their in-game efforts. It has also become commonplace for NFTs to be traded and exchanged on dedicated marketplaces in art, music, and other media.
DeFi is also being continuously used to deploy the transfer, use, trading, and storage of cryptocurrency assets such as stablecoins, utility and governance tokens, liquidity provider tokens, etc.
As one of the oldest DeFi projects, Maker uses smart contracts on Ethereum to make loans based on the stablecoin DAI, which tracks the price of the dollar 1:1. The maker protocol is managed by a cooperative organization called MakerDAO. The platform allows you to deposit several different tokens and borrow up to 2/3rd of their total value in the form of DAI at a decided interest.
The DAI, a user, borrows is created and added to the overall supply of tokens when you borrow it and is removed from the token supply when you pay it back. The algorithm adjusts the interest rates on loans to regulate the supply of DAI and keep its value matched with the dollar.
Another pioneer DeFi project, Aave, is a decentralized lending protocol that lets users lend and borrow different crypto assets on Aave. The platform currently has pools for 30 different Ethereum-based assets, including DAI, USD coin, Tether, and Gemini dollar. It also pools real-world assets such as real estate, payment advances, cargo and freight invoices, etc.
We can help you!
Uniswap is the first decentralized exchange to use the Automated Market Model. The platform allows users to deposit tokens into the trading pool and become market makers. Users can pick and choose the liquidity they supply and earn trading fees in return.
As a next-gen smart contract platform, Terra Luna, combines DeFi with the concept of stablecoins. The platform supports stablecoins that offer low fees, instant settlements, and seamless cross-border exchange.
Synthetix is a quickly growing DEX that enables cryptocurrency to be traded for stocks, currencies, commodities, and other assets still dominated by legacy financial institutions. The platform allows users to mint their synthetic assets, thereby exposing them to fiat, derivatives, crypto, and other asset classes.
Here is a 10-step process to build a DeFi App:
First, define the type of DeFi application you want to build. With the continuous advancement in the space, DeFi users can today use the technology for several different services. The most common types of DeFi applications include:
this includes the research phase, i.e., studying all existing DeFi apps on the market to get ideas for new features and improvements. This phase not only helps you define the functionality of your project but also helps you choose the best tech stack for the architecture.
The underlying blockchain is the foundation of a DeFi app today. Ethereum, Cardano, TRON, and EOS are some of the most popular blockchains that support DeFi. Studying the pros and cons of each blockchain and cross-referencing that with your vision is the starting point for this step.
this step will help you decide the amount of money you want to raise in your token sale and define the kind of token economics that will be most suited for your application. For instance, if you’re creating a stablecoin as an exchange medium between different cryptocurrencies, your token should have low volatility and inflationary pressure.
Any DeFi platform needs a wallet that users can link to their existing wallets to send and receive cryptocurrency within the app. You can choose existing wallets such as Trust Wallet or MetaMask or build your wallet into your platform’s codebase.
We can help you!
oracles are agents that provide data about events happening outside of the blockchain ecosystem. Working with oracles is important to understand the market and restructure your plan if needed.
the importance of a good user experience in an app does not need to be reiterated. Users should easily be able to understand how your app works, and they should be comfortable while using it.
Prototyping allows developers to test ideas without going through all the steps required for creating an actual product. Developers can also identify problems and fix them before moving on to production.
ensuring that your app meets its requirements, performs well under different conditions, and has no errors or bugs. Carrying out quality assurance is important because it affects how people will use your app and whether or not they will continue using it.
keeping your app up-to-date with the latest changes in the ecosystem to ensure that users get the most out of your web3 DeFi product and do not miss out on the recent-most developments.
While it’s still the spread of DeFi and Web3, consumers have begun to decentralize their finances. Decentralization is a core fundamental of web3, and decentralization in finances will only witness more adoption and development in the coming future. Therefore, the time to track those shifts and offer solutions to users is now.
We can help you!
