Transforming Finance with dApps and DeFi

Decentralized finance (DeFi) and decentralized applications (dApps) are, without a doubt, the financial landscape. Just how exactly are they doing this?

• Offering an innovative. 
• Transparent.
• Secure alternative to traditional financial systems. 

Basically, what these revolutionary technologies are trying to do is provide value and improve utility for consumers across the globe. 

Essentially, dApps are web services built on Blockchain technology to offer a trustless environment. In other words, it operates without the need for a central authority or intermediary. As a result, this transparency ensures all transactions and activities are accessible and can be fully audited by the public. Their immutability nature means they cannot be altered once added to the Blockchain. 

Mainstream dApps began with MakerDAO in 2017. Interestingly, Ethereum’s Initial Coin Offerings (ICOs) gained massive popularity the same year. Even though Bitcoin supports dApps, Ethereum dominates this space due to its flexible and feature-rich platform.

What are DeFi dApps?

DeFi dApps rely on Blockchain to provide financial services like borrowing and investing. They have rapidly gained adoption thanks to decentralisation. Unlike traditional systems, DeFi operates on a transparent protocol without centralised supervision, which is a dream come true for most people when it comes to their financial escapades. The total value locked in DeFi projects today shows significant market acceptance, with billions in crypto assets under autonomous management. 

Services Attainable through dApps

Beyond financial transactions, decentralised applications offer other services like games, social media platforms and file-sharing networks. However, their most profound impact remains within the financial sector, where they rival traditional banking through increased efficiency and reduced costs.

Take, for instance, users who are in dire need of fiat loans without necessarily wanting to liquidate their Cryptocurrency holdings; they can simply secure a loan directly through DeFi dApps. These applications use smart contracts to auto-manage loans by placing the borrower’s crypto as collateral, guaranteeing transparency and automatic settlement upon repayment or retaining it in case of a loan default. And, of course, all these happen without the need for a middleman.

Most dApps run on Blockchain protocols secured by consensus mechanisms like Proof-of-Work (PoW) or Proof-of-Stake (PoS). These mechanisms protect against centralisation and, at the same time, incentivise users to maintain network integrity. One such way is by rewarding users with tokens for their participatory security efforts.

The decentralisation aspect makes these applications operate on a global scale, which means anyone with internet access can access them, hence facilitating financial inclusion.

The Future of dApps

With its 2015 launch, Ethereum started the dApp movement. However, dApp development is still wider than that of a single blockchain. Similar paths are being explored by up-and-coming Blockchain platforms like Cardano and EOSIO, which are growing the ecosystem and defining the potential of dApps. 

 With ideas like “money legos,” where dApps interact seamlessly to carry out complex financial functions, the interoperability of dApps is becoming more and more important as the ecosystem develops.

Ultimately, Blockchain technology is proving to be a force to reckon with. And while dApps grow in functionality and popularity, their impact on everyday financial interactions continues to unfold, thus the promise to make decentralised financial systems a tangible reality.

Image Source: Shutterstock

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used for legal, tax, investment, financial or other advice.