How to get started in DeFi: A guide on the first steps in decentralized finance

What is DeFi?

DeFi is a powerful, wild beast. And isn’t all of crypto decentralized finance, anyway? Sort of. The DeFi movement is all about financial products that prioritize decentralization and use incentive mechanisms to encourage investors to get involved.

The decentralized finance world is made up of a multitude of non-custodial financial products, built around a culture of highly-experimental, highly-lucrative crypto projects that’s caught the eye of top companies and venture capitalists—and not a few scammers.

How does DeFi work?

The three most popular projects are lending protocols Aave, Maker, and Compound. You can borrow cryptocurrencies instantaneously using these protocols, and often in large amounts if you can prove you can pay back the loan in a single transaction. You can also earn interest from lending out cryptocurrencies.

There is also Uniswap, which allows you to trade any Ethereum-based token, or to earn money by adding liquidity to that token’s market. In addition to digital assets, DeFi is also about synthetic assets, such as Synthetix’s tokenized stocks or Maker’s decentralized stablecoin, DAI. The value of these assets are algorithmically determined by the protocol. Other services allow you to convert Bitcoin to Ethereum without having to hold it yourself, or offer decentralized price information that allows synthetic assets to accurately match their non-synthetic counterparts.

These protocols are called DeFi because they are decentralized and non-custodial.

This means that the teams will not manage your crypto for you. With DeFi protocols, you always maintain control over your cryptocurrency, unlike depositing your money in a bank or lending out your crypto with a crypto loans company (such as Cred).

The people who created these protocols have given the users control over the smart contracts instead of having control themselves. This is in line with the hacker ethic which says that the creators should give up their power as soon as possible and let the users decide what happens with the network.

The space does not always meet its high goals. Although some of the largest DeFi protocols have smart contracts that seem to give the team running the protocols immense power, or that are vulnerable to manipulation, a closer reading of the contracts reveals that this is not the case.

But it’s wildly lucrative for some traders. Many of the protocols for lending offer interest rates that are significantly higher than average, which is increased even more by something called yield farming. This is where the protocols offer additional tokens to people who lend their money.

Governance tokens are tokens that can be used to vote on proposals to upgrade a network. These tokens can be traded on secondary markets, and some of them have annual percentage yields of 1000%. Although it is uncertain whether the protocols will last for a full year, it is still possible that they will.

What are DeFi Apps: Reasons to Create a DeFi App in 2022

DeFi apps are programs that enable users to trade digital assets on blockchain networks. These applications are similar to traditional financial products, but they are based on decentralized platforms and use smart contracts to store information and execute transactions. DeFi apps allow users to trade stocks, bonds, commodities, currencies and other assets on the blockchain.

Here are some reasons to know how to build a DeFi app in 2022:

DeFi apps can help solve real-world problems such as climate change and poverty by giving people access to credit on their own terms at lower interest rates than banks charge.

Apps built on top of DeFi protocols offer more features than traditional banking apps, making them more useful and engaging for users.
It’s easy to get started because you can use existing open-source libraries and frameworks (e.g., Ethereum). You can even launch an MVP without spending much on development costs.
If you have a good idea, you can quickly test it in the market with minimal effort — just create a smart contract that implements your business logic and deploy it!
You will not have to worry about fraud or liquidity issues – it’s all handled by the underlying protocols and smart contracts on the Ethereum network or any other suitable blockchain.

The Main Types of DeFi Apps

Companies on the Ethereum network are creating new applications that let users create, trade, and lend tokens or other digital assets. Today, users of decentralized finance (DeFi) applications can utilize many different services, including the following:

DeFi Banking

DeFi banking apps offer users the ability to manage their finances in a decentralized way. You don’t need a bank or other centralized institution to save, invest, or make payments using these apps. Moving your money to a digital bank can help cut down on the fees and other costs that come with traditional banking systems.

NFT

NFTs are digital assets that have special characteristics, such as being unique or scarce. Cryptocurrencies can be used in different ways such as trading on DEXs or collateralizing loans on platforms like Dharma Protocol or Compound.

Borrowing and Lending

This app is a peer-to-peer lending platform that allows users to borrow and lend money to each other. The app also allows users to loan money to other borrowers. Compound Finance is a popular example of this. It allows users to earn interest on their crypto by lending it out to other users on the platform.

Wallets

There are many wallets that support different assets and blockchains. For example, Coinbase Wallet lets users store Bitcoin, Ethereum, and other assets; while Trust Wallet stores all ERC20 tokens and more than 20,000 different Ethereum-based tokens.

Decentralized Crypto Exchanges

DEXs are decentralized exchanges that operate through smart contracts, as opposed to traditional exchanges that use central servers. This means that they are less vulnerable to being hacked than traditional exchanges, because there is no single point of failure. Popular DEXs include IDEX, ForkDelta and AirSwap.

DeFi Crowdfunding Platforms

DeFi Crowdfunding Platforms are another hot category. Platforms that use tokens are usually managed by a team or community that owns all the tokens and makes decisions about how they’re used. Most platforms have their own cryptocurrency that can be used to pay for services or as an investment opportunity for other users.

DAOs

A Decentralized Autonomous Organization (DAO) is a business that runs without a central authority by utilizing smart contracts and blockchain technology. The DAO functions without a CEO or CFO because everyone involved has an equal share in how it operates and how it allocates resources. Aragon is an example of an organization that is able to register their own Aragon ID on Ethereum and issue their own tokens through smart contracts. This allows them to have more control over their organization and the tokens that they issue.

How to Define the Tech Stack for DeFi Application Process?

A good combination of technologies will help you build a product that can handle increased usage, is secure, and easy to keep up. The benefits of learning multiple programming languages extend beyond being able to build whatever you want. You’ll also have more options for future development because you won’t be locked into using one language or framework for all of your projects.

In how to build a DeFi application, the first step is to DeFine your product. What is it? What are its features? What are its limitations? How will it be used? Who will use it? Why do they need it?
The second step is to look at your competitors and their offerings. How do they compare to yours? What features do they have that you don’t? Are there any features that you have, but they don’t?
The third step is to look at the market as a whole and see what kinds of products are out there already, what needs could be filled by new products, and how people are using them now.
The fourth step is to determine some basic technical specifications for your product: what kind of data does it need access to, how much data does it need access to, how fast does it need access to this data (if at all), what kind of software language would best fit these needs (or even if software is required), etc.

DeFi applications are usually created using DeFi protocols like MakerDAO, Dharma, Compound, or Kleros. The protocols define the rules and restrictions for the platform and provide developers with tools to interact with them. This is the layer where you can tailor the product to your users by adding things like UI/UX components, security features, and analytics.

Key Features of a DeFi Applications

An application, whether web or mobile, should be easy to use and understand. The main task in building a DeFi application is providing a smooth navigation experience and simple interaction with the user. When designing the workflow of an application, developers can follow several strategies:

Decentralized storage

DeFi applications use an off-chain database to store data. This is because if all users were on-chain at the same time, there would not be enough on-chain transactions to support them.

Programmability

DeFi applications are automated and executed without human intervention using smart contracts. It is easy for anyone to build new applications or make modifications without needing technical knowledge.

Interoperability

DeFi platforms are interconnected through APIs, which enables easy communication between them and allows users to transfer funds across different protocols without paying fees or waiting for confirmations.

Low-Cost Service Provider

The services offered by this company are much cheaper than those offered by banks or credit unions. Using these services helps them save money while still being efficient and without much hassle.

Financial instrument tokenization

This process of creating digital representations of real-world assets to be traded on the blockchain is called tokenization. This process allows users to manage their assets through a decentralized network, which is more secure than relying on centralized institutions such as banks or brokers.

Technical Tips and Development specs

The applications built on top of the DeFi offer an open and programmable financial system that is available to anyone with an Internet connection. The decentralized finance application has the following technical specifications: -It is open-source -It is decentralized -It follows best practices

Use the Solidity programming language to write contracts on Ethereum’s blockchain. Solidity has many features that allow you to write complex smart contracts with the confidence that they will work as intended.
Use Truffle as your development framework to make your life easier. Truffle simplifies deploying smart contracts, handling dependencies, testing, and much more — all in one simple command line interface (CLI) tool!
Use Web3js. Web3js is a JavaScript library that provides access to Ethereum nodes, allowing us to interact with smart contracts from our browser or mobile device (via MetaMask).

It’s important that you choose an SDK that works well with your application so that users can easily interact with it without having to install any new plugins or extensions on their browser or device.
Use MetaMask or Toshi to connect to Ethereum. Most developers should be using MetaMask or Toshi rather than connecting directly to geth (the Ethereum client) through their browser.
Build for scalability. It’s important to think about scalability from the very beginning so that your application can handle large volumes of users. Make sure to use a proven scaling solution like GrapheneDB or MongoDB.
Provide user-friendly UX. Your DApp should be easy to use and understand. Make it as easy as possible for people to understand how it works. For example, make sure all your buttons are clearly labeled with text that explains what they do.

10 Steps to Build DeFi Apps

This section will explore how to build DeFi apps. Based on our research and evaluation of current trends, it appears that blockchain technology is nearing a tipping point in terms of its role as a secure way to establish trust.

DeFine the DeFi Apps’ Type

Before creating a DeFi application, you need to first define what type of application it is. You need to understand the different types of DeFi apps and their pros and cons before you can start using them. After that, you should select the DeFi app that will most help you achieve your business goals.

Make a Discovery Phase

The discovery phase includes researching all existing DeFi applications available on the market. The purpose of this research is to come up with ideas for new features and improvements for your own DeFi application. You can learn about a competitor’s business by reading their website, white papers, and blog posts. This will give you an idea of their strengths and weaknesses. If you want to have a strong start, you should partner with an experienced outstaffing team like ProCoders.

What Blockchain to Use?

Choosing which blockchain technology to use for a DeFi app is a critical decision. DeFi is currently supported by several blockchains, including Ethereum, EOS, Cardano and TRON, with more to be added in the future. You will need to check if there already exists an open-source library that you can use for your project.

Chose Tokenomics

It is important to determine how much money you want to raise through your token sale, as well as what type of token economic system would be most suitable for your app. This will help ensure that your app is able to generate enough revenue to sustain itself. A stablecoin is a cryptocurrency that has low volatility and inflationary pressure. This makes it ideal for use as a medium of exchange between different cryptocurrencies.

Integrate Crypto wallet

This means that users of your app will be able to use their existing wallets to send or receive cryptocurrencies from within the app’s interface. This can include wallets such as MetaMask or Trust Wallet (which supports multiple coins), or even wallets built into your own platform’s codebase if you’re creating something more ambitious like a cryptocurrency exchange or marketplace.

Work with Oracles

The next step is to work with oracles. Oracles are agents that provide data about events happening outside of the blockchain ecosystem, like stock prices or weather conditions. There are usually third-party services that charge fees to use their API endpoints, but there are some open source options like ChainLink (LINK) and Foxconn Billing Service (FBS).

Design UI/??UX

When creating an app, it is important to consider how users will interact with it. This involves creating a user interface that is easy to use and understand. Can users figure out how to use your app? Do they need any training before using it? How can you make them comfortable using it? The following are questions that should be answered prior to designing the UI/UX for your application:

Prototyping

It is important to prototype during development as it allows for testing of ideas without having to go through all the time and effort required to create an actual product. This makes it easier to identify errors and potential improvements early on, making the final product much better. Identifying problems early on in the development process allows developers to fix them before they become bigger issues down the line.

Quality Assurance

The Quality Assurance team is responsible for making sure that an application meets its requirements, is free of bugs and errors, and performs well under different conditions, such as on mobile devices. QA is important because it can impact people’s use of your app and whether or not they’ll keep using your app in the future.