Discover the potential of Decentralized Finance with Invatechs
Cryptocurrency continues its ascendancy towards being the alternative financial system for the 21st century. Bitcoin returned to its highest value since May 2021 at $57,000 in October 2021. Popular retailers are adopting cryptocurrency payments. Coinbase is preparing to launch its own NFT marketplace to compete with OpenSea. Its future is open and limitless.
One of the ecosystems fuelling cryptocurrency is DeFi, short for Decentralized Finance. DeFi is a competing force against traditional banks, with a growing number of DeFi platforms and networks. That’s why it’s an essential system for crypto start-ups, investors and enthusiasts to know about inside out.
That’s also why Invatechs is here. In this article, we’ll cover what you need to know about DeFi. Its benefits, advantages and disadvantages. Existing DeFi categories and protocols. As well as the future of DeFi. We’ll cover the key steps for creating a DeFi app. Then, we’ll wrap up with how Invatechs’ blockchain expertise can push your crypto pursuits to the next level.
What is DeFi?
DeFi refers to the financial services and smart contracted-powered products on the blockchain. With traditional banking, the bank works as an intermediary and central authority. Decentralization removes the need for both. Instead, smart contracts can authenticate and process transactions and trades.
We touched on smart contracts (the technology that permits the transfer of assets and products) in our NFT blog. Take a look if you want to find out more. DeFi aims to create a fully digital native financial system. Global, faster and accessible to anyone with an internet connection. It will merge the digital frontend technology with a more efficient digital backend.
Let’s put it into context one more time. If you purchase something using a debit card, your bank is the go-between (the intermediary) between you and the vendor. DeFi cuts out that middleman.
For example, DeFi can operate 24/7. Settlement and clearing processes in stock trading can sometimes take up to three days to complete; even longer if it’s an international transaction. With DeFi’s peer-to-peer network, the transaction can be done securely at any time. No need for a bank’s approval.
What Are the Pros & Cons?
Anyone with a keen interest in cryptocurrency will be aware of the pros and cons when it comes to investing. These include: the high volatility and lack of regulation; the risk of monetary loss if a wallet file is corrupted or a password becomes lost; the potential for large returns on investments.
DeFi also demands its users navigate the pros and cons if they want to be safe and successful with any investments or start-up pursuits. Let’s break them down:
PROS | CONS |
Anyone with an internet connection can access the DeFi system. DeFi doesn’t require the know-your-customers (KYC) and bureaucratic information like traditional banks. I.e identification or credit scores. | If a blockchain hosting a DeFi project becomes unstable, that DeFi project inherits the blockchains instability. |
You have control over your finances. Smart contracts, not human intermediaries can qualify you for loans and manage your investments. | Even a small flaw in a smart contract’s coding can lead to monetary loss and hacking exposure. |
With activity and transactions recorded on the blockchain, DeFi permits open-source accessibility. | The low levels of interoperability between blockchain ecosystems can silo and segregate projects and stunt their mass adoption. |
Next to impossible to manipulate records on the blockchain. | The lack of insurance protecting investments from fraudulent interference. |
An abundance of growing peer-to-peer lending platforms and protocols. | DeFi ultimately depends on your responsibility; there’s no intermediary. That means DeFi still lacks the tools to address any human errors or mistakes. |
Existing DeFi Products, Apps and Platforms
So, what types of DeFi products, platforms and apps are there? If you wanted to start investing or make your own platform, where should you start looking?
Lending:
MakerDAO is one of the most popular and influential DeFi apps. Over $7 billion worth of tokens is locked in its protocol smart contracts. It operates on the Ethereum blockchain and issues the DAI stablecoin. A stablecoin tries to attach its values as close as it can to an external reference. For example, the United States dollar (USD). Being one of the most stable cryptocurrencies, it’s an ideal currency to issue loans with.
With Compound, lenders are able to deposit into lending pools that continuously accrue interest.
PhoenixDAO, Alchemix and Venus are some of the other popular platforms to take a look at.
Derivatives:
Synthetix allows for the creation of assets based on commodities, fiat currencies and crypto-assets. These are called Synths. Other platforms include, Nexus Mutual and Augur.
DEXs:
Before you learn about DEXs, you‘ll need to understand liquidity pools. These are crowdsourced pool of tokens and cryptocurrencies. These assets are held in a decentralised exchange (DEXs) smart contract. This provides traders quick access to convenient liquidity. These include Uniswap, Bancor and Kyber.
Your research shouldn’t stop there though. You can find an extensive DeFi list over here, perfect for research.
What Does the Future Hold?
As of 2021, DeFi grew into an $80 billion dollar industry. Many are asking, is DeFi the future of finance? DeFi has got some challenges to face first, sure.
Nonetheless, globally there remains 1.7 billion unbanked people. With just an internet connection needed, DeFi could be an option for millions of unbanked people. In September 2021, El Salvador adopted Bitcoin as a legal tender. Last year, we touched on the transformative potential of fintech on a global scale in one of our blogs. DeFi and crypto, once again, have mass appeal for adoption.
The total value locked (TVL) of crypto in DeFi continues to grow. Now is the time to make the most of this emerging technology. You might be asking where you start if you’re a start-up? What makes a popular, successful DeFi app?
Don’t worry. Invatechs is here to help. Our key steps will cover how to create a DeFi app from scratch. We’ll then wrap up with Invatechs’ own blockchain expertise and a FAQ.
How to Create a DeFi App.
First Up – Discovery Phase:
It’s important to understand DeFi is already a large, linked ecosystem. So your app will need to integrate with a number of other platforms and protocols. Let’s say you build a liquidity pool. That liquidity pool will need to integrate with other vendor’s protocols and contracts, like Curve.fi.
That means you’ll need to learn all about the market giants. These include vendors we’ve mentioned such as Compound or Aave. Defining the scope of your integrations and tech requirements is crucial. That’s because it will shape what kind of app you can create.
So, learn all you can about the market and main players. Identify the type of app you’re creating and what is unique that you have to offer. Once this is complete, you can consider the app’s main features. Putting all this into a Software Requirement Specification (SRS) will help consolidate your goals and needs.
Design Team, UI & UX:
The bottom line is, your app needs to look simple and be functional for your users. Currently, DeFi is far behind centralised banking and lending apps when it comes to pristine UI/UX. That’s why you need a highly skilled UI/UX designer(s) on your team. Users can quickly abandon an app if it doesn’t deliver what they need the first time they open it.
That’s another challenge you’re going to face. How do you build your team? Do you outsource or create in-house? DeFi requires a wide scope of knowledge and skills. These are pivotal assets your team will need.
We’ve written all about the pros and cons of outsourcing vs in-house development on our InvaBlog. Take a look if you’re deciding how to staff your own team.
Smart Contracts:
Smart contracts are the glue that hold DeFi together. So, their development is an essential for your app. Here’s a checklist of what you need to include in the smart contract development phase:
They have to include all the actions and steps a user can possibly take.
They have to be reliable and hacker proof.
Ensure your contract is a written in a way so it can be updated at any point.
The more features in your contract, the more complex it becomes. However, you still want to make the code of the contract transparent and easy to read. It’ll also make it easier to integrate with other smart contracts.
Unit testing and security audits will ensure you weed out any bugs or mistakes in the contract.
Quality Assurance:
Unit testing and security audits will check your smart contracts. However, you’ll still need to test the whole system. Here’s a checklist of what you’ll need for quality assurance:
Start by testing the app on your own computer and run the network locally. Create a Ganache mainnet fork. This will give you a lite version of the Ethereum network detached from the mainnet.
You’ll also want to test on an Etereum testnet like Ropsten and Kovan.
Project Launch & Post Maintenance:
Your app is built, tested and ready for launch. Once it’s on the market, maintenance is crucial. How much maintenance you can keep up with will of course be determined by the size of your team. If you have an in-house team, maintenance is in their hands. If you only outsourced development and not maintenance, you could meet some trouble.
That’s why it’s best to go with a design team that can stay with you from the start and beyond. If you partner with Invatechs, you can rest assured maintenance is in our capable hands. We can develop your app from the beginning; combining our expertise with your ambition and vision. We’ll wrap up with how we do just that in a moment.
FAQs
What is CeFi? CeFi refers to Centralized Finance. It offers some of the security you’d find in traditional finance. You can borrow money, save and spend with a crypto debit card. Discover more on the Coinbase website.
What are DeFi blue chips? Blue chips are reputable and recognised DeFi projects and currencies. I.e, Bitcoin (BTC), Ethereum (ETH) and Litecoin (LTC).
What are DeFi protocols? These are the automated rules and standards that govern DeFi’s tasks and activities. You can find an extensive list over here.
What is the tech stack for DeFi? In summary, there are four main layers. Settlement Layer, the base transactions are built on, such as ETH. The Protocol Layer, highlighted above, i.e the software, standard and rules. The Application Layer and Aggregation Layer. Check out Investopedia to get more in-depth info.
In Conclusion – How Invatechs Can Help
This article has covered the basics of DeFi and what you need to know to make the most of its future. Now, you have the ingredients to build your own DeFi app. Nevertheless, we know DeFi is a new, complex and volatile technology. That’s why Invatechs’ Blockchain services are dedicated to unlocking DeFi’s potential, securely and effectively.
With our expertise, we translate your ideas into skilfully designed applications and platforms. We create a thorough proposal, with pricing, timescales, implementation and post-launch maintenance.
If you’re not looking to build an app, we can still accelerate your business with a blockchain solution. Our projects have included an Ethereum-Based ICO as well as a cryptocurrency saving app. Our fintech projects don’t stop there. Other projects have included a tax payment gateway and e-commerce platform. You can check out our portfolio over here.
DeFi holds unlimited potential. The question is, where does your future lie with DeFi? Contact Invatechs today. We’ll find the blockchain solution built for your future.