Developing a DeFi Service in 2022: A Reference Guide
DeFi is revolutionizing the financial sector and creating new possibilities for asset management. The total value locked in decentralized finance was at its highest in October 2021. At the time, the TVL was worth over $248 trillion. In 2022, the numbers look less impressive, but the resilient popularity of decentralized finance continues.
In this guide, we are going to discuss DeFi services that are changing the way we work with money. The article covers the main features of DeFi services and what to consider when developing DeFi with its unique functionality.
A new decade of DeFi
Decentralized finance (DeFi) is a new way of doing finance. It is built on top of the existing financial infrastructure, but it is a different system that allows open source to play a major role.
It’s not just about using blockchain or other technologies for payments, settlement and clearing. DeFi gives all market participants (individuals and institutions) access to data streams to use with their funds as they see fit.
The impact of DeFi on the financial world includes:
- DeFi is a new trend in the financial industry that promotes user empowerment and data security.
- It is a new decentralized way to transfer and store values without an intermediary or a centralized unit.
- It is also a new way to trade cryptocurrencies through interoperable decentralized applications.
- And it can be used as the infrastructure to create financial products like loans and tokens, especially when combined with other technologies like smart contracts and stablecoins.
Types of DeFi apps
The decentralized landscape is full of innovative applications and services. The latter attracts both individuals and entrepreneurs. Let’s take a close look at the DeFi apps rocking the boat in 2022.
DeFi smart contracts
Smart contracts are the foundation of decentralization. They are solely responsible for brokerless transactions within the DeFi ecosystem. Thus, smart contracts automatically execute once predetermined agreements are made.
The terms and conditions of this agreement are always built right into the code. Therefore, smart contracts act as a control entity without centralization. Ethereum is the go-to option for developing smart contracts, as it is the native platform for them.
DApps are blockchain-based applications that are both open source and immutable. We can think of dApps as a user interface for DeFi services. DApps are based on smart contracts, while their front-end is similar to traditional apps.
Unlike traditional applications, decentralized applications are open and not necessarily controlled by a single person or organization. Decentralized applications or dApps operate on distributed networks such as P2P network or blockchain, like Ethereum.
The Decentralized Currency Exchange or DEX is an exchange platform without an intermediary. Here, crypto enthusiasts can trade their assets with distributed ledgers acting as third parties. Its decentralized nature allows the exchange to eliminate a single point of failure, thereby securing transactions.
Transparent trading is another differentiator of DEXs where every transaction is recorded directly in the blockchain. UniSwap and PancakeSwap are among the top decentralized exchanges with nearly one million trades executed per day.
DeFi Wallet Development
Other popular DeFi applications include crypto wallets. They store private keys to manage crypto assets. Acting like a physical wallet, crypto wallets allow the user to access their cryptocurrency to make transactions.
Crypto wallets come in different shapes and forms depending on where they are hosted:
- Online cryptocurrency wallets are hosted on websites and allow users to access from any computing device.
- Cryptocurrency mobile wallets offer users access to money anytime, provided there is an internet connection
- An exchange-based cryptocurrency wallet is placed on the website of a cryptocurrency exchange.
- A software crypto wallet is a program installed on a personal computer. The keys are an encrypted code made available to the user of the computing device.
- Hardware wallets are USB type devices with their software.
Development of the DeFi crypto-bank
Decentralized banking is also gaining traction in 2022. Based on smart contracts, DeFi banks offer users a decentralized and secure way to transact. All transactions are stored on the blockchain, which adds privacy to the user’s transaction history.
DeFi banks are eliminating the bastion of banks and institutions on user assets and making financial services more accessible to remote areas.
How to develop a DeFi service
Developing a DeFi service is not a trivial task, especially if you are still new to the ecosystem.
Here are some things you should consider:
- Security: There are many important things to consider when developing a DeFi service. Since everything runs on top of Ethereum and user funds are held by your smart contract, your contracts should have strong security practices in place. You should use well-tested libraries and run unit tests before deploying contracts or submitting them to a mainnet.
- Scalability: The more traffic your service receives, the more it will load Ethereum and its network. For your DeFi application to be scalable enough for a large number of users, it needs enough capacity to process transactions per second (TPS). You can achieve this by running multiple instances of your application or by increasing the price of gas during peak hours so that transactions occur faster than usual.
- Reliability: The reliability aspect significantly depends on whether or not sufficient liquidity is available on an exchange where people can easily buy/sell tokens from each other at any time without affecting token prices too much since there would be always someone ready to sell them. immediately after buying one from someone else who wants to sell theirs instead because they think they might get better deals elsewhere, like another exchange with lower fees, etc.
The last line
To sum up, DeFi has great potential and is an emerging trend in the financial sector. Due to its decentralized nature and greater transparency, DeFi projects will provide new opportunities for people around the world. As you can see, it’s not enough to have a good idea of the service; you need to know exactly how to make it a reality.