A solid understanding of decentralized applications (dApps) will enable you to make more informed decisions in your DeFi journey. Here we explore the concept of dApps, how they function, and the key features like security and privacy.
November 22, 2022 · 3 min read
DeFi Education Series #4
Because user experience and safety are Divi’s top priorities, we want to ensure users feel comfortable with the Divi DeFi platform before interacting with it. In this step of our journey into DeFi, you will learn the significance of decentralized applications (dApps) and how they can benefit you.
Most apps are issued, owned, and operated by a single entity (Uber, TikTok, Facebook, etc.). Users interact with these apps by downloading a copy of the software and transmitting data back and forth to the company's central server(s). While there may be multiple users on the client side, a single entity still controls the backend. This means these applications have a single point of failure and are susceptible to technical problems or malicious attacks that can affect everyone that is using (or has used) the app.
Decentralized applications (dApps) provide a utility or function to their users just as traditional apps do, but dApps are built on peer-to-peer networks maintained by multiple users and function without relying on a central authority. dApps are able to operate in this manner because they are powered by smart contracts, which are essentially a set of predefined rules enforced by code. If and when certain conditions are met, all nodes on the network will execute the contract terms.
Almost all dApps are open-source and blockchain-based. This means that the code is made available to the public to view, audit, and verify, and the information is cryptographically secured and stored on a public, decentralized ledger. Users interact with dApps through a frontend user interface using a browser extension wallet like MetaMask, which we'll cover in more detail in a future blog post.
Security - Due to the encrypted distributed data within a blockchain, money and information can be managed in a more secure way less prone to bad actors.
Privacy - Users of decentralized apps do not have to submit personal information to use the app's features.
Decentralized - Users can engage in transactions directly with one another without relying on a central authority.
Minimal downtime - Relying on a peer-to-peer system ensures that the dApps continue to work even if part of the network goes down.
Advantages of dApps
The trustless and transparent nature of dApps has spurred greater developments in the decentralized finance sector, and some of the most popular dApps at present are DeFi applications like decentralized exchanges (DEXs). These DEXs enable people to swap cryptocurrencies, provide liquidity and earn fees without the need for a third party. Due to the utilization of these features, DeFi has become a prominent part of the crypto economy.
Other common dApp use cases include NFT marketplaces, gaming, gambling, entertainment, and social media. Notable dApps you may be familiar with:
Uniswap V3 - Decentralized exchange
OpenSea - NFT marketplace
Compound - DeFi lending protocol
AlienWorlds - Decentralized game
The Divi DeFi platform is a web dApp. Users will access the platform through a web browser and will connect a Web 3.0 wallet (MetaMask) to sign transactions and interact with the dApp. The Divi DeFi dApp will enable users to swap ERC-20 tokens with low fees and low slippage, provide liquidity to trading pairs while earning fees, and even enable users to earn $DIVI staking rewards and LP rewards simultaneously.
Divi DeFi platform
Apps are being enhanced by blockchain technology and are expanding the functionality of the internet as we know it, and could bring even more innovative use cases to the market in the future. Next, in our journey into DeFi, we will examine decentralized liquidity and why it is so important for the Divi ecosystem.
Next up: What is Liquidity
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