Decentralized applications are one of the blockchain’s fastest-growing sectors. They are distributed across the network rather than controlled by a single central server.
Because of the trustless and transparent nature of Decentralized applications (DApps), there has been increased adoption and development in the decentralized finance (DeFi) space. Today we will understand what decentralized applications are.
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What are Decentralized Applications?
Decentralized applications (DApps) are applications that can run autonomously on a decentralized computing, blockchain, or other distributed ledger system, typically through the use of smart contracts. DApps, like traditional applications, provide some function or utility to their users.
DApps, on the other hand, operate without human intervention and are not owned by a single entity; rather, DApps distribute tokens that represent ownership. These tokens are distributed to system users according to a pre-programmed algorithm, diluting ownership and control of the DApp.
The application is decentralized because no single entity controls the system. Distributed ledger technologies (DLT), such as the Ethereum blockchain, on which DApps are built, and other public blockchains have popularized decentralized applications.
Decentralized Applications Examples
Decentralized Applications (DApps) are divided into numerous categories: Crypto exchanges (CEX and DEX), Gaming, development, Crypto Wallets, Voting and governance, finance, etc. Below we will be considering some of the top Decentralized apps:
Launched in 2018, Uniswap is a Decentralized exchange DApp on the Ethereum blockchain. Users can primarily swap and trade ERC-20 tokens on the platform. It is the most popular decentralized exchange and one of the largest DEXs in general.
The fact that Uniswap does not rely on buyers and sellers to create liquidity is perhaps its most unique feature. Anyone can use the platform by connecting a cryptocurrency wallet. The MetaMask wallet is the most popular choice among Uniswap users for this purpose. The exchange charges a flat 0.3% fee per trade, plus an Ethereum gas fee that varies.
UNI is the governance token for Uniswap. It increased profitability potential and gave users a say in future decisions. As of December 2022, according to coinmarketcap the UNI token has a market cap of $4 billion.
Compound is a decentralized app that allows users to borrow, lend, and earn interest in various cryptocurrencies. Compound is based on the Ethereum network, and users can deposit cryptocurrency to earn interest. The platform accepts 14 different cryptocurrencies, including USD Coin, Ether, and Dai, to name a few.
To use its features, you must first connect to the platform using your Crypto wallet. To match a lender and a borrower, the platform employs an automated system. After matching, users are found, and the platform exchanges funds from the liquidity pool. Furthermore, the liquidity pool serves as a conduit for collecting the borrower’s interest rate and rewarding the lender.
COMP is the platform’s governance token and native cryptocurrency. The token allows users to vote on the future development of Compound. COMP holders also have access to the Compound ecosystem’s inner workings, treasury, and platform protocol.
OpenSea is a decentralized NFT marketplace where you can trade, buy, and sell digital goods. OpenSea is one of the largest NFT marketplaces. The platform allows users to open a free account and trade various listed NFTs. Besides that, the marketplace is customizable to develop NFT-based projects.
Creators are given the ability to set their own prices for their digital creations. To trade the listed NFTs, the OpenSea user must connect their crypto wallet. Following the pandemic outbreak, the trend of NFTs drew a large number of users to OpenSea. Likewise, the marketplace lists NFTs in various categories to make it easy for buyers to find their desired NFT collections.
Art, collectibles, domain names, music, photography, sports, virtual world, utility, and trading cards are among the major categories. To sell an NFT, for example, the user must first create a collection, then add the NFTs and list them for sale on the OpenSea marketplace.
PancakeSwap is a decentralized exchange (DEX). Users can swap between two BEP20 tokens using this decentralized exchange built on Binance Smart Chain. PancakeSwap executes all trades using smart contracts. PancakeSwap grew in popularity due to the liquidity of its listed assets.
Yield Farms, Syrup Pools, Lottery v2, Prediction Markets, and NFT Collectibles are also available on the platform. CAKE is the native utility token of PancakeSwap. Staking, yield farming, lottery participation, and governance voting are all examples of CAKE use cases.
The user must connect the PancakeSwap platform to Web3 wallets such as TrustWallet, MetaMask, or WalletConnect in order to perform the token swap. The swapped tokens are stored in the connected wallet. Users of PancakeSwap can complete the trade without waiting for the order to match. Another significant advantage of using PancakeSwap is the low transaction fees.
Aave is one of the most well-known DeFi DApps. It is an open-source liquidity protocol that provides complete transparency to users. It gives users the ability to lend, borrow, stake, and earn interest on deposits. Because the platform is decentralized, both lenders and borrowers can maintain complete anonymity.
The most common application of Aave is to make quick loans. These loans are completed in a matter of seconds and are required for the DeFi space to optimize its overall financial structure. On flash loans, AAVE charges a fee of 0.09%.
Users can participate in policy-making and vote on important decisions using the native token AAVE because the platform is decentralized. It is currently trading at $55 and has a market capitalization of $785 million.
How Decentralized Apps work
DApps are stored and run on a blockchain system. They operate on a decentralized peer-to-peer network, removing them from the control of a single authority.
A dApp is supported by a smart contract that is stored on a blockchain, whereas a traditional application is supported by centralized servers and databases. Ethereum is the most widely used blockchain for executing smart contracts. Smart contracts enforce code-defined rules and act as middlemen in transactions.
Because a smart contract only contains the backend and is often only a small part of the entire dApp, building a decentralized app on a smart contract system necessitates combining several smart contracts and relying on third-party systems for the front-end.
Why decentralization matters
Decentralization has several advantages over apps that run on centralized networks. Decentralization is highly inclusive because anyone can join these decentralized, public networks. Some of its advantages are as follows:
- Trustless: Because each member of a decentralized blockchain network has a copy of a distributed ledger, transactions can be verified without relying on a central intermediary (e.g., a random stranger on the internet).
- Tamper-proof: Because every blockchain transaction is recorded on a distributed ledger and verified by the network, it is impossible to alter or corrupt data. It also ensures that there will be no inflation or changes in the value of a cryptocurrency.
- User privacy: To use any app-specific functionality, users do not need to submit any personal information to dApps.
What are Decentralized Applications: Bottom line
DApp development allows users to reap the benefits of decentralized systems. Furthermore, DApps address a number of issues that the traditional centralized system has.
DApp users benefit from privacy, security, low transaction fees, and flexibility. Regardless of the benefits mentioned, the user must ensure the legitimacy of the DApp before engaging in any financial transaction.