What are dApps in Crypto? The Most Popular Types

section about dApps</strong></a>, only the basic theory about what they are was covered. It’s time to go deeper and learn how to evaluate them, and choose the best dApps.</p>\n<p>It’s very easy to get lost in the dApp maze, since there are so many of them. And when things are so confusing, it’s difficult to know where to even begin. If you’re reading this section, chances are you’ve already experienced this confusion yourself. But then, that’s why you’re here!</p>\n<p>In this section, we’re going to examine <strong>what are the criteria of a good, trustworthy dApp, and what makes the best dApps stand out from the crowd</strong>. I’ll give you a brief description of every aspect worth paying attention to, and how to compare them. In the end, what now seems like a mess, will look like something way more approachable!</p>\n<p><em>Now, let’s get to it!</em></p>\n<h2>What’s Up With dApps?</h2>\n<p>So, decentralized applications, or dApps, have gained a lot of popularity in recent years due to their ability to enable <strong>peer-to-peer transactions on decentralized networks</strong>. Being created on a daily basis, DeFi dApps seem like a revolutionary way of interacting with money and the internet, in general. Sounds good. But, things are never that simple!</p>\n<p>Let’s look at it this way:</p>\n<p>Here’s John. He’s eager to learn things, and so it happens that he just found out about one particular dApp. It’s a promising-looking decentralized lending protocol, and the reason why it got John's attention was the fact that it promises high returns to anyone who chooses to invest into it. Sounds good, sounds tempting. But, that’s how many financial mistakes are made - by jumping straight into action, without critical evaluation. There’s no such thing as free lunch, after all.</p>\n<p>However, John has read the <strong>Crypto 101 Handbook</strong>. He's better than that, and he’s not gonna act without conducting research beforehand. So, here are the steps that John will have to take in order to make sure that this dApp is legit.</p>\n<h3>Total Value Locked (TVL)</h3>\n<p>First of all, TVL - a very important metric. Three letters that fit everything underneath them. In this case - literally. “TVL” stands for “Total Value Locked”, and is <strong>a</strong> <strong>metric that is used to measure the total value of assets locked into a dApp</strong>. In other words - how much have people already invested in it.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"DeFi dApps: Total Value Locked (TVL)\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/defi_dapps_01.jpg/" alt=\"DeFi dApps: Total Value Locked (TVL)\" width=\"1000\" height=\"845\" /></p>\n<p>It's a good indicator of the popularity and adoption of the dApp examples in question, as well as the level of trust that users have in them. The higher the TVL, the more assets are being held in the dApp, the more active dApp development takes place, and the more popular it is.</p>\n<p>Here’s a simple analogy. If you were to deposit money into a bank, you’d probably choose an institution that has a solid reputation and years of experience, instead of simply depositing your hard-earned money into a ‘Bank 3000’ that you found behind a corner of an abandoned factory. The same goes for DeFi dApps.</p>\n<p>So, let’s say a particular decentralized lending protocol has a TVL of $4.5 billion. Not only is it a green flag because of how large the number is, but it’s been increasing over time, as well. That’s yet another optimistic signal about the actual financial health of the dApp in question.</p>\n<p>An important thing to keep in mind is the fact that <strong>this does not mean that the investment will be 100% safe</strong>, and that it will guarantee returns. Yet, it’s a convenient way to evaluate the potential risks.</p>\n<h3>Audits</h3>\n<p>Another important indicator is an audit. Before choosing a dApp contract address, it’s essential to evaluate it, since this ensures the security and reliability of the code behind it.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"DeFi dApps: Audit.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/defi_dapps_02.jpg/" alt=\"DeFi dApps: Audit.\" width=\"1000\" height=\"420\" /></p>\n<p>So, what does that mean? <strong>An audit is a thorough examination of the dApp’s codebase by a team of experts.</strong> It’s conducted in order to identify and fix any vulnerabilities or bugs that may be lurking within the dApp’s architecture. It literally is the DeFi version of a structural inspection that’s performed on buildings. You don’t wanna buy an apartment in a house that has walls built out of cereal boxes, now do you?</p>\n<p>Whenever you visit a project’s website, you should easily find an ‘Audits’ section on it. Reliable companies and the most popular dApps don’t hide it, or make it impossible for users to verify this info themselves. Now, after having checked that a particular dApp has made their audit information public, you can take an extra step. <strong>Search up the names of the audit companies, and see whether they actually exist.</strong> You can tell that by looking up their social media platforms, and checking out their official websites.</p>\n<h3>Community & Team</h3>\n<p>Okay, next up on the list is community and team. It’s an important indicator that isn’t ignored by the best and most popular dApps.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"DeFi dApps: Community and team.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/defi_dapps_03.jpg/" alt=\"DeFi dApps: Community and team.\" width=\"1000\" height=\"560\" /></p>\n<p>The best way to view the importance of community and team surrounding a particular dApp is this:</p>\n<p>Let’s say that a dApp is an apartment. In this case, the architects and the construction team represent the team behind a particular dApp. They’re either reliable or not.</p>\n<p>And the community is the neighborhood in which this apartment is being built. It’s either pleasant to be in… or not.</p>\n<p>When studying dApp examples to select the best dApp, <strong>the importance of a strong community and an open, transparent team behind it are significant</strong>, as these factors speak to the credibility and stability of the project.</p>\n<p>If people stick to it - this means they find value in it, and don’t get pushed away by dishonest and unreliable cash grabbers. The same applies to the developers. If the minds behind a project are unreliable… How can their product be different?</p>\n<p>The first thing to look for is to <strong>see if the team behind the dApp development has publicly disclosed their identities</strong>. This demonstrates their commitment and accountability to the project.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"DeFi dApps: Social media presence.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/defi_dapps_04.jpg/" alt=\"DeFi dApps: Social media presence.\" width=\"1000\" height=\"760\" /></p>\n<p><strong>Social media is another factor</strong>. Active social media presence and consistent engagement with the community show that the team is not hiding, and they’re proud of the product they’ve created. They want the public to see, and discover it.</p>\n<p>Imagine you’re suddenly in need of someone to take care of your dog for the weekend. Would you trust your dog to a stranger who has an anonymous Facebook profile? If a public business has to hide something as simple as the founders’ names, it definitely sends out a suspicious signal.</p>\n<p>So the lesson here is clear. <strong>Check out the team</strong>, make sure they’re actual, real people who don’t try to hide under layers of anonymity. That’s done by making sure that their socials are active.</p>\n<h3>Technology</h3>\n<p>Okay, next stop - technology. The importance of technology when navigating through DeFi dApps is crucial. It ensures that the dApp is built on a relevant and reliable platform, and that it serves a specific and useful purpose.</p>\n<p>The point here is intuitive. No matter how posh and expensive your laptop may be, if it still runs on Windows 98, you’re about to have a bad time.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"DeFi dApps: Compatibility.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/defi_dapps_05.jpg/" alt=\"DeFi dApps: Compatibility.\" width=\"1000\" height=\"470\" /></p>\n<p>Choosing a dApp that is built on a relevant blockchain network ensures compatibility and interoperability with other dApps and services on the same network. To translate this into down-to-earth language, you can say that <strong>you have to make sure the dApp of your choice is actually compatible with the most vibrant, buzzing, and promising ecosystems out there.</strong></p>\n<p>Therefore, a dApp that runs on an outdated or irrelevant blockchain network, or lacks the features or functionality you need, may not be a wise investment. It’s simply headed toward a dead-end. By the way, if you wanna learn more about blockchains, in general, check out <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/learn/what-is-blockchain/">this section</strong></a>!</p>\n<h2>What Not to Do When Choosing dApps?</h2>\n<p>So, the things that I mentioned up to this point are the “dos” of how to evaluate a dApp. <strong>Logically, the “don’ts” are exactly the opposite of them.</strong> But we gotta make sure the lesson is clear. Based on everything I’ve said previously, we can list 6 ‘don’ts’ that are best to always keep in mind:</p>\n<ul>\n<li>Don't choose a dApp contract address that hasn't been audited. Without an audit, there is a higher risk of security breaches, loss of funds, and other issues that can harm users.</li>\n<li>Don't choose a dApp that has a weak community or a team that is not open and transparent.</li>\n<li>Don’t choose a dApp with low levels of activity on their socials.</li>\n<li>Don't choose a dApp that’s built on unknown, obscure blockchain networks.</li>\n<li>Don’t choose a dApp for which you can’t find any data on how many funds are locked across its protocols.</li>\n</ul>\n<p>If you keep in mind all the ‘Dos’ and ‘Don’ts’ that were emphasized up until now, it’s sure to make your journey through the DeFi jungle easier, safer, and more pleasant!</p>","meta_title":"How to Choose the Right DeFi dApp? Dos and Don'ts","meta_description":"Are you interested in DeFi dApps but have no idea how to pick the right one? Find out all the things you should and shouldn't do right here!","meta_keywords":"defi dapps, dapps examples, dapp contract address, best dapps, dapp development, most popular dapps","order":4,"language":"en","created_at":"2023-03-10T08:01:38.000000Z","updated_at":"2023-05-08T05:35:00.000000Z","modified_content":"<p>In this section, we’re going to talk about DeFi dApps, and how to pick the right one!</p>\n<p>DeFi dApps are a huge, sophisticated topic. No wonder, people tend to feel lost and intimidated by its complexity. In the previous <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/learn/what-are-dapps-in-crypto/">section about dApps</strong></a>, only the basic theory about what they are was covered. It’s time to go deeper and learn how to evaluate them, and choose the best dApps.</p>\n<p>It’s very easy to get lost in the dApp maze, since there are so many of them. And when things are so confusing, it’s difficult to know where to even begin. If you’re reading this section, chances are you’ve already experienced this confusion yourself. But then, that’s why you’re here!</p>\n<p>In this section, we’re going to examine <strong>what are the criteria of a good, trustworthy dApp, and what makes the best dApps stand out from the crowd</strong>. I’ll give you a brief description of every aspect worth paying attention to, and how to compare them. In the end, what now seems like a mess, will look like something way more approachable!</p>\n<p><em>Now, let’s get to it!</em></p>\n<div class=\"container\">\n <div class=\"row justify-content-center\">\n <div class=\"col-md-10 comparison-suggestion pb-3 mb-4\">\n <div class=\"d-flex flex-row\">\n <div class=\"text-center\">\n <div class=\"img-block-yt\">\n <img src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/assets/images/compare-crypto-exchanges.gif/"/n alt=\"How to Pick the Right DeFi dApp? (Dos and Don’ts Explained)\"\n title=\"How to Pick the Right DeFi dApp? (Dos and Don’ts Explained)\" class=\"border-0\">\n <p>Video Explainer</p>\n </div>\n </div>\n <div class=\"col-xs-10 col-sm-10 col-md-10 text-left py-3 yt-info\">\n <h4 class=\"mb-1\">Video Explainer: Picking the Right dApps: Dos and Don'ts</h4>\n <p class=\"py-1 mb-0 youtube-video-subtitle\">Reading is not your thing? Watch the \"Picking the Right dApps: Dos and Don'ts\" video explainer</p>\n </div>\n </div>\n <div class=\"row justify-content-center text-center\">\n <div class=\"col-12 col-md-11 px-3\">\n <div class=\"wrapper mb-0\">\n <div class=\"youtube mb-4 bg-transparent p-0 video-modal-popup\" data-toggle=\"modal\"\n data-target=\"#video-modal\" data-id=\"7PZgvdPWwWQ\" data-title=\"CryptoFinallyExplained\">\n <div class=\"video-gradient-top\"></div>\n <p class=\"text-left dyk-video-title\">How to Pick the Right DeFi dApp? (Dos and Don’ts Explained)</p>\n <img src=https://www.bitdegree.org/"https://i.ytimg.com/vi/7PZgvdPWwWQ/hq720.jpg/"/n alt=\"How to Pick the Right DeFi dApp? (Dos and Don’ts Explained)\"\n title=\"How to Pick the Right DeFi dApp? (Dos and Don’ts Explained)\"\n class=\"p-0\">\n <img class=\"play-button\" data-target=\"#video-modal\"\n src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/assets/video-button.png/"/n alt=\"How to Pick the Right DeFi dApp? (Dos and Don’ts Explained)\">\n </div>\n </div>\n </div>\n </div>\n <div class=\"row justify-content-center text-center\">\n <div>\n <a href=https://www.bitdegree.org/"https://www.youtube.com/c/CryptoFinallyExplained?sub_confirmation=1\%22\n class=\"btn yt-promo mb-2\" target=\"_blank\" rel=\"nofollow noopener\">\n <div class=\"row justify-content-center align-items-center mx-0 text-center\">\n <div class=\"col-4 col-md-4\">\n <i class=\"fab fa-youtube yt-dyk-btn\"></i>\n </div>\n <div class=\"col-8 col-md-8 text-center yt-promo-text\">\n <h4 class=\"m-0 text-white\">SUBSCRIBE</h4>\n <span>ON YOUTUBE</span>\n </div>\n </div>\n </a>\n </div>\n </div>\n </div>\n </div>\n</div>\n<div class=\"modal fade\" id=\"video-modal\" tabindex=\"-1\" role=\"dialog\" aria-labelledby=\"7PZgvdPWwWQ\">\n <div class=\"modal-dialog modal-dialog-centered modal-lg\" role=\"document\">\n <div class=\"modal-content\">\n <div class=\"modal-body p-0\">\n <button type=\"button\" class=\"video-modal-close close\" data-dismiss=\"modal\" aria-label=\"Close\">\n <i aria-hidden=\"true\" class=\"fas fa-times\"></i>\n </button>\n <div id=\"iframe\"></div>\n </div>\n <a class=\"text-decoration-none\"\n href=https://www.bitdegree.org/"https://www.youtube.com/c/CryptoFinallyExplained?sub_confirmation=1\%22\n rel=\"nofollow noopener\" target=\"_blank\">\n <div class=\"modal-footer p-0 d-block bg-white\">\n <div class=\"row justify-content-center m-0\">\n <div class=\"col-3 col-md-4 col-lg-2 p-0\">\n <img class=\"w-100 h-100\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/assets/crypto-subscribe.jpg/" alt=\"Subscribe\">\n </div>\n <div class=\"col-9 col-md-8 col-lg-2 px-0 d-flex\">\n <div class=\"modal-subscribe w-100\">\n <p class=\"m-0 mt-1 mr-3\">SUBSCRIBE<br>\n <span class=\"m-0\">ON YOUTUBE</span>\n </p>\n </div>\n </div>\n <div class=\"col-12 col-md-12 col-lg-8 p-0 text-center d-flex justify-content-center align-items-center\">\n <div class=\"modal-subscribe-text\">\n <h4 class=\"m-0\">Understand crypto with ease</h4>\n <span>New explainer videos every week!</span>\n </div>\n </div>\n </div>\n </div>\n </a>\n </div>\n </div>\n</div>\n<h2>What’s Up With dApps?</h2>\n<p>So, decentralized applications, or dApps, have gained a lot of popularity in recent years due to their ability to enable <strong>peer-to-peer transactions on decentralized networks</strong>. Being created on a daily basis, DeFi dApps seem like a revolutionary way of interacting with money and the internet, in general. Sounds good. But, things are never that simple!</p>\n<p>Let’s look at it this way:</p>\n<p>Here’s John. He’s eager to learn things, and so it happens that he just found out about one particular dApp. It’s a promising-looking decentralized lending protocol, and the reason why it got John's attention was the fact that it promises high returns to anyone who chooses to invest into it. Sounds good, sounds tempting. But, that’s how many financial mistakes are made - by jumping straight into action, without critical evaluation. There’s no such thing as free lunch, after all.</p>\n<p>However, John has read the <strong>Crypto 101 Handbook</strong>. He's better than that, and he’s not gonna act without conducting research beforehand. So, here are the steps that John will have to take in order to make sure that this dApp is legit.</p>\n<h3>Total Value Locked (TVL)</h3>\n<p>First of all, TVL - a very important metric. Three letters that fit everything underneath them. In this case - literally. “TVL” stands for “Total Value Locked”, and is <strong>a</strong> <strong>metric that is used to measure the total value of assets locked into a dApp</strong>. In other words - how much have people already invested in it.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"DeFi dApps: Total Value Locked (TVL)\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/defi_dapps_01.jpg/" alt=\"DeFi dApps: Total Value Locked (TVL)\" width=\"1000\" height=\"845\" /></p>\n<p>It's a good indicator of the popularity and adoption of the dApp examples in question, as well as the level of trust that users have in them. The higher the TVL, the more assets are being held in the dApp, the more active dApp development takes place, and the more popular it is.</p>\n<p>Here’s a simple analogy. If you were to deposit money into a bank, you’d probably choose an institution that has a solid reputation and years of experience, instead of simply depositing your hard-earned money into a ‘Bank 3000’ that you found behind a corner of an abandoned factory. The same goes for DeFi dApps.</p>\n<p>So, let’s say a particular decentralized lending protocol has a TVL of $4.5 billion. Not only is it a green flag because of how large the number is, but it’s been increasing over time, as well. That’s yet another optimistic signal about the actual financial health of the dApp in question.</p>\n<p>An important thing to keep in mind is the fact that <strong>this does not mean that the investment will be 100% safe</strong>, and that it will guarantee returns. Yet, it’s a convenient way to evaluate the potential risks.</p>\n<h3>Audits</h3>\n<p>Another important indicator is an audit. Before choosing a dApp contract address, it’s essential to evaluate it, since this ensures the security and reliability of the code behind it.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"DeFi dApps: Audit.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/defi_dapps_02.jpg/" alt=\"DeFi dApps: Audit.\" width=\"1000\" height=\"420\" /></p>\n<p>So, what does that mean? <strong>An audit is a thorough examination of the dApp’s codebase by a team of experts.</strong> It’s conducted in order to identify and fix any vulnerabilities or bugs that may be lurking within the dApp’s architecture. It literally is the DeFi version of a structural inspection that’s performed on buildings. You don’t wanna buy an apartment in a house that has walls built out of cereal boxes, now do you?</p>\n<p>Whenever you visit a project’s website, you should easily find an ‘Audits’ section on it. Reliable companies and the most popular dApps don’t hide it, or make it impossible for users to verify this info themselves. Now, after having checked that a particular dApp has made their audit information public, you can take an extra step. <strong>Search up the names of the audit companies, and see whether they actually exist.</strong> You can tell that by looking up their social media platforms, and checking out their official websites.</p>\n<h3>Community & Team</h3>\n<p>Okay, next up on the list is community and team. It’s an important indicator that isn’t ignored by the best and most popular dApps.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"DeFi dApps: Community and team.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/defi_dapps_03.jpg/" alt=\"DeFi dApps: Community and team.\" width=\"1000\" height=\"560\" /></p>\n<p>The best way to view the importance of community and team surrounding a particular dApp is this:</p>\n<p>Let’s say that a dApp is an apartment. In this case, the architects and the construction team represent the team behind a particular dApp. They’re either reliable or not.</p>\n<p>And the community is the neighborhood in which this apartment is being built. It’s either pleasant to be in… or not.</p>\n<p>When studying dApp examples to select the best dApp, <strong>the importance of a strong community and an open, transparent team behind it are significant</strong>, as these factors speak to the credibility and stability of the project.</p>\n<p>If people stick to it - this means they find value in it, and don’t get pushed away by dishonest and unreliable cash grabbers. The same applies to the developers. If the minds behind a project are unreliable… How can their product be different?</p>\n<p>The first thing to look for is to <strong>see if the team behind the dApp development has publicly disclosed their identities</strong>. This demonstrates their commitment and accountability to the project.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"DeFi dApps: Social media presence.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/defi_dapps_04.jpg/" alt=\"DeFi dApps: Social media presence.\" width=\"1000\" height=\"760\" /></p>\n<p><strong>Social media is another factor</strong>. Active social media presence and consistent engagement with the community show that the team is not hiding, and they’re proud of the product they’ve created. They want the public to see, and discover it.</p>\n<p>Imagine you’re suddenly in need of someone to take care of your dog for the weekend. Would you trust your dog to a stranger who has an anonymous Facebook profile? If a public business has to hide something as simple as the founders’ names, it definitely sends out a suspicious signal.</p>\n<p>So the lesson here is clear. <strong>Check out the team</strong>, make sure they’re actual, real people who don’t try to hide under layers of anonymity. That’s done by making sure that their socials are active.</p>\n<h3>Technology</h3>\n<p>Okay, next stop - technology. The importance of technology when navigating through DeFi dApps is crucial. It ensures that the dApp is built on a relevant and reliable platform, and that it serves a specific and useful purpose.</p>\n<p>The point here is intuitive. No matter how posh and expensive your laptop may be, if it still runs on Windows 98, you’re about to have a bad time.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"DeFi dApps: Compatibility.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/defi_dapps_05.jpg/" alt=\"DeFi dApps: Compatibility.\" width=\"1000\" height=\"470\" /></p>\n<p>Choosing a dApp that is built on a relevant blockchain network ensures compatibility and interoperability with other dApps and services on the same network. To translate this into down-to-earth language, you can say that <strong>you have to make sure the dApp of your choice is actually compatible with the most vibrant, buzzing, and promising ecosystems out there.</strong></p>\n<p>Therefore, a dApp that runs on an outdated or irrelevant blockchain network, or lacks the features or functionality you need, may not be a wise investment. It’s simply headed toward a dead-end. By the way, if you wanna learn more about blockchains, in general, check out <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/learn/what-is-blockchain/">this section</strong></a>!</p>\n<h2>What Not to Do When Choosing dApps?</h2>\n<p>So, the things that I mentioned up to this point are the “dos” of how to evaluate a dApp. <strong>Logically, the “don’ts” are exactly the opposite of them.</strong> But we gotta make sure the lesson is clear. Based on everything I’ve said previously, we can list 6 ‘don’ts’ that are best to always keep in mind:</p>\n<ul>\n<li>Don't choose a dApp contract address that hasn't been audited. Without an audit, there is a higher risk of security breaches, loss of funds, and other issues that can harm users.</li>\n<li>Don't choose a dApp that has a weak community or a team that is not open and transparent.</li>\n<li>Don’t choose a dApp with low levels of activity on their socials.</li>\n<li>Don't choose a dApp that’s built on unknown, obscure blockchain networks.</li>\n<li>Don’t choose a dApp for which you can’t find any data on how many funds are locked across its protocols.</li>\n</ul>\n<p>If you keep in mind all the ‘Dos’ and ‘Don’ts’ that were emphasized up until now, it’s sure to make your journey through the DeFi jungle easier, safer, and more pleasant!</p>","preview_url":"https://www.bitdegree.org/crypto/learn/defi-dapps","youtube_video":{"id":148,"channel_id":1,"sort":4,"video_title":"How to Pick the Right DeFi dApp? (Dos and Don’ts Explained)","description":"How to pick the right DeFi dApps?\n\nDecentralized applications (commonly referred to simply as dApps, or DeFi dApps) are an essential keyword in the world of decentralized finance. If you haven’t dealt with DeFi dApps before, everything can get really confusing, real quick!\n\nIn this video, I will tell you how to evaluate dApps! I’ll cover all of the important criteria to consider before actually choosing a dApp to invest your time, money, and interest in. It’s important to understand how to tell good dApp examples apart from the shady ones; therefore, learning the dos and don’ts of picking the right dApp is essential!\n\nHave you ever used any dApp? If so, what was it? Make sure to share your experiences in the comments below the video!\n\nVideo Time Table:\n0:00 Introduction to How to Pick the Right DeFi dApp\n1:09 What's a dApp?\n2:10 Total Value Locked\n3:24 Audit\n4:22 Community & Team\n5:58 Technology\n6:52 dApp Evaluation Don'ts\n7:44 Wrap-up: How to Pick the Right DeFi dApp?\n\nGet Quick Crypto Tips on Twitter - Follow:\nhttps://twitter.com/crypto_xplained\n\n#dapps #DeFidapps #Bestdapp","video_id":"7PZgvdPWwWQ","duration":506,"view_count":84,"thumbnail_url":"https://i.ytimg.com/vi/7PZgvdPWwWQ/hq720.jpg","thumbnail_width":1280,"thumbnail_height":720,"published_at":"2023-05-05 14:47:16","created_at":"2023-05-05T23:00:03.000000Z","updated_at":"2023-05-21T23:00:04.000000Z","channel":{"id":1,"title":"CryptoFinallyExplained","channel_id":"UCOryUY0yxC08eJtK23mNgiA","main_playlist_id":"UUOryUY0yxC08eJtK23mNgiA"}}},"prevSection":{"id":24,"featured_image_id":null,"original_id":null,"youtube_video_id":25,"author_id":42,"translator_id":null,"chapter_id":6,"title":"DeFi 2.0: The New Version of Decentralized Finance","slug":"what-is-defi-2-0","definition":"Did you know that the total value locked in DeFi protocols is over $78 billion?","status":"published","content":"<p>If you’ve been following the crypto space for some time now, you’ve undoubtedly heard about <strong><a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-defi/">DeFi - decentralized finance</a>. </strong>It was a really hot topic in the summer of 2020 and has retained its relevance, as a new field of finance, to this day.</p>\n<p>However, while DeFi might still be a new concept, there’s actually an even newer term being thrown around - <strong>DeFi 2.0.</strong> And this type of decentralized finance aims to solve the core issues that DeFi 1.0 is facing.</p>\n<p>In this section, I’m going to tell you about DeFi 2.0. To be a bit more specific, I’ll tell you what DeFi 2.0 is, how it’s different from DeFi 1.0, and also give an illustrative example of one of the most successful DeFi 2.0 projects.</p>\n<p><em>Now, let’s get to it!</em></p>\n<h2>What is DeFi 2.0?</h2>\n<p>So, before we jump into DeFi 2.0, there are a couple of terms that you need to be familiar with, first. Since it’s not exactly a very simple topic, if you feel that you need more information at any point in time, make sure to check out the previous sections of this BitDegree Crypto 101 Handbook.</p>\n<p>So, the very first term that you need to be familiar with is DeFi. It means <strong>“decentralized finance”</strong>, and is a form of finance that doesn’t have any central authorities, and is instead governed by the communities behind DeFi crypto projects.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-is-defi-2-6290791e91dba.o.jpg/" alt=\"What is Defi 2.0: DeFi - decentralized finance.\" width=\"1000\" height=\"667\" /></p>\n<p>So think about it this way - with DeFi 1.0, instead of getting a loan from a centralized bank, you would go to a <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-are-decentralized-applications-dapps/">dApp (a decentralized application, or simply - a DeFi project) that specializes in loans, and borrow money from there. This money would be supplied to you by the community behind the project, and you would be able to <strong>interact with the dApp anonymously. </strong>On top of that, everything would be governed by <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-smart-contract/">smart contracts</strong></a>, so there’s no room for human error or a single person's decision.</p>\n<p>One of the key features of DeFi, and the second big term that you need to be familiar with in this section, are <strong><a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-liquidity-pool/">liquidity pools</a>. </strong>A liquidity pool is a place that <strong>stores all of the cryptocurrency tokens</strong> that are available to be traded and are provided by <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-liquidity-provider/">liquidity providers</strong></a> - the DeFi community. It’s like a shelf of candy in a shop - if there are 5 candies on the shelf, that means that you can purchase up to 5 candies until the shop runs out of stock.</p>\n<p>That being the case, however, if there’s only one candy on the shelf, it’s probably going to be much more expensive, since while the demand for candies remains the same, the supply is limited to a single candy. This works both ways, mind you - if there are hundreds of candies available to be sold, and the demand doesn’t increase, the candies will cost less!</p>\n<p>Up to this point, everything is just basic economics. However, this is where liquidity pools come in.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-is-defi-2-6290792019658.o.jpg/" alt=\"What is Defi 2.0: Liquidity pools.\" width=\"1000\" height=\"872\" /></p>\n<p>A liquidity pool allows a project to <strong>attract investors</strong> - the new liquidity providers, who will then bring in two types of tokens - a project token, as well as some sort of <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-leverage/">leverage, such as <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/buy-ethereum-eth/">Ethereum or <strong>DAI.</strong></p>\n<p>Over time, as other people come in and trade these two tokens on the liquidity pool, the investors receive passive interest from the trading fees that these people pay. So, you have happy investors (since they receive passive income), as well as happy traders (since they don’t need to find another person to perform the trade, and can trade anonymously on the liquidity pool).</p>\n<p>Now, just to be meticulous about the details, the traders don’t actually trade on the liquidity pools. Instead, the <strong>trading processes happen on <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-automated-market-maker-amm/">Automated Market Makers</a></strong> - special platforms designed to facilitate those trading activities utilizing liquidity pools. Not to go into too much depth regarding the subject, I’ll put it this way - you can look at AMMs as those same shops where you buy candy. In this case, liquidity pools would be the shelves where the candy is placed.</p>\n<p>To sum up, <strong>DeFi is an automated decentralized financial field with no single owner</strong>, that has implemented Automated Market Maker algorithms that utilize liquidity pools, which are filled with cryptocurrencies provided by liquidity providers (AKA investors and initial project owners).</p>\n<p>It’s like a shop with no single owner but instead owned by people who have brought their own goods into the same shop’s pool, so that the shop would trade them for other goods brought by other clients. By doing so, these liquidity pool creators become co-owners of the whole shop, with voting and business decision rights. Their shop trades the collectively-provided goods with their clients autonomously, without the intervention from owners or any other humans. All those trades are based on pre-programmed trading rules.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-is-defi-2-629079214e9ea.o.jpg/" alt=\"What is Defi 2.0: An example with a shop.\" width=\"1000\" height=\"595\" /></p>\n<p>Finally, shop co-owners receive their passive interest rate income after each trade happens. Theoretically, <strong>the pool will never become empty</strong>, since, every time a trade happens, it receives new goods from clients in exchange for old ones. Pre-programmed trading rules of the shop correct the prices and exchange value ratio automatically, based on the <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-supply-and-demand/">supply & demand</strong></a> of goods, and the actual quantities of the goods in its own pool.</p>\n<p>So, basically, if the pool is full of Coca-Cola, its price will go down, and the price of Pepsi will start to rise because the pool is currently in scarcity of it.</p>\n<p>That's about it on the terminology side of things - at least for the time being. Now, let’s move on to DeFi 2.0.</p>\n<p>To put it very simply, <strong>DeFi 2.0 is the second generation of dApps that are concerned with decentralized finance.</strong> While the differences between DeFi 1.0 and DeFi 2.0 aren’t going to be evident for an outsider looking in, if you know what to look out for, you’ll soon notice that there’s a rather obvious trend. Specifically, DeFi 2.0 projects aim to improve on the weakest and most vulnerable parts of traditional DeFi.</p>\n<h2>DeFi 2.0 vs DeFi 1.0</h2>\n<p>One thing that is super-important in all DeFi ventures is <strong>the liquidity of the pool. </strong>It’s actually the main area where DeFi 2.0 is different from traditional decentralized finance.</p>\n<p>With your traditional DeFi projects, teams tend to put a lot of their native token into the liquidity pool, hoping this will attract other investors. With time, it’s often successful - investors come in and bring their own coins and tokens into the pool, and as they start earning passive returns, the pool becomes more and more popular.</p>\n<p>However, this is where the core issue reveals itself - if a DeFi project depends on the investors’ funds in the liquidity pool in order to survive, <strong>it risks huge token price volatility and general uncertainty.</strong></p>\n<p>Think of it this way - if you have no interest in a project, and are only investing in order to mine liquidity (earn a passive income), whenever you spot a better offer (such as one with a higher annual percentage yield), you’re probably going to jump ship, and transfer your investment there! It’s like eating at the same restaurant every day since the food there is OK and the prices are great. If, however, the prices start to rise, or the quality of the food goes down, you will surely consider switching your lunch providers!</p>\n<p>This puts a lot of pressure on the liquidity pool, and the project that it’s associated with. In turn, if there’s a big liquidity provider turnaround, this will create a lot of instability and will lead to the price of <strong>the project token swinging quite a bit.</strong></p>\n<p>The only hope that DeFi 1.0 projects have when it comes to preserving their investors in the long run, is to try and create an amazing and appealing project. This, in turn, would incentivize investors to keep their investment on the platform, even after the initial liquidity mining period is over.</p>\n<p>As you can probably imagine, though, creating a unique and groundbreaking project isn’t easy to do. Since <strong>retaining long-term investors is such a struggle</strong> for traditional, DeFi 1.0 projects, some crypto enthusiasts have come up with very interesting and unique decisions on how to avoid this issue altogether.</p>\n<p>These decisions lead us to DeFi 2.0. In order to better understand what I’m talking about, let’s take one of <strong>the most popular DeFi 2.0 projects</strong> as an example.</p>\n<h2>OlympusDAO</h2>\n<p><strong>OlympusDAO is often seen as the biggest representing project of DeFi 2.0.</strong> Many crypto enthusiasts view OlympusDAO as the most interesting decentralized finance experiment of our time, due to its innovative approach to solving the liquidity problems of traditional DeFi projects!</p>\n<p>In short, <strong>OlympusDAO is a decentralized reserve currency protocol.</strong> Essentially, Olympus has a token called OHM, and bases all of its operations around it. These operations include <strong>staking, bonds, liquidity provision, and so on.</strong></p>\n<p><strong><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is Defi 2.0: OlympusDAO.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-is-defi-2-62907e735d53b.o.png/" alt=\"What is Defi 2.0: OlympusDAO.\" width=\"1000\" height=\"329\" /></strong></p>\n<p>The OHM token is actually what makes Olympus stand out from the crowd. Each OHM token is backed by a selection of cryptocurrency assets - this, in turn, establishes a ground price for the token. In other words, OHM has a certain price threshold (or a floor price) which theoretically shouldn’t be crossed.</p>\n<p>In order for you to understand this concept better, think about it this way. Imagine the same candy store I mentioned earlier. Now, let’s say that a candy bar in the store is priced at $1. However, the shop owner has also backed each of these candy bars with other chocolate bars that he has in the warehouse. Meaning that people will always be able to trade a candy bar for a chocolate bar, at a ratio of 1:1.</p>\n<p>Now, the candy bar can become more expensive, and cost $2, if there’s a huge demand for it. However, it can theoretically never go below $1, since this is the value of the chocolate bars in the warehouse. So, there’s another asset to back the price of the candy bars!</p>\n<p>Getting back to OlympusDAO and DeFi 2.0, users are able to do two things with their OHM tokens. They can <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-staking/">stake <strong>them, and get more OHM tokens as rewards,</strong> <strong>or</strong> <strong>trade their cryptocurrencies for OHM tokens, at a discounted price.</strong> By the way, if you're not familiar with what staking is, make sure to read <a href=https://www.bitdegree.org/"/crypto/learn/what-is-staking-in-crypto/">the section dedicated to this topic</strong></a> - it will all become much clearer!</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-is-defi-2-629079250ac35.o.jpg/" alt=\"What is Defi 2.0: Bonding.\" width=\"1000\" height=\"561\" /></p>\n<p>Now, the second process that I’ve mentioned is where the DeFi 2.0 magic happens. Whenever someone trades OHM tokens, at a discounted price, the cryptocurrencies that they trade for the OHM tokens go to OlympusDAO. This process is called <strong>bonding.</strong></p>\n<p>OlympusDAO then uses these newly acquired assets - such as Ethereum, or the DAI stablecoin - as liquidity for their operations. So, essentially, Olympus becomes the liquidity holder and can stake the assets on other popular liquidity pools, such as that of <strong>Uniswap.</strong></p>\n<p>Remember when I told you that liquidity providers leaving a project is the main problem of traditional DeFi 1.0 platforms? Well, in the case of Olympus, since it becomes the liquidity holder, it’s not going to “leave itself”, since all of the liquidity is in the project’s metaphorical hands. This, in theory, creates a somewhat safe and established liquidity flow and ensures that the project is funded, long-term.</p>\n<h2>Finishing Off</h2>\n<p>Now, I do have to admit - this can all be pretty difficult to wrap your head around.</p>\n<p>DeFi 2.0 is a complex subject, but to recap, I can tell you this - the main message that you should have gotten out of this section is that traditional DeFi (AKA DeFi 1.0) suffers from <strong>liquidity providers leaving projects for other, more-promising opportunities at almost any time</strong>, and DeFi 2.0 projects aim to solve this by implementing special, complex mechanisms that allow them to become the holders of their own liquidity. In many cases, this solution results in the projects not relying on assets staked by other, third-party investors.</p>\n<p>Naturally, the topic is even more complex - OlympusDAO itself has launched OlympusPRO, which offers other projects the opportunity to use the same bonding mechanism in their own <strong><a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-are-tokenomics/">tokenomics. </strong>Then you have dedicated marketplaces, advanced staking pool functionality, and many more intricacies, but all of these probably should be discussed in another section more thoroughly.</p>","meta_title":"What is Defi 2.0 and Why is It Better Than DeFi 1.0?","meta_description":"Are you trying to answer the question what is Defi 2.0? Find everything you need to know right here including its comparison with DeFi 1.0.","meta_keywords":"what is defi 2.0, defi 2.0 explained, defi 2.0 definition, defi 2.0 projects, defi 2.0 coins, defi 2.0 vs 3.0, defi 1.0 vs 2.0","order":2,"language":"en","created_at":"2022-05-05T12:28:40.000000Z","updated_at":"2023-03-10T08:17:31.000000Z","modified_content":"<p>If you’ve been following the crypto space for some time now, you’ve undoubtedly heard about <strong><a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-defi/">DeFi - decentralized finance</a>. </strong>It was a really hot topic in the summer of 2020 and has retained its relevance, as a new field of finance, to this day.</p>\n<p>However, while DeFi might still be a new concept, there’s actually an even newer term being thrown around - <strong>DeFi 2.0.</strong> And this type of decentralized finance aims to solve the core issues that DeFi 1.0 is facing.</p>\n<p>In this section, I’m going to tell you about DeFi 2.0. To be a bit more specific, I’ll tell you what DeFi 2.0 is, how it’s different from DeFi 1.0, and also give an illustrative example of one of the most successful DeFi 2.0 projects.</p>\n<p><em>Now, let’s get to it!</em></p>\n<div class=\"container\">\n <div class=\"row justify-content-center\">\n <div class=\"col-md-10 comparison-suggestion pb-3 mb-4\">\n <div class=\"d-flex flex-row\">\n <div class=\"text-center\">\n <div class=\"img-block-yt\">\n <img src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/assets/images/compare-crypto-exchanges.gif/"/n alt=\"What is Defi 2.0? (Explained with Animations)\"\n title=\"What is Defi 2.0? (Explained with Animations)\" class=\"border-0\">\n <p>Video Explainer</p>\n </div>\n </div>\n <div class=\"col-xs-10 col-sm-10 col-md-10 text-left py-3 yt-info\">\n <h4 class=\"mb-1\">Video Explainer: DeFi 2.0: The New Version of Decentralized Finance</h4>\n <p class=\"py-1 mb-0 youtube-video-subtitle\">Reading is not your thing? Watch the \"DeFi 2.0: The New Version of Decentralized Finance\" video explainer</p>\n </div>\n </div>\n <div class=\"row justify-content-center text-center\">\n <div class=\"col-12 col-md-11 px-3\">\n <div class=\"wrapper mb-0\">\n <div class=\"youtube mb-4 bg-transparent p-0 video-modal-popup\" data-toggle=\"modal\"\n data-target=\"#video-modal\" data-id=\"SG9gyN8jqro\" data-title=\"CryptoFinallyExplained\">\n <div class=\"video-gradient-top\"></div>\n <p class=\"text-left dyk-video-title\">What is Defi 2.0? (Explained with Animations)</p>\n <img src=https://www.bitdegree.org/"https://i.ytimg.com/vi/SG9gyN8jqro/hq720.jpg/"/n alt=\"What is Defi 2.0? (Explained with Animations)\"\n title=\"What is Defi 2.0? (Explained with Animations)\"\n class=\"p-0\">\n <img class=\"play-button\" data-target=\"#video-modal\"\n src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/assets/video-button.png/"/n alt=\"What is Defi 2.0? (Explained with Animations)\">\n </div>\n </div>\n </div>\n </div>\n <div class=\"row justify-content-center text-center\">\n <div>\n <a href=https://www.bitdegree.org/"https://www.youtube.com/c/CryptoFinallyExplained?sub_confirmation=1\%22\n class=\"btn yt-promo mb-2\" target=\"_blank\" rel=\"nofollow noopener\">\n <div class=\"row justify-content-center align-items-center mx-0 text-center\">\n <div class=\"col-4 col-md-4\">\n <i class=\"fab fa-youtube yt-dyk-btn\"></i>\n </div>\n <div class=\"col-8 col-md-8 text-center yt-promo-text\">\n <h4 class=\"m-0 text-white\">SUBSCRIBE</h4>\n <span>ON YOUTUBE</span>\n </div>\n </div>\n </a>\n </div>\n </div>\n </div>\n </div>\n</div>\n<div class=\"modal fade\" id=\"video-modal\" tabindex=\"-1\" role=\"dialog\" aria-labelledby=\"SG9gyN8jqro\">\n <div class=\"modal-dialog modal-dialog-centered modal-lg\" role=\"document\">\n <div class=\"modal-content\">\n <div class=\"modal-body p-0\">\n <button type=\"button\" class=\"video-modal-close close\" data-dismiss=\"modal\" aria-label=\"Close\">\n <i aria-hidden=\"true\" class=\"fas fa-times\"></i>\n </button>\n <div id=\"iframe\"></div>\n </div>\n <a class=\"text-decoration-none\"\n href=https://www.bitdegree.org/"https://www.youtube.com/c/CryptoFinallyExplained?sub_confirmation=1\%22\n rel=\"nofollow noopener\" target=\"_blank\">\n <div class=\"modal-footer p-0 d-block bg-white\">\n <div class=\"row justify-content-center m-0\">\n <div class=\"col-3 col-md-4 col-lg-2 p-0\">\n <img class=\"w-100 h-100\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/assets/crypto-subscribe.jpg/" alt=\"Subscribe\">\n </div>\n <div class=\"col-9 col-md-8 col-lg-2 px-0 d-flex\">\n <div class=\"modal-subscribe w-100\">\n <p class=\"m-0 mt-1 mr-3\">SUBSCRIBE<br>\n <span class=\"m-0\">ON YOUTUBE</span>\n </p>\n </div>\n </div>\n <div class=\"col-12 col-md-12 col-lg-8 p-0 text-center d-flex justify-content-center align-items-center\">\n <div class=\"modal-subscribe-text\">\n <h4 class=\"m-0\">Understand crypto with ease</h4>\n <span>New explainer videos every week!</span>\n </div>\n </div>\n </div>\n </div>\n </a>\n </div>\n </div>\n</div>\n<h2>What is DeFi 2.0?</h2>\n<p>So, before we jump into DeFi 2.0, there are a couple of terms that you need to be familiar with, first. Since it’s not exactly a very simple topic, if you feel that you need more information at any point in time, make sure to check out the previous sections of this BitDegree Crypto 101 Handbook.</p>\n<p>So, the very first term that you need to be familiar with is DeFi. It means <strong>“decentralized finance”</strong>, and is a form of finance that doesn’t have any central authorities, and is instead governed by the communities behind DeFi crypto projects.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-is-defi-2-6290791e91dba.o.jpg/" alt=\"What is Defi 2.0: DeFi - decentralized finance.\" width=\"1000\" height=\"667\" /></p>\n<p>So think about it this way - with DeFi 1.0, instead of getting a loan from a centralized bank, you would go to a <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-are-decentralized-applications-dapps/">dApp (a decentralized application, or simply - a DeFi project) that specializes in loans, and borrow money from there. This money would be supplied to you by the community behind the project, and you would be able to <strong>interact with the dApp anonymously. </strong>On top of that, everything would be governed by <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-smart-contract/">smart contracts</strong></a>, so there’s no room for human error or a single person's decision.</p>\n<p>One of the key features of DeFi, and the second big term that you need to be familiar with in this section, are <strong><a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-liquidity-pool/">liquidity pools</a>. </strong>A liquidity pool is a place that <strong>stores all of the cryptocurrency tokens</strong> that are available to be traded and are provided by <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-liquidity-provider/">liquidity providers</strong></a> - the DeFi community. It’s like a shelf of candy in a shop - if there are 5 candies on the shelf, that means that you can purchase up to 5 candies until the shop runs out of stock.</p>\n<p>That being the case, however, if there’s only one candy on the shelf, it’s probably going to be much more expensive, since while the demand for candies remains the same, the supply is limited to a single candy. This works both ways, mind you - if there are hundreds of candies available to be sold, and the demand doesn’t increase, the candies will cost less!</p>\n<p>Up to this point, everything is just basic economics. However, this is where liquidity pools come in.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-is-defi-2-6290792019658.o.jpg/" alt=\"What is Defi 2.0: Liquidity pools.\" width=\"1000\" height=\"872\" /></p>\n<p>A liquidity pool allows a project to <strong>attract investors</strong> - the new liquidity providers, who will then bring in two types of tokens - a project token, as well as some sort of <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-leverage/">leverage, such as <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/buy-ethereum-eth/">Ethereum or <strong>DAI.</strong></p>\n<p>Over time, as other people come in and trade these two tokens on the liquidity pool, the investors receive passive interest from the trading fees that these people pay. So, you have happy investors (since they receive passive income), as well as happy traders (since they don’t need to find another person to perform the trade, and can trade anonymously on the liquidity pool).</p>\n<p>Now, just to be meticulous about the details, the traders don’t actually trade on the liquidity pools. Instead, the <strong>trading processes happen on <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-automated-market-maker-amm/">Automated Market Makers</a></strong> - special platforms designed to facilitate those trading activities utilizing liquidity pools. Not to go into too much depth regarding the subject, I’ll put it this way - you can look at AMMs as those same shops where you buy candy. In this case, liquidity pools would be the shelves where the candy is placed.</p>\n<p>To sum up, <strong>DeFi is an automated decentralized financial field with no single owner</strong>, that has implemented Automated Market Maker algorithms that utilize liquidity pools, which are filled with cryptocurrencies provided by liquidity providers (AKA investors and initial project owners).</p>\n<p>It’s like a shop with no single owner but instead owned by people who have brought their own goods into the same shop’s pool, so that the shop would trade them for other goods brought by other clients. By doing so, these liquidity pool creators become co-owners of the whole shop, with voting and business decision rights. Their shop trades the collectively-provided goods with their clients autonomously, without the intervention from owners or any other humans. All those trades are based on pre-programmed trading rules.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-is-defi-2-629079214e9ea.o.jpg/" alt=\"What is Defi 2.0: An example with a shop.\" width=\"1000\" height=\"595\" /></p>\n<p>Finally, shop co-owners receive their passive interest rate income after each trade happens. Theoretically, <strong>the pool will never become empty</strong>, since, every time a trade happens, it receives new goods from clients in exchange for old ones. Pre-programmed trading rules of the shop correct the prices and exchange value ratio automatically, based on the <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-supply-and-demand/">supply & demand</strong></a> of goods, and the actual quantities of the goods in its own pool.</p>\n<p>So, basically, if the pool is full of Coca-Cola, its price will go down, and the price of Pepsi will start to rise because the pool is currently in scarcity of it.</p>\n<p>That's about it on the terminology side of things - at least for the time being. Now, let’s move on to DeFi 2.0.</p>\n<p>To put it very simply, <strong>DeFi 2.0 is the second generation of dApps that are concerned with decentralized finance.</strong> While the differences between DeFi 1.0 and DeFi 2.0 aren’t going to be evident for an outsider looking in, if you know what to look out for, you’ll soon notice that there’s a rather obvious trend. Specifically, DeFi 2.0 projects aim to improve on the weakest and most vulnerable parts of traditional DeFi.</p>\n<h2>DeFi 2.0 vs DeFi 1.0</h2>\n<p>One thing that is super-important in all DeFi ventures is <strong>the liquidity of the pool. </strong>It’s actually the main area where DeFi 2.0 is different from traditional decentralized finance.</p>\n<p>With your traditional DeFi projects, teams tend to put a lot of their native token into the liquidity pool, hoping this will attract other investors. With time, it’s often successful - investors come in and bring their own coins and tokens into the pool, and as they start earning passive returns, the pool becomes more and more popular.</p>\n<p>However, this is where the core issue reveals itself - if a DeFi project depends on the investors’ funds in the liquidity pool in order to survive, <strong>it risks huge token price volatility and general uncertainty.</strong></p>\n<p>Think of it this way - if you have no interest in a project, and are only investing in order to mine liquidity (earn a passive income), whenever you spot a better offer (such as one with a higher annual percentage yield), you’re probably going to jump ship, and transfer your investment there! It’s like eating at the same restaurant every day since the food there is OK and the prices are great. If, however, the prices start to rise, or the quality of the food goes down, you will surely consider switching your lunch providers!</p>\n<p>This puts a lot of pressure on the liquidity pool, and the project that it’s associated with. In turn, if there’s a big liquidity provider turnaround, this will create a lot of instability and will lead to the price of <strong>the project token swinging quite a bit.</strong></p>\n<p>The only hope that DeFi 1.0 projects have when it comes to preserving their investors in the long run, is to try and create an amazing and appealing project. This, in turn, would incentivize investors to keep their investment on the platform, even after the initial liquidity mining period is over.</p>\n<p>As you can probably imagine, though, creating a unique and groundbreaking project isn’t easy to do. Since <strong>retaining long-term investors is such a struggle</strong> for traditional, DeFi 1.0 projects, some crypto enthusiasts have come up with very interesting and unique decisions on how to avoid this issue altogether.</p>\n<p>These decisions lead us to DeFi 2.0. In order to better understand what I’m talking about, let’s take one of <strong>the most popular DeFi 2.0 projects</strong> as an example.</p>\n<h2>OlympusDAO</h2>\n<p><strong>OlympusDAO is often seen as the biggest representing project of DeFi 2.0.</strong> Many crypto enthusiasts view OlympusDAO as the most interesting decentralized finance experiment of our time, due to its innovative approach to solving the liquidity problems of traditional DeFi projects!</p>\n<p>In short, <strong>OlympusDAO is a decentralized reserve currency protocol.</strong> Essentially, Olympus has a token called OHM, and bases all of its operations around it. These operations include <strong>staking, bonds, liquidity provision, and so on.</strong></p>\n<p><strong><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is Defi 2.0: OlympusDAO.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-is-defi-2-62907e735d53b.o.png/" alt=\"What is Defi 2.0: OlympusDAO.\" width=\"1000\" height=\"329\" /></strong></p>\n<p>The OHM token is actually what makes Olympus stand out from the crowd. Each OHM token is backed by a selection of cryptocurrency assets - this, in turn, establishes a ground price for the token. In other words, OHM has a certain price threshold (or a floor price) which theoretically shouldn’t be crossed.</p>\n<p>In order for you to understand this concept better, think about it this way. Imagine the same candy store I mentioned earlier. Now, let’s say that a candy bar in the store is priced at $1. However, the shop owner has also backed each of these candy bars with other chocolate bars that he has in the warehouse. Meaning that people will always be able to trade a candy bar for a chocolate bar, at a ratio of 1:1.</p>\n<p>Now, the candy bar can become more expensive, and cost $2, if there’s a huge demand for it. However, it can theoretically never go below $1, since this is the value of the chocolate bars in the warehouse. So, there’s another asset to back the price of the candy bars!</p>\n<p>Getting back to OlympusDAO and DeFi 2.0, users are able to do two things with their OHM tokens. They can <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-staking/">stake <strong>them, and get more OHM tokens as rewards,</strong> <strong>or</strong> <strong>trade their cryptocurrencies for OHM tokens, at a discounted price.</strong> By the way, if you're not familiar with what staking is, make sure to read <a href=https://www.bitdegree.org/"/crypto/learn/what-is-staking-in-crypto/">the section dedicated to this topic</strong></a> - it will all become much clearer!</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-is-defi-2-629079250ac35.o.jpg/" alt=\"What is Defi 2.0: Bonding.\" width=\"1000\" height=\"561\" /></p>\n<p>Now, the second process that I’ve mentioned is where the DeFi 2.0 magic happens. Whenever someone trades OHM tokens, at a discounted price, the cryptocurrencies that they trade for the OHM tokens go to OlympusDAO. This process is called <strong>bonding.</strong></p>\n<p>OlympusDAO then uses these newly acquired assets - such as Ethereum, or the DAI stablecoin - as liquidity for their operations. So, essentially, Olympus becomes the liquidity holder and can stake the assets on other popular liquidity pools, such as that of <strong>Uniswap.</strong></p>\n<p>Remember when I told you that liquidity providers leaving a project is the main problem of traditional DeFi 1.0 platforms? Well, in the case of Olympus, since it becomes the liquidity holder, it’s not going to “leave itself”, since all of the liquidity is in the project’s metaphorical hands. This, in theory, creates a somewhat safe and established liquidity flow and ensures that the project is funded, long-term.</p>\n<h2>Finishing Off</h2>\n<p>Now, I do have to admit - this can all be pretty difficult to wrap your head around.</p>\n<p>DeFi 2.0 is a complex subject, but to recap, I can tell you this - the main message that you should have gotten out of this section is that traditional DeFi (AKA DeFi 1.0) suffers from <strong>liquidity providers leaving projects for other, more-promising opportunities at almost any time</strong>, and DeFi 2.0 projects aim to solve this by implementing special, complex mechanisms that allow them to become the holders of their own liquidity. In many cases, this solution results in the projects not relying on assets staked by other, third-party investors.</p>\n<p>Naturally, the topic is even more complex - OlympusDAO itself has launched OlympusPRO, which offers other projects the opportunity to use the same bonding mechanism in their own <strong><a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-are-tokenomics/">tokenomics. </strong>Then you have dedicated marketplaces, advanced staking pool functionality, and many more intricacies, but all of these probably should be discussed in another section more thoroughly.</p>","preview_url":"https://www.bitdegree.org/crypto/learn/what-is-defi-2-0","youtube_video":{"id":25,"channel_id":1,"sort":37,"video_title":"What is Defi 2.0? (Explained with Animations)","description":"What is DeFi 2.0 in crypto?\n\nDeFi 2.0 is a new concept inspired by traditional DeFi, or decentralized finance. DeFi 2.0 aims to solve some of the biggest issues that traditional DeFi projects face on a daily basis, such as liquidity providers not being loyal to a project, and transfering their funds to platforms that offer better returns.\n\nDeFi 2.0 is an advanced crypto topic, and can seem quite complex to break down! In this video, I try to make things simple and understandable by telling you what DeFi 2.0 is, in the first place, how it’s different from traditional decentralized finance, as well as giving you the an example of and explaining arguebly the most well-known DeFi 2.0 platform.\n\nDo you know any great DeFi 2.0 projects? Tell me about them, in the comments below!\n\nVideo Time Table:\n\n0:00 Introduction to What is Defi 2.0 in Crypto\n0:56 What is Defi?\n4:43 Defi 2.0 vs Defi 1.0\n7:00 Defi 2.0 Example: OlympusDAO\n9:22 Wrap-up: What is Defi 2.0?\n\nGet Quick Crypto Tips on Twitter - Follow:\nhttps://twitter.com/crypto_xplained\n\n#WhatisDefi2 #Defi2Explained #Defi2Definition","video_id":"SG9gyN8jqro","duration":624,"view_count":521,"thumbnail_url":"https://i.ytimg.com/vi/SG9gyN8jqro/hq720.jpg","thumbnail_width":1280,"thumbnail_height":720,"published_at":"2022-05-27 14:55:25","created_at":"2022-05-27T23:00:02.000000Z","updated_at":"2023-05-21T23:00:04.000000Z","channel":{"id":1,"title":"CryptoFinallyExplained","channel_id":"UCOryUY0yxC08eJtK23mNgiA","main_playlist_id":"UUOryUY0yxC08eJtK23mNgiA"}}},"chapterTitle":"dApps & Defi","cryptoBookSection":{"id":14,"featured_image_id":6512,"original_id":null,"youtube_video_id":14,"author_id":42,"translator_id":null,"chapter_id":6,"title":"What Are dApps and How Do They Work?","slug":"what-are-dapps-in-crypto","definition":"Did you know that you can earn real-life profits by breeding and growing creatures in a game? Well, you can, if the game is a dApp.","status":"published","content":"<p>In this section, I will tell you <strong>all about dApps!</strong></p>\n<p>You probably have different applications installed on your computer - things like a calendar, Facebook, a weather app, some games, and so on.</p>\n<p>Just like you have all of these apps on your computer or phone, there are also dApps - or <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-are-decentralized-applications-dapps/">decentralized applications</strong></a> -, as well. However, there is one big difference between dApps and your common apps. Be patient though, I'll talk about that in a sec.</p>\n<p>Now, in this section, I’ll cover what dApps are, in the first place, talk about the most common dApp types, and also ponder on how these pieces of software could affect your life, in the future.</p>\n<p><em>Let’s get to it!</em></p>\n<h2>What are dApps?</h2>\n<p>So - to begin with, let’s establish what are dApps in crypto.</p>\n<p>As I’ve mentioned at the beginning of this section, a “dApp” stands for decentralized application. To continue with the earlier example, dApps aren’t too different from the apps that you have on your devices - games, news applications, social media platforms, and the like.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-are-dapps-1.o.jpg/" alt=\"What are dApps in crypto: Decentralized application.\" width=\"800\" height=\"450\" /></p>\n<p>The key difference, however, lies in the <strong>underlying platform that hosts the app.</strong> So, if you’re using, say, TikTok, all of your information is sent back to the servers of the company - in other words, your data is collected and stored by a centralized institution.</p>\n<p>With dApps, however, this is not the case. Instead, decentralized applications <strong>don’t have a single, governing authority</strong> - <em>it’s in the name, really!</em> All dApps are built not on company-specific servers, but on <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-public-blockchain/">public blockchains</strong></a>.</p>\n<p>Now, a blockchain is a special database that’s used to store information. The things that make it special are that it’s <strong>decentralized</strong> (belonging to no single authority), and that it <strong>stores information in chronological order.</strong> I won’t go further in-depth with the topic, but for the sake of this section, I’ll also mention that <strong>everyone is able to view the transactions</strong> (sales, trades, exchanges, and so on) happening on public blockchains.</p>\n<p>If you’d like to understand how blockchains work in a more thorough manner, check out the <a href=https://www.bitdegree.org/"/crypto/learn/what-is-blockchain/">section dedicated to this topic</strong></a>.</p>\n<p>So - decentralized applications are built on blockchains. <em>What’s the big deal?</em></p>\n<p>Well, the “big deal” here is that, when you’re using a dApp, your <strong>data won’t be siphoned and sent to a centralized institution,</strong> so that they could then sell it to third-party advertisers. On top of that, dApps are governed differently, too - instead of a company making decisions, you have the community behind the dApp responsible for its well-being.</p>\n<p>Such communities are referred to as DAOs. Since it’s a bit of a complex topic, I won’t be discussing it here - make sure to check the <a href=https://www.bitdegree.org/"/crypto/learn/what-is-a-dao-in-crypto/">section about this topic</strong></a> to get a thorough understanding of the whole picture! Suffice to say that, with dApps, the whole community is incentivized to take care of the applications.</p>\n<p>The easiest way to understand everything we’ve talked about up until this point is this: imagine that there are two online social media platforms, like Facebook. Say, the first one is just like the one we have now - the “traditional” Facebook, owned by Meta.</p>\n<p>Now, let’s call the other platform “Decentralized Facebook”. That’s because, while it looks and interacts completely the same as Facebook, it does not belong to Mark Zuckerberg’s company - instead, it’s built on the blockchain and is completely decentralized.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-are-dapps-2.o.jpg/" alt=\"What are dApps in crypto: Traditional Facebook VS Decentralized Facebook.\" width=\"800\" height=\"276\" /></p>\n<p>With traditional Facebook, your personal information is being collected on a regular basis. This information is then sold to advertisers so that they could target those pesky ads at you better. Your personal privacy is invaded, and sold off, for the sake of ad money.</p>\n<p>Decentralized Facebook, on the other hand, acts nothing like that. It only sees the information that you choose to provide, and if you’d like, you are able to remain anonymous on the dApp. No targeted ads, no information gathering.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-are-dapps-3.o.jpg/" alt=\"What are dApps in crypto: Two versions of Facebook.\" width=\"801\" height=\"465\" /></p>\n<p>On top of that, with our current Facebook, Meta (the company behind the platform) makes all of the decisions on what to change, improve, or update. They aren’t too concerned with what the community wants, or what’s best for the social fabric - instead, they only care about their bottom line, even if the cost is less convenient for the user.</p>\n<p>On the flip side, a dApp version of Facebook would be looked over by the community behind it. And who knows what the platform needs better than the actual people who actively use it, every single day?!</p>\n<p>All dApps are run with the help of <strong><a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-smart-contract/">smart contracts</a>. </strong>These are automated agreements that are programmed and set on the blockchain - generally speaking, once a smart contract is engaged, it cannot be stopped, changed, or altered. If you’d like to learn more about smart contracts, make sure to check out the section<strong> \"<a href=https://www.bitdegree.org/"/crypto/learn/what-are-smart-contracts/">What are Smart Contracts</a>?\".</strong></p>\n<p><span style=\"font-family: -apple-system, BlinkMacSystemFont, 'Segoe UI', Roboto, Oxygen, Ubuntu, Cantarell, 'Open Sans', 'Helvetica Neue', sans-serif;\">Lastly, as a quick note, in order to start using dApps for yourself, in most cases, you will need to have a <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/best-cryptocurrency-wallet/">cryptocurrency wallet</strong></a>, as well as some funds within it.</span></p>\n<h2>The Main Types of dApps</h2>\n<p>Now, we’ve established that <strong>dApps are applications that are based on blockchains, and that allow people to use them anonymously, securely, and without fear of data aggregation.</strong></p>\n<p>In order for you to get a better understanding of the topic, though, let’s take a look at some of the most popular examples of the different types of dApps that are out there.</p>\n<p>First up, <strong>gaming dApps.</strong> Without a doubt, these are some of the most popular decentralized applications that have come out of the industry. If you’ve heard about <strong>NFT gaming</strong> or “<a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-play-to-earn-play2earn/">Play-2-Earn” games, most all of them can be considered dApps.</p>\n<p>Think about <strong>Axie Infinity,</strong> one of the most popular cryptocurrency games on the market. Within the game, you breed and grow creatures called Axies, battle other players, and are able to sell your Axie pets for real-world profits. With all of the amazing features of the game, it’s also decentralized, and built on a blockchain.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-are-dapps-4.o.jpg/" alt=\"What are dApps in crypto: Gaming dApps.\" width=\"800\" height=\"425\" /></p>\n<p>What this means is that you can inspect the code behind the game, check all of its transactions, and play anonymously - no formal registrations, no “self-doxing” (or, revealing sensitive information about yourself), none of that!</p>\n<p>Next up, <strong><a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-decentralized-exchange-dex/">decentralized cryptocurrency exchanges</a>.</strong></p>\n<p>A crypto exchange platform is a place where people go to exchange different crypto assets. By default, these platforms are centralized and follow the “<a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-know-your-customer-kyc/">Know Your Customer</strong></a>” financial guidelines - in other words, if you want to trade cryptocurrencies on them, you will need to provide your personal information, ID, residential address, and so on.</p>\n<p>Think of the process as you would do with a bank. In order to open a bank account, all of these procedures need to be passed, as well. However, with a bank, you can be sure that you’re providing information to a reliable, established business.</p>\n<p>With cryptocurrency exchanges, though, things aren’t always that simple. Many exchanges, to this day, aren’t really well-established, and you might not even be aware of who you’re dealing with.</p>\n<p>On top of that, <strong>crypto exchanges do still get hacked,</strong> on a rather frequent basis. You risk not only losing your cryptocurrencies but also getting your personal information leaked, as well!</p>\n<p>Now, with a decentralized cryptocurrency exchange (also known as a DEX), most of those concerns are nullified. You won’t need to reveal your personal information, DEXes usually don’t hold your crypto assets, and you are able to trade some niche crypto assets on them, as well!</p>\n<p>The last example that I want to give you while talking about what are dApps is that of the <strong><a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-metaverse/">metaverse.
/n
Now, if you’ve spent any time online in the past half a year or so, you might have heard the big news - Mark Zuckerberg, the CEO of Facebook, has announced that his company will now be called Meta and that they will invest in creating metaverse-based technology.</p>\n<p>This is a HUGE topic, so I would highly suggest you’d go and check the section <strong>\"<a href=https://www.bitdegree.org/"/crypto/learn/what-is-the-metaverse/">What is the Metaverse?</a>\". </strong>In short, though, Mark isn’t the first guy to come up with the concept - a “metaverse” is actually just a <strong>digital world</strong> where you can have your own avatar, and interact with other people!</p>\n<p>Where do dApps come in, you might ask? Well, when you’re baking a cake, a cake tin is absolutely necessary - if you try to make a cake without one, it will probably turn out a blob - formless, squished, and unappealing.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-are-dapps-5.o.jpg/" alt=\"What are dApps in crypto: Mark Zuckerberg investing in metaverse-based technology.\" width=\"800\" height=\"350\" /></p>\n<p>The same logic applies to the metaverse, as well! If the underlying technology is poorly-made, the concept itself will be a fluke, too. On the flip side, if the metaverse was built on a decentralized application, this would give it a huge leap in the right direction.</p>\n<p><em>How so? </em>Well, users would be able to remain <strong>anonymous, </strong>all of their transactions and interactions would be <strong>recorded on the blockchain,</strong> and everything happening within the metaverse would be <strong>provably fair.</strong> In other words, everything related to the digital world would be following the rules of the smart contract lying underneath!</p>\n<p>Now, I really don’t want to get any techier than I already have, so I’ll stop with the dApp examples here. That being said, my point through all of this was that dApps have <strong>infinite potential</strong> - there are countless examples and possibilities of how they can be integrated into our lives!</p>\n<h2>dApps in the Future</h2>\n<p>With time, everything is slowly advancing and getting more intricate - it’s certain that decentralized applications will only improve in the future, too! Which dApps could we see sticking around, though - which of them have the best potential?</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-are-dapps-6.o.jpg/" alt=\"What are dApps in crypto: dApps in the future.\" width=\"800\" height=\"251\" /></p>\n<p>Well, people probably asked these questions in the early 2000s, when tech stocks were dominating the financial landscape - no one knew which companies would survive and go on to become multi-billion dollar businesses, and which ones would fail!</p>\n<p>When it comes to dApps, <strong>decentralized exchanges</strong> <strong>and projects such as the metaverse</strong> are surely going to stick around in people's minds, at least for some time - projects like these serve some awesome purposes and can be useful in advancing the technology sector, as a whole.</p>","meta_title":"What are dApps in Crypto? The Most Popular Types","meta_description":"Have you ever wondered what are dApps in crypto? If you have, you'll definitely find everything you need to know about dApps right here!","meta_keywords":"what are dapps in crypto, dapps meaning","order":3,"language":"en","created_at":"2022-05-03T11:29:19.000000Z","updated_at":"2023-05-16T11:22:46.000000Z","modified_content":"<p>In this section, I will tell you <strong>all about dApps!</strong></p>\n<p>You probably have different applications installed on your computer - things like a calendar, Facebook, a weather app, some games, and so on.</p>\n<p>Just like you have all of these apps on your computer or phone, there are also dApps - or <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-are-decentralized-applications-dapps/">decentralized applications</strong></a> -, as well. However, there is one big difference between dApps and your common apps. Be patient though, I'll talk about that in a sec.</p>\n<p>Now, in this section, I’ll cover what dApps are, in the first place, talk about the most common dApp types, and also ponder on how these pieces of software could affect your life, in the future.</p>\n<p><em>Let’s get to it!</em></p>\n<div class=\"container\">\n <div class=\"row justify-content-center\">\n <div class=\"col-md-10 comparison-suggestion pb-3 mb-4\">\n <div class=\"d-flex flex-row\">\n <div class=\"text-center\">\n <div class=\"img-block-yt\">\n <img src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/assets/images/compare-crypto-exchanges.gif/"/n alt=\"What are dApps in Crypto? (Explained with Animations)\"\n title=\"What are dApps in Crypto? (Explained with Animations)\" class=\"border-0\">\n <p>Video Explainer</p>\n </div>\n </div>\n <div class=\"col-xs-10 col-sm-10 col-md-10 text-left py-3 yt-info\">\n <h4 class=\"mb-1\">Video Explainer: What Are dApps and How Do They Work?</h4>\n <p class=\"py-1 mb-0 youtube-video-subtitle\">Reading is not your thing? Watch the \"What Are dApps and How Do They Work?\" video explainer</p>\n </div>\n </div>\n <div class=\"row justify-content-center text-center\">\n <div class=\"col-12 col-md-11 px-3\">\n <div class=\"wrapper mb-0\">\n <div class=\"youtube mb-4 bg-transparent p-0 video-modal-popup\" data-toggle=\"modal\"\n data-target=\"#video-modal\" data-id=\"LVASq8IVYA8\" data-title=\"CryptoFinallyExplained\">\n <div class=\"video-gradient-top\"></div>\n <p class=\"text-left dyk-video-title\">What are dApps in Crypto? (Explained with Animations)</p>\n <img src=https://www.bitdegree.org/"https://i.ytimg.com/vi/LVASq8IVYA8/hq720.jpg/"/n alt=\"What are dApps in Crypto? (Explained with Animations)\"\n title=\"What are dApps in Crypto? (Explained with Animations)\"\n class=\"p-0\">\n <img class=\"play-button\" data-target=\"#video-modal\"\n src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/assets/video-button.png/"/n alt=\"What are dApps in Crypto? (Explained with Animations)\">\n </div>\n </div>\n </div>\n </div>\n <div class=\"row justify-content-center text-center\">\n <div>\n <a href=https://www.bitdegree.org/"https://www.youtube.com/c/CryptoFinallyExplained?sub_confirmation=1\%22\n class=\"btn yt-promo mb-2\" target=\"_blank\" rel=\"nofollow noopener\">\n <div class=\"row justify-content-center align-items-center mx-0 text-center\">\n <div class=\"col-4 col-md-4\">\n <i class=\"fab fa-youtube yt-dyk-btn\"></i>\n </div>\n <div class=\"col-8 col-md-8 text-center yt-promo-text\">\n <h4 class=\"m-0 text-white\">SUBSCRIBE</h4>\n <span>ON YOUTUBE</span>\n </div>\n </div>\n </a>\n </div>\n </div>\n </div>\n </div>\n</div>\n<div class=\"modal fade\" id=\"video-modal\" tabindex=\"-1\" role=\"dialog\" aria-labelledby=\"LVASq8IVYA8\">\n <div class=\"modal-dialog modal-dialog-centered modal-lg\" role=\"document\">\n <div class=\"modal-content\">\n <div class=\"modal-body p-0\">\n <button type=\"button\" class=\"video-modal-close close\" data-dismiss=\"modal\" aria-label=\"Close\">\n <i aria-hidden=\"true\" class=\"fas fa-times\"></i>\n </button>\n <div id=\"iframe\"></div>\n </div>\n <a class=\"text-decoration-none\"\n href=https://www.bitdegree.org/"https://www.youtube.com/c/CryptoFinallyExplained?sub_confirmation=1\%22\n rel=\"nofollow noopener\" target=\"_blank\">\n <div class=\"modal-footer p-0 d-block bg-white\">\n <div class=\"row justify-content-center m-0\">\n <div class=\"col-3 col-md-4 col-lg-2 p-0\">\n <img class=\"w-100 h-100\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/assets/crypto-subscribe.jpg/" alt=\"Subscribe\">\n </div>\n <div class=\"col-9 col-md-8 col-lg-2 px-0 d-flex\">\n <div class=\"modal-subscribe w-100\">\n <p class=\"m-0 mt-1 mr-3\">SUBSCRIBE<br>\n <span class=\"m-0\">ON YOUTUBE</span>\n </p>\n </div>\n </div>\n <div class=\"col-12 col-md-12 col-lg-8 p-0 text-center d-flex justify-content-center align-items-center\">\n <div class=\"modal-subscribe-text\">\n <h4 class=\"m-0\">Understand crypto with ease</h4>\n <span>New explainer videos every week!</span>\n </div>\n </div>\n </div>\n </div>\n </a>\n </div>\n </div>\n</div>\n<h2>What are dApps?</h2>\n<p>So - to begin with, let’s establish what are dApps in crypto.</p>\n<p>As I’ve mentioned at the beginning of this section, a “dApp” stands for decentralized application. To continue with the earlier example, dApps aren’t too different from the apps that you have on your devices - games, news applications, social media platforms, and the like.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-are-dapps-1.o.jpg/" alt=\"What are dApps in crypto: Decentralized application.\" width=\"800\" height=\"450\" /></p>\n<p>The key difference, however, lies in the <strong>underlying platform that hosts the app.</strong> So, if you’re using, say, TikTok, all of your information is sent back to the servers of the company - in other words, your data is collected and stored by a centralized institution.</p>\n<p>With dApps, however, this is not the case. Instead, decentralized applications <strong>don’t have a single, governing authority</strong> - <em>it’s in the name, really!</em> All dApps are built not on company-specific servers, but on <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-public-blockchain/">public blockchains</strong></a>.</p>\n<p>Now, a blockchain is a special database that’s used to store information. The things that make it special are that it’s <strong>decentralized</strong> (belonging to no single authority), and that it <strong>stores information in chronological order.</strong> I won’t go further in-depth with the topic, but for the sake of this section, I’ll also mention that <strong>everyone is able to view the transactions</strong> (sales, trades, exchanges, and so on) happening on public blockchains.</p>\n<p>If you’d like to understand how blockchains work in a more thorough manner, check out the <a href=https://www.bitdegree.org/"/crypto/learn/what-is-blockchain/">section dedicated to this topic</strong></a>.</p>\n<p>So - decentralized applications are built on blockchains. <em>What’s the big deal?</em></p>\n<p>Well, the “big deal” here is that, when you’re using a dApp, your <strong>data won’t be siphoned and sent to a centralized institution,</strong> so that they could then sell it to third-party advertisers. On top of that, dApps are governed differently, too - instead of a company making decisions, you have the community behind the dApp responsible for its well-being.</p>\n<p>Such communities are referred to as DAOs. Since it’s a bit of a complex topic, I won’t be discussing it here - make sure to check the <a href=https://www.bitdegree.org/"/crypto/learn/what-is-a-dao-in-crypto/">section about this topic</strong></a> to get a thorough understanding of the whole picture! Suffice to say that, with dApps, the whole community is incentivized to take care of the applications.</p>\n<p>The easiest way to understand everything we’ve talked about up until this point is this: imagine that there are two online social media platforms, like Facebook. Say, the first one is just like the one we have now - the “traditional” Facebook, owned by Meta.</p>\n<p>Now, let’s call the other platform “Decentralized Facebook”. That’s because, while it looks and interacts completely the same as Facebook, it does not belong to Mark Zuckerberg’s company - instead, it’s built on the blockchain and is completely decentralized.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-are-dapps-2.o.jpg/" alt=\"What are dApps in crypto: Traditional Facebook VS Decentralized Facebook.\" width=\"800\" height=\"276\" /></p>\n<p>With traditional Facebook, your personal information is being collected on a regular basis. This information is then sold to advertisers so that they could target those pesky ads at you better. Your personal privacy is invaded, and sold off, for the sake of ad money.</p>\n<p>Decentralized Facebook, on the other hand, acts nothing like that. It only sees the information that you choose to provide, and if you’d like, you are able to remain anonymous on the dApp. No targeted ads, no information gathering.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-are-dapps-3.o.jpg/" alt=\"What are dApps in crypto: Two versions of Facebook.\" width=\"801\" height=\"465\" /></p>\n<p>On top of that, with our current Facebook, Meta (the company behind the platform) makes all of the decisions on what to change, improve, or update. They aren’t too concerned with what the community wants, or what’s best for the social fabric - instead, they only care about their bottom line, even if the cost is less convenient for the user.</p>\n<p>On the flip side, a dApp version of Facebook would be looked over by the community behind it. And who knows what the platform needs better than the actual people who actively use it, every single day?!</p>\n<p>All dApps are run with the help of <strong><a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-smart-contract/">smart contracts</a>. </strong>These are automated agreements that are programmed and set on the blockchain - generally speaking, once a smart contract is engaged, it cannot be stopped, changed, or altered. If you’d like to learn more about smart contracts, make sure to check out the section<strong> \"<a href=https://www.bitdegree.org/"/crypto/learn/what-are-smart-contracts/">What are Smart Contracts</a>?\".</strong></p>\n<p><span style=\"font-family: -apple-system, BlinkMacSystemFont, 'Segoe UI', Roboto, Oxygen, Ubuntu, Cantarell, 'Open Sans', 'Helvetica Neue', sans-serif;\">Lastly, as a quick note, in order to start using dApps for yourself, in most cases, you will need to have a <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/best-cryptocurrency-wallet/">cryptocurrency wallet</strong></a>, as well as some funds within it.</span></p>\n<h2>The Main Types of dApps</h2>\n<p>Now, we’ve established that <strong>dApps are applications that are based on blockchains, and that allow people to use them anonymously, securely, and without fear of data aggregation.</strong></p>\n<p>In order for you to get a better understanding of the topic, though, let’s take a look at some of the most popular examples of the different types of dApps that are out there.</p>\n<p>First up, <strong>gaming dApps.</strong> Without a doubt, these are some of the most popular decentralized applications that have come out of the industry. If you’ve heard about <strong>NFT gaming</strong> or “<a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-play-to-earn-play2earn/">Play-2-Earn” games, most all of them can be considered dApps.</p>\n<p>Think about <strong>Axie Infinity,</strong> one of the most popular cryptocurrency games on the market. Within the game, you breed and grow creatures called Axies, battle other players, and are able to sell your Axie pets for real-world profits. With all of the amazing features of the game, it’s also decentralized, and built on a blockchain.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-are-dapps-4.o.jpg/" alt=\"What are dApps in crypto: Gaming dApps.\" width=\"800\" height=\"425\" /></p>\n<p>What this means is that you can inspect the code behind the game, check all of its transactions, and play anonymously - no formal registrations, no “self-doxing” (or, revealing sensitive information about yourself), none of that!</p>\n<p>Next up, <strong><a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-decentralized-exchange-dex/">decentralized cryptocurrency exchanges</a>.</strong></p>\n<p>A crypto exchange platform is a place where people go to exchange different crypto assets. By default, these platforms are centralized and follow the “<a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-know-your-customer-kyc/">Know Your Customer</strong></a>” financial guidelines - in other words, if you want to trade cryptocurrencies on them, you will need to provide your personal information, ID, residential address, and so on.</p>\n<p>Think of the process as you would do with a bank. In order to open a bank account, all of these procedures need to be passed, as well. However, with a bank, you can be sure that you’re providing information to a reliable, established business.</p>\n<p>With cryptocurrency exchanges, though, things aren’t always that simple. Many exchanges, to this day, aren’t really well-established, and you might not even be aware of who you’re dealing with.</p>\n<p>On top of that, <strong>crypto exchanges do still get hacked,</strong> on a rather frequent basis. You risk not only losing your cryptocurrencies but also getting your personal information leaked, as well!</p>\n<p>Now, with a decentralized cryptocurrency exchange (also known as a DEX), most of those concerns are nullified. You won’t need to reveal your personal information, DEXes usually don’t hold your crypto assets, and you are able to trade some niche crypto assets on them, as well!</p>\n<p>The last example that I want to give you while talking about what are dApps is that of the <strong><a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-metaverse/">metaverse.
/n
Now, if you’ve spent any time online in the past half a year or so, you might have heard the big news - Mark Zuckerberg, the CEO of Facebook, has announced that his company will now be called Meta and that they will invest in creating metaverse-based technology.</p>\n<p>This is a HUGE topic, so I would highly suggest you’d go and check the section <strong>\"<a href=https://www.bitdegree.org/"/crypto/learn/what-is-the-metaverse/">What is the Metaverse?</a>\". </strong>In short, though, Mark isn’t the first guy to come up with the concept - a “metaverse” is actually just a <strong>digital world</strong> where you can have your own avatar, and interact with other people!</p>\n<p>Where do dApps come in, you might ask? Well, when you’re baking a cake, a cake tin is absolutely necessary - if you try to make a cake without one, it will probably turn out a blob - formless, squished, and unappealing.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-are-dapps-5.o.jpg/" alt=\"What are dApps in crypto: Mark Zuckerberg investing in metaverse-based technology.\" width=\"800\" height=\"350\" /></p>\n<p>The same logic applies to the metaverse, as well! If the underlying technology is poorly-made, the concept itself will be a fluke, too. On the flip side, if the metaverse was built on a decentralized application, this would give it a huge leap in the right direction.</p>\n<p><em>How so? </em>Well, users would be able to remain <strong>anonymous, </strong>all of their transactions and interactions would be <strong>recorded on the blockchain,</strong> and everything happening within the metaverse would be <strong>provably fair.</strong> In other words, everything related to the digital world would be following the rules of the smart contract lying underneath!</p>\n<p>Now, I really don’t want to get any techier than I already have, so I’ll stop with the dApp examples here. That being said, my point through all of this was that dApps have <strong>infinite potential</strong> - there are countless examples and possibilities of how they can be integrated into our lives!</p>\n<h2>dApps in the Future</h2>\n<p>With time, everything is slowly advancing and getting more intricate - it’s certain that decentralized applications will only improve in the future, too! Which dApps could we see sticking around, though - which of them have the best potential?</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-are-dapps-6.o.jpg/" alt=\"What are dApps in crypto: dApps in the future.\" width=\"800\" height=\"251\" /></p>\n<p>Well, people probably asked these questions in the early 2000s, when tech stocks were dominating the financial landscape - no one knew which companies would survive and go on to become multi-billion dollar businesses, and which ones would fail!</p>\n<p>When it comes to dApps, <strong>decentralized exchanges</strong> <strong>and projects such as the metaverse</strong> are surely going to stick around in people's minds, at least for some time - projects like these serve some awesome purposes and can be useful in advancing the technology sector, as a whole.</p>","preview_url":"https://www.bitdegree.org/crypto/learn/what-are-dapps-in-crypto","youtube_video":{"id":14,"channel_id":1,"sort":48,"video_title":"What are dApps in Crypto? (Explained with Animations)","description":"What are dApps in crypto?\n\n“dApp” stands for “decentralized application”. It’s a type of app built on a blockchain, and coded with the logic of smart contracts. \n\nPopular types of dApps include decentralized exchanges “DEXs”, blockchain-based “Play-to-Earn” games, NFT marketplaces, and so on. In order to use dApps, all that you will need to have is a cryptocurrency wallet, and some funds within it. In this video, I will break down the concept of dApps in a simple manner, as well as mention some popular examples of well-known decentralized applications.\n\nHave you ever used a dApp before? If so, which one? Do share your experience, in the comment section below!\n\nVideo Time Table:\n\n0:00 Introduction to What are Dapps in Crypto\n0:54 What are dApps in Crypto?\n5:02 Gaming dApps\n5:45 Decentralized Cryptocurrency Exchanges (DEX)\n6:54 dApps in the Metaverse\n8:19 Wrap-up: What are dApps in Crypto?\n\nGet Quick Crypto Tips on Twitter - Follow:\nhttps://twitter.com/crypto_xplained\n\n#WhatAredAppsinCrypto #dAppsMeaning #dApps #WhatisadApp #dAppsinCrypto","video_id":"LVASq8IVYA8","duration":562,"view_count":968,"thumbnail_url":"https://i.ytimg.com/vi/LVASq8IVYA8/hq720.jpg","thumbnail_width":1280,"thumbnail_height":720,"published_at":"2022-03-03 14:52:59","created_at":"2022-03-03T23:00:02.000000Z","updated_at":"2023-05-21T23:00:04.000000Z","channel":{"id":1,"title":"CryptoFinallyExplained","channel_id":"UCOryUY0yxC08eJtK23mNgiA","main_playlist_id":"UUOryUY0yxC08eJtK23mNgiA"}},"featured_image":{"id":6512,"uuid":"5b01af79-3366-4b9a-bbc4-a1e6511c23c2","public_url":"https://assets.bitdegree.org/crypto/storage/media/what-are-dapps-in-crypto.o.jpg","path":"crypto/storage/media/what-are-dapps-in-crypto.o.jpg","original_path":"crypto/storage/media/what-are-dapps-in-crypto.jpg","name":"what-are-dapps-in-crypto.o.jpg","original_name":"what-are-dapps-in-crypto.jpg","title":null,"alt":null,"width":768,"height":478,"disk":"spaces","status":"uploaded","readable_file_size":"143.97KB"}},"chapterList":[{"id":1,"title":"Blockchain","slug":"blockchain","updated":null,"chapter":"https://assets.bitdegree.org/crypto/assets/crypto-book/chapters/learn-blockchain.jpg","chapter_simple":"https://assets.bitdegree.org/crypto/assets/crypto-book/chapters-simple/blockchain-101.jpg","rating":100,"sections":[{"slug":"what-is-blockchain","title":"What is the Blockchain?","featured_image_id":6412,"status":"published","chapter_id":1,"language":"en","order":1,"modified_content":null,"preview_url":"https://www.bitdegree.org/crypto/learn/what-is-blockchain","featured_image":{"id":6412,"uuid":"152ba579-ce8d-488a-9e06-bcd99e976b7d","public_url":"https://assets.bitdegree.org/crypto/storage/media/what-is-blockchain-626fbe085a0cd.o.jpg","path":"crypto/storage/media/what-is-blockchain-626fbe085a0cd.o.jpg","original_path":"crypto/storage/media/what-is-blockchain-626fbe085a0cd.jpg","name":"what-is-blockchain-626fbe085a0cd.o.jpg","original_name":"what-is-blockchain.jpg","title":null,"alt":null,"width":768,"height":478,"disk":"spaces","status":"uploaded","readable_file_size":"93.86KB"},"youtube_video":null},{"slug":"decentralized-blockchain","title":"Anonymous & Decentralized Blockchains: The Cornerstone of Crypto","featured_image_id":7205,"status":"published","chapter_id":1,"language":"en","order":2,"modified_content":null,"preview_url":"https://www.bitdegree.org/crypto/learn/decentralized-blockchain","featured_image":{"id":7205,"uuid":"c5d6f6a7-4914-4d6b-9fdd-e94dfb0bae82","public_url":"https://assets.bitdegree.org/crypto/storage/media/decentralized-blockchain-featured-image.o.jpg","path":"crypto/storage/media/decentralized-blockchain-featured-image.o.jpg","original_path":"crypto/storage/media/decentralized-blockchain-featured-image.jpg","name":"decentralized-blockchain-featured-image.o.jpg","original_name":"decentralized-blockchain-featured-image.jpg","title":null,"alt":null,"width":768,"height":478,"disk":"spaces","status":"uploaded","readable_file_size":"136.00KB"},"youtube_video":null},{"slug":"blockchain-transaction","title":"What is a Blockchain Transaction in 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All Crypto From

Scratch!

Crypto 101 Handbook

Chapter 1: Blockchain

1.1

What is the Blockchain?
1.2

Anonymous & Decentralized Blockchains: The Cornerstone of Crypto
1.3

What is a Blockchain Transaction in Crypto?
1.4

The Different Types of Crypto Fees Explained
1.5

The Key Notion Behind the Concept of Bridging in Crypto
1.6

Different Types of Blockchains: What to Look Out For?
Chapter 2: Cryptocurrencies

2.1

What is a Cryptocurrency?
2.2

How Does Cryptocurrency Work?
2.3

Is Cryptocurrency a Good Investment? The Pros & Cons
2.4

Coin VS Token: How Do They Differ?
2.5

What are Stablecoins, Altcoins & Wrapped Coins?
2.6

Bitcoin: the Pioneer of the Crypto World
2.7

The Ultimate Blockchain for dApp Creation: Ethereum
2.8

What is Cardano and What is It Used For?
2.9

Shiba Inu: the Dogecoin Killer
2.10

Is Solana an Improved Version of Ethereum?
2.11

The Bridge Between Blockchains: Polkadot
2.12

Polygon: the Essential Scaling Solution for Ethereum
2.13

The Practical Use of Crypto
Chapter 3: Crypto Exchanges

3.1

How do Cryptocurrency Exchanges Work?
3.2

DEX VS CEX: Two Sides of the Crypto Exchange Industry
3.3

Crypto Day Trading: The Difference Between Buying, Trading, and Swapping
3.4

KYC & AML: The Key to Complying With Legal Industry Standards
3.5

From Fiat to Crypto: How to Buy Crypto for the First Time
3.6

Taking Profits: Turning Crypto Into Fiat
3.7

You’ve Got Crypto: What Can You Do With It?
Chapter 4: Crypto Wallets

4.1

What is a Crypto Wallet?
4.2

Hot Wallet VS Cold Wallet: Which One to Pick?
4.3

What are Non-Custodial Crypto Wallets?
4.4

Metamask: The Leading Non-Custodial Wallet
4.5

The Key Crypto Wallet Safety Practices: How Safe Can Crypto Be?
Chapter 5: NFTs

5.1

What are Non-Fungible Tokens (NFTs)?
5.2

NFT Trading: The Ins and Outs
5.3

Tips and Tricks of Choosing the Right NFTs
5.4

How to Store NFTs: Best Practices
5.5

How to Create Your Own NFTs?
5.6

Making Passive Money with NFTs
Chapter 6: dApps & Defi

6.1

What is Decentralized Finance (DeFi)?
6.2

DeFi 2.0: The New Version of Decentralized Finance
6.3

What Are dApps and How Do They Work?
6.4

Picking the Right dApps: Dos and Don'ts
6.5

Web 3.0: The Future of the Internet
6.6

What is the Core Purpose of Smart Contracts?
6.7

The Notion of a Decentralized Autonomous Ogranization (DAO)
6.8

What is the Goal of Staking Crypto Assets?
6.9

What is a Liquidity Pool and How Does It Work?
6.10

Automated Market Maker: the Cornerstone of the Decentralized Crypto Exchange Industry
6.11

The Main Yield Farming Techniques
6.12

Crypto Oracles: The Link Between Blockchain and Outside World Data
6.13

The Peculiarities of Decentralized Crypto Gambling
6.14

Metaverse: A New Perception of Reality
Chapter 7: Trading & Investing

7.1

Where Can You Trade Cryptocurrencies?
7.2

Investing in Crypto: What Investing Options Do You Have?
7.3

ICO vs IDO vs IEO: Which One is the One?
7.4

What are Crypto Airdrops and How to Get Them?
7.5

How to Get Free Crypto Assets?
7.6

What is Crypto Arbitrage: The Main Principles
7.7

What is FUD: How to Use It to Your Advantage While Investing in Crypto?
7.8

Investing in Cryptocurrency: How to Manage Your Risks?
7.9

What is a Rug Pull in Crypto?
7.10

How to Spot and Avoid Rug Pulls?
7.11

The Key Legal Techniques of Avoiding Crypto Taxes
Chapter 8: Crypto Analysis

8.1

Bearish and Bullish Markets: Do They Matter?
8.2

5 Best Crypto Technical Analysis Indicators You Must Know About
8.3

Technical Analysis: What are Candlesticks, Trendlines, and Patterns?
8.4

Crypto Tracking: How to Track Your Favorite Coins & Tokens?
8.5

Crypto Research Fundamentals & Social Signals: Your Daily Trading Strategy
Chapter 9: Mining

coming soon

Chapter 10: Crypto Terms

10.1

All Crypto Terms

Handbook Cover Page

Chapter 6: dApps & Defi

What Are dApps and How Do They Work?

Did you know that you can earn real-life profits by breeding and growing creatures in a game? Well, you can, if the game is a dApp.

Medium

8 minutes

Watch Video

In this section, I will tell you all about dApps!

You probably have different applications installed on your computer - things like a calendar, Facebook, a weather app, some games, and so on.

Just like you have all of these apps on your computer or phone, there are also dApps - or decentralized applications -, as well. However, there is one big difference between dApps and your common apps. Be patient though, I'll talk about that in a sec.

Now, in this section, I’ll cover what dApps are, in the first place, talk about the most common dApp types, and also ponder on how these pieces of software could affect your life, in the future.

Let’s get to it!

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Video Explainer: What Are dApps and How Do They Work?

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What are dApps?

So - to begin with, let’s establish what are dApps in crypto.

As I’ve mentioned at the beginning of this section, a “dApp” stands for decentralized application. To continue with the earlier example, dApps aren’t too different from the apps that you have on your devices - games, news applications, social media platforms, and the like.

The key difference, however, lies in the underlying platform that hosts the app. So, if you’re using, say, TikTok, all of your information is sent back to the servers of the company - in other words, your data is collected and stored by a centralized institution.

With dApps, however, this is not the case. Instead, decentralized applications don’t have a single, governing authority - it’s in the name, really! All dApps are built not on company-specific servers, but on public blockchains.

Now, a blockchain is a special database that’s used to store information. The things that make it special are that it’s decentralized (belonging to no single authority), and that it stores information in chronological order. I won’t go further in-depth with the topic, but for the sake of this section, I’ll also mention that everyone is able to view the transactions (sales, trades, exchanges, and so on) happening on public blockchains.

If you’d like to understand how blockchains work in a more thorough manner, check out the section dedicated to this topic.

So - decentralized applications are built on blockchains. What’s the big deal?

Well, the “big deal” here is that, when you’re using a dApp, your data won’t be siphoned and sent to a centralized institution, so that they could then sell it to third-party advertisers. On top of that, dApps are governed differently, too - instead of a company making decisions, you have the community behind the dApp responsible for its well-being.

Such communities are referred to as DAOs. Since it’s a bit of a complex topic, I won’t be discussing it here - make sure to check the section about this topic to get a thorough understanding of the whole picture! Suffice to say that, with dApps, the whole community is incentivized to take care of the applications.

The easiest way to understand everything we’ve talked about up until this point is this: imagine that there are two online social media platforms, like Facebook. Say, the first one is just like the one we have now - the “traditional” Facebook, owned by Meta.

Now, let’s call the other platform “Decentralized Facebook”. That’s because, while it looks and interacts completely the same as Facebook, it does not belong to Mark Zuckerberg’s company - instead, it’s built on the blockchain and is completely decentralized.

With traditional Facebook, your personal information is being collected on a regular basis. This information is then sold to advertisers so that they could target those pesky ads at you better. Your personal privacy is invaded, and sold off, for the sake of ad money.

Decentralized Facebook, on the other hand, acts nothing like that. It only sees the information that you choose to provide, and if you’d like, you are able to remain anonymous on the dApp. No targeted ads, no information gathering.

On top of that, with our current Facebook, Meta (the company behind the platform) makes all of the decisions on what to change, improve, or update. They aren’t too concerned with what the community wants, or what’s best for the social fabric - instead, they only care about their bottom line, even if the cost is less convenient for the user.

On the flip side, a dApp version of Facebook would be looked over by the community behind it. And who knows what the platform needs better than the actual people who actively use it, every single day?!

All dApps are run with the help of smart contracts. These are automated agreements that are programmed and set on the blockchain - generally speaking, once a smart contract is engaged, it cannot be stopped, changed, or altered. If you’d like to learn more about smart contracts, make sure to check out the section "What are Smart Contracts?".

Lastly, as a quick note, in order to start using dApps for yourself, in most cases, you will need to have a cryptocurrency wallet, as well as some funds within it.

The Main Types of dApps

Now, we’ve established that dApps are applications that are based on blockchains, and that allow people to use them anonymously, securely, and without fear of data aggregation.

In order for you to get a better understanding of the topic, though, let’s take a look at some of the most popular examples of the different types of dApps that are out there.

First up, gaming dApps. Without a doubt, these are some of the most popular decentralized applications that have come out of the industry. If you’ve heard about NFT gaming or “Play-2-Earn” games, most all of them can be considered dApps.

Think about Axie Infinity, one of the most popular cryptocurrency games on the market. Within the game, you breed and grow creatures called Axies, battle other players, and are able to sell your Axie pets for real-world profits. With all of the amazing features of the game, it’s also decentralized, and built on a blockchain.

What this means is that you can inspect the code behind the game, check all of its transactions, and play anonymously - no formal registrations, no “self-doxing” (or, revealing sensitive information about yourself), none of that!

Next up, decentralized cryptocurrency exchanges.

A crypto exchange platform is a place where people go to exchange different crypto assets. By default, these platforms are centralized and follow the “Know Your Customer” financial guidelines - in other words, if you want to trade cryptocurrencies on them, you will need to provide your personal information, ID, residential address, and so on.

Think of the process as you would do with a bank. In order to open a bank account, all of these procedures need to be passed, as well. However, with a bank, you can be sure that you’re providing information to a reliable, established business.

With cryptocurrency exchanges, though, things aren’t always that simple. Many exchanges, to this day, aren’t really well-established, and you might not even be aware of who you’re dealing with.

On top of that, crypto exchanges do still get hacked, on a rather frequent basis. You risk not only losing your cryptocurrencies but also getting your personal information leaked, as well!

Now, with a decentralized cryptocurrency exchange (also known as a DEX), most of those concerns are nullified. You won’t need to reveal your personal information, DEXes usually don’t hold your crypto assets, and you are able to trade some niche crypto assets on them, as well!

The last example that I want to give you while talking about what are dApps is that of the metaverse.

Now, if you’ve spent any time online in the past half a year or so, you might have heard the big news - Mark Zuckerberg, the CEO of Facebook, has announced that his company will now be called Meta and that they will invest in creating metaverse-based technology.

This is a HUGE topic, so I would highly suggest you’d go and check the section "What is the Metaverse?". In short, though, Mark isn’t the first guy to come up with the concept - a “metaverse” is actually just a digital world where you can have your own avatar, and interact with other people!

Where do dApps come in, you might ask? Well, when you’re baking a cake, a cake tin is absolutely necessary - if you try to make a cake without one, it will probably turn out a blob - formless, squished, and unappealing.

The same logic applies to the metaverse, as well! If the underlying technology is poorly-made, the concept itself will be a fluke, too. On the flip side, if the metaverse was built on a decentralized application, this would give it a huge leap in the right direction.

How so? Well, users would be able to remain anonymous, all of their transactions and interactions would be recorded on the blockchain, and everything happening within the metaverse would be provably fair. In other words, everything related to the digital world would be following the rules of the smart contract lying underneath!

Now, I really don’t want to get any techier than I already have, so I’ll stop with the dApp examples here. That being said, my point through all of this was that dApps have infinite potential - there are countless examples and possibilities of how they can be integrated into our lives!

dApps in the Future

With time, everything is slowly advancing and getting more intricate - it’s certain that decentralized applications will only improve in the future, too! Which dApps could we see sticking around, though - which of them have the best potential?

Well, people probably asked these questions in the early 2000s, when tech stocks were dominating the financial landscape - no one knew which companies would survive and go on to become multi-billion dollar businesses, and which ones would fail!

When it comes to dApps, decentralized exchanges and projects such as the metaverse are surely going to stick around in people's minds, at least for some time - projects like these serve some awesome purposes and can be useful in advancing the technology sector, as a whole.

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Crypto 101 Handbook

What Are dApps and How Do They Work?

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What are dApps?

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