What Are Dapps? Applications Built For the New Internet (Web3)
Including a look at popular dApps today.
Web 1.0 > Web 2.0 > Web3?
The internet changed the world in many ways, including how we interact socially and economically. Over the last 20 years, software applications built on top of it have also created unbelievably useful products and services.
These software applications built on top of the internet are what we call web 2.0. Whereas Web 1.0 was raw and difficult to use; web 2.0 was for everyone. Nontechnical folks gained access to the internet through programmers creating easy-to-use interfaces. Something Clip Finance strives to build in the DeFi space.
Web2 companies became the most powerful and successful companies in modern times, with billions of users. The companies that best leveraged the internet and software-as-a-service models have garnered the largest market caps.
Web 1.0 and the protocols that make the internet work are the foundational layer in the technology stack we know and use daily. Blockchain layer-one platforms (i.e., Ethereum, Solana, etc.) aim to serve as the foundational layer in a new technology stack, which has been coined Web3. But what’s the difference?
Today we have gotten used to having middlemen facilitate just about every transaction, trade, product, and service we interact with. What if there was a better way to cut out the middlemen to allow for a more direct trade? Why pay for a company to provide a ride-sharing service when you could use an app that connects drivers directly with riders at a fraction of the cost? Instead of the company providing a middleman service, it is run by a distributed network of participants.
A peer-to-peer (P2P) economy based on decentralized applications built on secure and distributed blockchains is a more fair and more efficient system. The technological discovery of digital, distributed, and immutable ledgers (blockchains) unlocks this new P2P system as a real possibility. We can now prove digital ownership and create digital scarcity for the first time. This is where the idea of Web3 was born.
Following the same roadmap as the last transition, developers are busy at work building on top of blockchain technology, the software applications of the future, AKA dapps (decentralized applications), and making them accessible for all. What will the world look like if the decentralization trend continues? In 10 to 30 years, we might look back at this phase of the internet’s evolution as the starting point for massive change.
What are Dapps?
Dapps are applications or programs that exist and run on a blockchain. Smart contracts facilitate agreements instead of middlemen. They act as Web 3’s App Store, allowing anything to be built purely on smart contracts and code, giving users a trustless and permissionless experience.
Dapps can be developed for various purposes, including, but not limited to, finance, gaming, and social platforms. However, decentralization and cutting out middlemen may not be necessary or beneficial for every situation.
Web3 is a broad term or idea about the future of the internet. One that could potentially be as significant a paradigm shift as Web 2.0 was. Web3 is built on core concepts like decentralization, openness, and greater utility. This includes aspects of crypto and blockchain that unlock new possibilities like digital ownership, digital scarcity, and borderless digital economies.
What Makes Decentralized Apps Different From Traditional Apps?
Dapps might have a few to all of the following characteristics and features:
- Open-source –- code can be audited by anyone, anyone can contribute, creates collaborative and competitive fast-paced innovation
- Decentralized — operation and control are distributed (potentially to the point of becoming censorship-resistant similar to the Bitcoin network)
- Trustless & Permissionless — users trust the code of the smart contracts, users are not required to provide any real-world identification
- Public data/records –- data is distributed and stored on an open blockchain in contrast to a centralized data server (the blockchain is the settlement layer for data so dapps inherent its security and immutability)
- Use of tokens — often in the form of added utility (discounts, staking yield, voting rights, etc.) or rewards for users in exchange for their contributions, also can be designed as part of securing the network (POS)
- Democratic — protocol changes require the majority consensus of users that vote
- No downtime — a globally distributed network of operators in combination with automation means dapps can continue to work 24/7 even if parts of the network go down
Dapp frontend interfaces differ from regular websites by having crypto wallet integration and that they are programmed to read or write data (communicate) to a blockchain. Drawbacks often include difficulty to scale (reliant on the blockchain’s transaction throughput), challenges in developing a user-friendly/accessible experience without sacrificing sovereignty, and general software bugs or errors.
As with many Web2 software companies, the more users a dapp has, the more effective the network delivers those services. This is often referred to as the network effect. Dapps struggling with low user numbers can be less interactive and lose steam to those that gain larger network effects with positive feedback loops.
How do you interact with dapps?
To interact with a dapp, you will need a wallet that integrates with your browser. You will download the wallet’s browser extension or mobile app. Digital wallets are software applications that give you access to your digital assets. However, the tokens are tracked/exist on their native blockchain ledger.
Through a wallet, you connect to dapp interfaces, which are just websites and phone applications programmed to interact with blockchain smart contracts. Developers are hiding the complexity of smart contract executions under the hood by creating experiences that users are familiar with on the front end.
Instead of signing in or creating an account with an email address, you will sign in with your wallet browser extension. The most popular web wallets are Trust Wallet, MetaMask, and Coinbase Wallet. Check out our article for everything you need to know about digital ownership and crypto wallets including reviews.
Dapps in Finance
Decentralized finance (DeFi) is one of the most mature use cases for dapps. In traditional finance, lending, borrowing, investment services, payments, and custody are the foundational products. DeFi refers to an ecosystem of smart contracts that allow participants to offer and access these financial services P2P without relying on traditional intermediaries like banks, credit unions, or brokerages.
Types of DeFi apps:
- Decentralized exchanges (DEXs) — users trade cryptocurrencies including stablecoins
- P2P Lending and borrowing platforms — users deposit assets that are lent to borrowers and gain rewards/interest from the fees paid by borrowers
- Other forms of lending assets for yield — depositors are rewarded for staking tokens (POS blockchains only), allocating to liquidity pools, or more complex yield farming
- Derivatives — smart contracts that derive their value from an underlying asset are used for hedging or speculation (Including options contracts seen in traditional finance)
- Payments — users pay each other in crypto tokens which can include merchants who accept certain cryptos as payment
- Insurance — users can get protection for their crypto wallets, DeFi deposits, and smart contract exposure
Trading is one of the most popular use cases of DeFi. Uniswap, a decentralized exchange (DEX) is one of the most successful and longest-running DeFi apps. They enable any user with a crypto wallet to swap tokens P2P through smart contracts in an easy-to-use interface. Uniswap surpassed $1T in lifetime trading volume in May 2022 — less than four years since it started.
Another popular DEX is Pancake Swap, on the BSC chain, with 2.4M active users in June 2022 alone. Just about every ecosystem has its own dominant DEX, QuickSwap on Polygon, Trader Joe on Avalanche, or Solana with multiple competing options, and so on.
However, there are also many swap aggregating protocols that route token swaps through the cheapest DEX possible. A prominent example of this would be 1inch.
A quality DEX is a cornerstone application for any reputable protocol.
Aave is a decentralized lending protocol that lets users lend or borrow crypto without the need for an intermediary. Users deposit tokens into liquidity pools, which the protocol can lend out through the automation of smart contracts. Aave was initially built on top of the Ethereum blockchain but has expanded to 6 other chains and has $6.34B in TVL.
MakerDao is an ecosystem of smart contracts that enable users to interact with their crypto-backed stablecoin, DAI, and other DeFi services. Oasis.app is a front end to access Maker Protocol and create Dai. Oasis.app aims to be the most trusted entry point to the Maker Protocol.
The Curve protocol, like Maker, is an essential and foundational piece of the DeFi economy. It is a decentralized exchange for stablecoins that uses an automated market maker (AMM) to manage liquidity.
PoolTogether is a “no-loss” crypto lottery. In essence, the participants pool their money into yielding bonds, and that yield is rewarded to winners like a lottery. Users can withdraw their initial funds at any time.
Dapps for NFTs
Similar to the DEX of finance dapps, the most used dapps surrounding NFTs are marketplaces. They allow you to trade NFT collectables with a whole host of features. OpenSea has been the leading marketplace for NFTs. However, other platforms and blockchains are meeting the market demand for better and cheaper services.
One example is the Magic Eden marketplace built on Solana. They are now the go-to ecosystem for a very low-cost and speedy NFT trading experience. For those that want certain collectables only on the Ethereum chain, an alternative to Opensea is X2Y2. They emphasized listening to the community for what features were built into their platform and greater transparency.
NBA Top Shot is a marketplace for buying and trading NBA highlight plays in the form of NFT videos. The NBA officially licenses them. NBA Top Shot is built on the Flow blockchain. Just like collectible sports cards, they have packs that can be opened.
Dapps as Games
Most current blockchain games take place on chains with higher throughput than Ethereum. That includes Polygon, Flow, Wax, Solana, and BSC. However, even the Bitcoin network is getting involved in the gaming scene via the Lightning Network (LN).
With Zebedee, game developers can implement micropayments on the LN, a layer-2 scaling solution on top of Bitcoin that allows for fast transactions with very small fees. They have partnered with a mobile gaming studio to enable play-to-earn bitcoin rewards for three classic video games: Sudoku, Solitaire, and Missing Letters.
God’s Unchained is an NFT-powered and skill-based card game. Much like the popular, Hearthstone, but with play-to-earn mechanics due to players owning and freely trading their cards.
The blockchain gaming scene is in its infancy; therefore, the games that have found the most success are simple ones like classic games or card games. This is mainly due to how long it takes to develop high-quality “triple-A” games. Many of these are currently in development, so don’t be surprised if blockchain gaming finds its legs from 2023 to 2024.
Social Dapps & Other
Web2 social media platforms like Facebook, Instagram, Twitter, and Tiktok have disadvantages. Content creators get very little of the revenue, while big tech companies take up the majority of profits. Web3 social media platforms that are decentralized, uncensored, and give creators their share have been attempted in the crypto space well before the term Web3 even came about. Although they have yet to gain much traction, the potential is still considerable.
Steemit is a blogging and social media platform similar to Reddit, with 8,700 monthly users. Speaking of Reddit, they are implementing NFTs into their ecosystem as well.
Audius is a decentralized music-sharing and streaming platform. Musicians only capture 12% of the total revenue in the music industry. Audius looks to change this through its decentralized Web3-style platform. Artists can grow their fan base without the need for a record label while being given guaranteed security and ownership over their content.
Propy Inc. is a global real estate marketplace with a decentralized title registry system, instant title issuance, and purchasable using crypto. One of the key unlocks with tokenizing real estate property is that it allows small investors access to this asset class with as little as $100. It’s a relatively simple concept with a lot of potential.
ENS, or Ethereum Name Service, is a distributed naming system for wallets, websites, and more. ENS converts machine-readable wallet addresses (the string of code) into human-readable Ethereum addresses like john.eth. The reverse conversion is also possible. The Internet’s Domain Name Service makes the internet more accessible through readable website addresses. Like DNS, ENS creates these domains and then identifies and facilitates their ownership on the blockchain.
Socios.com is the official fan engagement platform for the UFC, FC Barcelona, Juventus, Paris Saint-Germain, Galatasaray, OG, and many other major sports teams worldwide. They are a fan loyalty and rewards app built on the Chiliz blockchain.
The adoption of dapps and Web3 comes down to them offering users and creators a better experience, service, or product than traditional centralized apps and companies. The Clip Finance dapp is bringing just that kind of experience to DeFi. For those looking to earn a yield on stablecoins, Clip Finance offers a simple-to-use smooth experience that takes out the complexity. We do this for the nontechnical, everyday user as well as crypto enthusiasts who simply don’t have the time to find the best risk-to-reward yield opportunities out there.
The longevity of dapps often relies upon the builders remaining disciplined to design sustainable systems instead of chasing the latest trends or marketing gimmicks for short-term success. Stay tuned for more educational DeFi content!