The role of decentralized apps in the FinTech industry

The FinTech industry has received much more attention recently due to the shift towards decentralized applications (dApps), cryptocurrencies, and blockchain infrastructures. Meanwhile, TradFi (traditional finance) faces growing drawbacks like slow transactions and high costs due to intermediaries.

Improving and automating the delivery of financial services is necessary to support the industry’s future, where transparency and speed are vital. The Web3 world is on the way, with decentralized systems to support transactions in all forms.

FinTech includes technologies like meme coins, whose use cases are limited compared to regular cryptocurrencies. However, assets like Dogecoin became a statement in the industry, and, according to the Dogecoin price, their value increased due to the power of communities.

Therefore, the role of decentralized assets and ecosystems is to empower users and offer them the opportunity to control their finances.

So, let’s examine some of the benefits of decentralized tools for developing the financial industry.

What can decentralized apps do?

dApps can replace regular applications in finance, including exchanges, lending and borrowing systems, and wallets. Due to technologies like encryption and smart contracts, dApps offer advantages like privacy and security.

Building dApps with smart contract support enables developing a trustless and efficient system. These self-executing agreements rely on code and are deployed on blockchain networks that don’t rely on third parties, as the underlying code allows for the contract to be executed when both parties meet their predefined conditions.

Blockchains like Ethereum and Solana are considered the best solutions for smart contracts, as they provide developers with libraries. They employ programming languages like Solidity or Move, which harness more complex but spot-on requirements for decentralized applications.

What are some of the dApp features?

Besides smart contracts, decentralized apps have specific characteristics that make them suitable for advanced tasks, such as the following:

• Decentralization: it eliminates single failure points and employs distributed control in a highly transparent system.
• Open-source: it allows public access to the code for audits, enhances security, and supports faster development.
• Cryptographic security: it encrypts data and verifies it by multiple nodes, making it immutable, so no one can alter or tamper with it.
• Autonomy: Users can choose how to use their information, and smart contracts allow them to engage with dApps without intermediaries.

What are dApps useful for?

dApps have the potential to replace regular applications in many industries, especially those where customer data is heavily used. Popular use cases include the following:

• DeFi (decentralized finance) includes peer-to-peer lending, automated trading, and yield farming.
• Blockchain gaming, where dApps offer verifiable ownership, and player-controlled economies.
• Supply chain management through real-time tracking reduces fraud and counterfeiting.
• Social media management is based on content ownership and peer-to-peer interaction.

Therefore, dApps provide what regular applications struggle to, from enhanced security and reduced transaction costs to greater user autonomy and transparent operations. However, they’re also experiencing unique challenges.

Why are dApps difficult to integrate into our systems?

While dApps have the potential to improve the financial industry, it’s challenged by various limitations:

• Blockchain networks lack the technology and risk measures to quickly sustain a growing number of users and transactions, leading to network congestion.
• User experience. Due to the newness of decentralized technologies, it can be challenging to interact with dApps to manage wallets or private keys.
• The uncertainty surrounding blockchain and cryptocurrency technologies hinders the creation of a proper legal framework.
• Considering the unique transaction verification processes, measuring performance in a decentralized ecosystem can be difficult.

Some of these issues are solved due to the developers’ commitment to pushing the industry. For example, as Ethereum saw an increase in gas fees and transaction times, it switched its consensus mechanism from proof of work to proof of stake, thus becoming one of the industry’s fastest and most sustainable blockchains. So, we can say that each development contributes to the evolution of decentralization.

What are the factors that push for the growth of the industry?

Although sometimes it seems stagnant, the decentralized sector is supported by several factors that will slowly push for the worldwide adoption of crypto and blockchain. Some of these aspects include the following:

• Increasing use of advanced blockchain technologies implementations.
• More demand for distributed ledger technologies from companies.
• The capitalization of cryptocurrencies and ICOs.

At the same time, the popularity of the DeFi market, where dApp applications will be free to use and exchange, is growing thanks to:

• An increase in cryptocurrency adoption.
• More DeFi platforms and protocols are emerging.
• Increased accessibility and transparency of decentralized tools.
• A trending development of DeFi use cases.

What are some noteworthy examples of dApps?

While the dApp industry is growing, some applications have already established their presence within the competition, setting the tone for the future of decentralization, such as:

• The NFT token marketplace was founded in 2017 and is one of the most significant marketplaces for decentralized assets, connecting buyers and sellers without intermediaries.
• The decentralized and non-custodial liquidity market platform allows users to lend crypto for interest and borrow crypto and real-world assets.
• Star Atlas is a decentralized space exploration game built on the Solana blockchain.

Ethereum and Solana are known for their emergence in dApp development due to their complete tool libraries. Both networks offer innovative contract functionalities, and their consensus mechanisms allow the exploration of creative projects. Other decentralized ledgers with functionalities for building apps include Avalanche, Polkadot, and Stellar.

Final considerations

Decentralized apps are becoming more popular as the FinTech industry needs more technological developments. Due to the fast-paced business world, introducing dApps is required to push for innovation, as they can bring trust, transparency, and immutability to current systems. dApps are already used in the finance industry, but also have massive potential for supply chain management, gaming, and social media. In the future, developers will be able to withstand challenges like scalability, user experience, and regulation.