A Quick Overview of DeFi, dApps and NFTs

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BLOCK6

3 min readMay 3, 2022

New technology is sprouting up all over the place. It can be difficult to keep up with all of the new developments, and sometimes you just need a deeper grasp of what’s going on.

What exactly are the distinctions between DeFi, dApps, and NFTs? The short answer is that there is a great deal of misunderstanding regarding the many types of decentralized, blockchain-based applications.

We’ll go through what they are and how important they are in this article.

DeFi (Decentralized Finance)

They’re known as DeFi because they’re ‘decentralized,’ and some of them are ‘financial’ apps.

DeFi is more of a generic word for programs that enable “personalized, peer-to-peer finance.” DeFi has gotten a lot of attention recently, owing to the fact that the DeFi market is fast expanding.

One of the most prominent DeFi applications is decentralized exchanges (DEXs). They allow consumers to trade digital assets without the use of an intermediary and are not profit-driven. The DEX is a marketplace for buying and selling digital assets that does not require users to trust one another.

dApps (Decentralized Applications)

A new type of financial application is decentralized finance applications.
They’re based on the Ethereum blockchain and help with things like value exchange, asset trade, borrowing/lending, and escrow.
Decentralized finance applications are replacing more centralized and traditional finance applications (e.g. trading platforms).

NFTs (Non-Fungible Tokens)

The acronym NFT stands for Non-Fungible Token, which is a digital asset with a distinct digital representation. They are built on top of the Ethereum blockchain and incorporate smart contracts and the ERC721 standard.
The tokens are distinct from one another because they have different features and attributes, such as name and address. Two crypto kitties, for example, that are owned by different persons but share the same trait of being cute cats.

Each crypto cat has specific characteristics (name, address), but they can also be traded with others without the need for a middleman because each token is interoperable and unique to its owner.

Final Thoughts

dApps are decentralized applications, but DeFi is the entire ecosystem based on smart contracts that allows financial instruments such as loans, collateralized debt obligations (CDOs), margin trading, and so on to work without the need for a centralized authority or a third party.
Decentralization removes middlemen from fees and management of client funds, resulting in greater transparency and lower fees for users.

NFTs are digital assets with a distinct identity that can be held on a public blockchain such as Ethereum or another public blockchain.
All of these systems operate in tandem to move the world away from traditional financial structures and toward digitization.