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What Are Decentralized Applications?

By Zhiyuan Sun – Oct 1, 2021 at 9:15AM

Key Points

  • Decentralized applications enable users to purchase altcoins, enable generous tax deductions by donating non-fungible tokens, earn fixed income, borrow and lend, and much more.
  • There are far more financial services one can utilize with dApps and investors are encouraged to try them out.

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You definitely don't want to miss out on the next evolution of the blockchain cyberspace.

Decentralized applications (dApps) are programs that run on peer-to-peer networks and blockchains instead of central servers. In 2015, there were around 25 dApps. But with the rise of cryptocurrencies, there are now over 3,600 dApps ranging from games to social media platforms to decentralized financial services and more. Most of these are built on the Ethereum (ETH -1.74%) network, enabling digital agreements between parties to self-execute based on meeting certain conditions (smart contracts). 

These applications process close to $500 million ($182.5 billion annualized) worth of user transactions each day. So what's behind the sudden rise in popularity of dApps, and how can they add wealth to investors' blockchain portfolios? Let's find out together. 

Computer rendering of small city with globe made of numbers over it.

Image source: Getty Images.

How to use dApps in investing 

To put it simply, dApps are so popular because of their ability to integrate with decentralized finance and bring services previously only accessible to affluent investors to the masses.  

For example, take OpenSea.io, the world's biggest marketplace for trading certificates of digital assets such as art, videos, and music (non-fungible tokens, or NFTs). Like physical art, investors can purchase NFTs, donate them to a registered charity, and write off their total market value (including capital appreciation) as a tax deduction against one's ordinary income. ETH is the currency of choice when it comes to NFT transactions. The platform facilitated about $500 million worth of trading in the past seven days.

Next, consider dApp Oasis. Investors can connect their wallets to the platform and pledge over 25 different types of collateral, such as ETH, in exchange for an asset loan. The asset loan comes in the form of stablecoin Dai (DAI -0.09%), which one can then transfer and sell on exchanges like Coinbase on a 1:1 ratio with the U.S. dollar to cash out. This way, investors can use a low-interest loan to pay for everyday expenses while their investments continue to compound.

The move also applies in reverse. Instead of depositing U.S. dollars in a bank account with a major bank, which earns as little as 0.05% interest per year, people can convert it into DAI and lend it out on Oasis. One can earn up to 5% interest per year. Not only that, but smart contract governance ensures that borrowers' collateral goes straight to the lender if they default. 

Finally, check out KLAYswap, an application that enables users to swap their major cryptocurrencies for altcoins (decentralized exchanges, or DEXs). DEXs typically offer many different types of cryptocurrencies than exchanges that deal in fiat money, due to the latter's stringent regulatory requirements.

What's more, investors can use the blockchain's native KSP tokens to provide liquidity when trading volume is low and earn commissions as if they were brokers. All of this does not require regulation, as KLAYswap does not hold custody of any funds; all transactions take place on users' wallets. 

dApps can make you wealthy 

Overall, dApps present innovative ways for investors to enjoy the tax benefits of art donations, borrow and lend crypto, earn fixed income, or purchase altcoins in the hopes of capital appreciation. There are far more dApps out there than the ones mentioned above. So definitely check out these exciting developments in the burgeoning cryptocurrency space

Zhiyuan Sun owns shares of Ethereum. The Motley Fool owns shares of and recommends Ethereum. The Motley Fool has a disclosure policy.

Stocks Mentioned

Ethereum Stock Quote
Ethereum
ETH
$1,231.73 (-1.74%) $-21.82
Dai Stock Quote
Dai
DAI
$1.00 (-0.09%) $0.00
Coinbase Global Stock Quote
Coinbase Global
COIN
$41.80 (-1.44%) $0.61

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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