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DeFi has become a popular alternative to traditional banks, brokers, exchanges and other financial institutions in a flash. Thus, in 2020, the value of assets locked in DeFi
-protocols increased by 2000%, reaching $ 13 billion (the market grew to $ 55 billion in the first half of 2021). At the same time, DeFi wallets have become the main beneficiaries of the industry's growth, since it is they who connect users and decentralized financial services, taking a small commission for their intermediation on most transactions.
This article will show you how to run your DeFi wallet. We'll look at the specifics of this market and then outline the main development steps and factors to pay attention to when launching a DeFi product.
What is DeFi technology
Decentralized finance, or DeFi, is a collective term for all financial applications
and protocols that are controlled not by centralized nodes but by decentralized algorithms / or multiple independent individuals or institutions. At the same time, the main focus in DeFi projects is to ensure that each user is in control of their finances, excluding intermediaries.
For example, in the traditional financial system, users can put their money on a deposit in a bank at 1% per annum (in dollars), after which the bank uses this money to issue loans at 10% per annum. Whereas in DeFi, the user can issue loans himself using smart contracts, receiving the same 10% per year. At the same time, unlike banks, DeFi projects can issue loans to everyone who has access to the Internet, not just individuals and legal entities in their city or country.
In addition to lending, DeFi also offers services in insurance (Nexus Mutual), investments (PieDAO BTC ++), deposits (Celsius Network and Bitwala), liquidity pools (Kyber, Uniswap, Bancor), bonus points (Fold, Loli, Pei and Donut).
The main benefits of DeFi
You are in control of your money.
Instead of giving your money into the hands of banks, companies or the state, you store and control it in crypto accounts
. So you will not lose your funds if a bank or country becomes bankers or victims of hackers, fraudsters and corrupt officials.
Faster than traditional finance
. Making a deposit or a loan in traditional banks takes several days, if not more. Whereas in DeFi it takes a few seconds or minutes, depending on the blockchain.
. All DeFi projects are created on the basis of open source code, so everyone can check them and make sure they are honest and safe. How banking and government systems work, none of the ordinary users knows.
DeFi smart contracts and apps are pseudo-anonymous and only contain public addresses. There’s no need to connect personal identity with a DeFi project.
. DeFi app users can earn passive income from crypto assets (deposits, loans, insurance) and save on fees for transfers, loans, deposits and insurance.
. Smart contracts allow you to automate most business processes in the field of decentralized finance, which reduces their execution time, cost and dependence on third parties.
. Users have 100% control over their assets. DeFi doesn't need centralized intermediaries and regulators.
. The information recorded on the blockchain cannot be changed. Therefore, no one can falsify your data. Also, the lack of a single point of failure makes the entire system less vulnerable.
. Anyone can connect a crypto wallet to the DeFi blockchain network and start using it, regardless of geographic or regulatory factors.
How DeFi wallets work
All DeFi wallets are based on the “be your own bank” concept. These are blockchain applications
through which end users store their tokens and interact directly with DeFi projects. They offer freedom and accessibility, security, transparency and confidentiality, ensuring that the user is 100% responsible for managing their own funds.
The main task of the DeFi wallet is to allow end users to administer their funds with complete freedom, to do whatever they want. The only person in charge of his money is himself, which is quite a revolutionary concept when you consider that in the world of traditional finance money is, in fact, controlled by banks and regulators.
In addition, unlike centralized wallets, DeFi wallet users do not need to verify their identity or provide any background information. This applies to both the storage and management of funds, and participation in DeFi projects: they will interact with the wallet (account) without disclosing personal data, all that they will know is the public address.
How secure are DeFi wallets
We have already written above that DeFi wallets are considered one of the safest, since they are created on the basis of the blockchain
, open source code and, at the same time, in fact, do not have access to the money of their end users. However, along with the advantages, DeFi wallets also have disadvantages. Since this market is based on anonymity and lacks a regulatory framework, DeFi users can be an easy target for scammers, hackers. Weak architecture of smart contracts, errors in the code, insecure integration can also make the system vulnerable.
To avoid the abovementioned problems, you should do the following things when developing your own DeFi wallet:
- Use independent auditors to audit your software, especially smart contracts that will manage users' money. Also test your wallet for edge situations like network overload or hacker attack. Identifying weaknesses will help optimize the system and prevent possible errors.
- Implement several ways to protect the wallet from the user's side. Use two-factor authentication technology, biometric security methods, multisignature, logout when there is a long idle time.
- Add the ability to set a withdrawal limit with security measures in place to disable this option.
- Do not store users' private keys in the system.
Basic and additional functions
It is an application user interface focused on end-user interaction. When creating your own DeFi wallet, pay maximum attention to the user panel, since the success of your project depends on the quality of its elaboration. These are the functions that should be available in this panel:
- Simple registration. Provide users with an easy and fast way to sign up without affecting their sensitive data. At the same time, it will also be good if, during registration, users will have the opportunity to immediately configure all important elements (seed phrase, security settings, selected cryptocurrencies, input / output methods, etc).
- Sending / receiving money. Since DeFi Wallet is a cryptocurrency asset management app, your users should be able to both send and receive money. In addition, they should be able to create contact listings for future payments.
- Check balance status. Another great function that no wallet is complete without. It needs to be implemented so that the balance window is displayed on the start screen. In addition, you need the ability to customize the appearance, the list of crypto-addresses and the rates of selected crypto-currencies.
- Cash deposit and withdrawal using a bank card. Adding funds to wallet account with a debit or credit card is a must-have function for any cryptocurrency wallet. As well as withdrawing funds to this card.
- Integration of bank accounts. This function greatly speeds up and simplifies the process of depositing / withdrawing funds, since your users will not have to constantly enter the same payment information. However, you should remember that this data is confidential, so make sure that it is sufficiently protected and that no one has access to it (even you).
- Viewing recent transactions. This function helps you track your transactions and expenses, check your daily or monthly activity. It will be great if you add several categories and filters to this functionality for a more convenient viewing of the transaction history.
- Promotions and offers. You can also provide users with additional offers and discounts in the form of cashback, vouchers, bonus points, loyalty points and other things for DeFi services. This will not only increase user engagement, but also increase their loyalty.
- Invite friends. A great function to let more and more people know about your app and encourage them to use it. Here you can also implement a referral program.
- Ratings and reviews. They will let you know which design elements and functions of your software need to be improved.
. Responsible for managing the DeFi wallet. Only you and trusted employees (administrators) should have access to it. Here are the features you need to implement in your DeFi wallet admin panel:
- Verification and authorization. Should be performed at every stage to make sure everything is in order, that it is really you or your employee.
- Profile management. Tracking data about profiles and transactions passing through your wallet: quantity, volume, average speed, etc.
- With its help, the administrator can get all information about users, as well as manage them (ban, delete).
- Detailed analytics. Your DeFi wallet usage statistics presented in a concise and easy-to-read form (tables, dashboards, graphs, etc.). Helps to analyze the work of the service.
- Offers, discounts. Allows you to create and plan various offers to increase customer engagement and loyalty.
- Support. Using this panel, administrators will communicate with users if they have any problems.
. In addition to these basic features, the DeFi wallet you create may have some advanced features that help improve the user experience and expand your audience. These features include the following things:
- Chatbot integration. It's almost a must these days as it makes customer support 24/7 relatively cheap.
- Camera in the app. Will give the ability to scan QR codes to receive / send links for deposit / withdrawal of funds and confirm other important actions, for example, confirming payment for a DeFi service.
- One-time password. Every time a user wishes to make a payment, a one-time password must be sent to his registered mobile phone number. This will increase the security of your wallet.
- Pop-up notification. Allows users to receive notifications about payments made and received, recent transactions, great offers and other important events.
Comparison of the best DeFi wallets
You can create your own DeFi wallet from scratch or by cloning an existing popular solution such as MetaMask, Trust Wallet or Argent. This will simplify and speed up the process, but your DeFi wallet development service will need to consider the specifics of each wallet.
. It is a cryptocurrency wallet
that acts as a bridge to access Ethereum dApps. It supports tokens that meet the ERC-20 and ERC-721 standards, except for ETH (Ethereum's own currency). Most users log into MetaMask via browser extensions (Brave, Chrome, Microsoft Edge and Firefox), but it also has a very handy mobile app.
When creating an analogue of MetaMask, you need to pay close attention to security, since this service is mainly used through a web interface, which poses great security risks. In addition, it will be necessary to implement integration with Instadapp and Compound finance, as well as compatibility with ENS (allows you to attach a readable domain to the crypto address).
. It is one of the friendliest wallets that will make it easy to transfer funds, buy and store tokens, and interact with other decentralized applications. Moreover, interaction with some DeFi services, such as Compound and dYdX (lending), is built into the interface of the Coinbase wallet, which makes it easier to work with them and reduces security risks.
. A mobile wallet for iOS and Android that targets users new to decentralized finance and blockchain. It allows you to access DeFi protocols Aave, Compound, Social TokenSets and Kyber. When creating an Argent clone, your DeFi wallet development service should focus on pleasant appearance and ease of use. In addition, you will also need to create your own analogue of Argent Guardians.
How to develop your DeFi wallet
The development of DeFi solutions differs from the creation of conventional software, as such services are not managed by any financial institution or central regulators. Execution of all service logic is provided by blockchain and smart contracts. Their development and / or customization requires appropriate knowledge and experience. So if you need to create a cryptocurrency wallet, then this task is best entrusted to a development company that specializes in such projects, such as Merehead.
Our team has been developing various solutions in the field of blockchain, fintech and DeFi since 2015 - from simple smart contracts to decentralized cryptocurrency exchanges. You can study our portfolio and find out the cooperation conditions through firstname.lastname@example.org
or by phone number +1-206-785-16-88.
The process of developing a DeFi wallet itself is as follows:
Step 1. Setting project goals
First, it is important to understand which DeFi wallet you need. What exactly should it do - what user's tasks to solve. To do this, you need to conduct an analysis of the market, target audience and competitors. Among other things, in this way you will also understand whether you need to create software from scratch or just create a script clone of the famous DeFi wallet, which will greatly save your time and money
Step 2. Select the type of DeFi wallet
Next, you need to choose the type of your DeFi wallet:
- Desktop wallets. They are installed on a computer or laptop and usually provide maximum functionality, since they have no restrictions on the power and memory of the device. Examples - Electrum and Bitgo.
- Web interfaces. Users interact with them through a browser, which requires increased attention to ensuring the security of the user's device connection with your service. Popular examples of web wallets are MetaMask, Guarda and MyEtherWallet.
- Hardware cradles. This is perhaps the safest way to store cryptocurrency assets, as they store private keys inside a memory card (flash drive). Popular examples - Ledger Nano, TREZOR.