A dApp is not a protocol, and I'd instead tell you about it right away because it's a combination I hear a lot and can sometimes do if I talk too fast.
DeFi is still a new system, and it is expected that the terminology is not very clear and understood by everyone.
Let's use a metaphor to make it simpler, okay?
As you know, the term "protocol" is often used in the Internet field. Thus, we are talking about SMTP and HTTP protocols, such as Email Protocol or Hypertext Transfer Protocol. It is for protocols, okay.
In parallel, we have services like Facebook or LinkedIn, for example. To complete the metaphor, tell yourself that Facebook will be an app, and therefore a dApp, like Ethereum.
On the Internet, applications have more "value" than protocols, as do those on the blockchain, which act as a protocol in a way that has more "value" than the applications that depend on them.
Likewise, it is more technical and scientific, more difficult and complex to create a blockchain protocol than a dApp. Furthermore, dAPPs can technically operate thought out and designed upstream on protocol code.
DApp companies are also often more profitable because the technical risks are lower. They don't have to think about a computer program or operations management. The companies that create the apps use the protocols designed for them for free, without the initial effort of making the one that serves as their backing.
Remember that there is a world, not to mention a gap between the team creating a decentralized application and the application that will generate the blockchain protocol.
Take DEXs, for example, like Veneraswap. Managing and setting up is much easier than creating an Ethereum protocol. Undeniable. And don't forget that Dapps often contain open source code, which is also why there are so many copies in DEXs, by the way.
The vast majority of services you discover on the blockchain are dApps, and heavy projects like Ethereum or Cardano are the opposite of protocols.
There is also a widespread phenomenon where a company first creates a dApp and builds an appropriate protocol. For example, it was the case of the Kardia chain, which started as an ERC-20 token before making its protocol.
Before investing personally, I always ask myself if I'm dealing with a dApp or a protocol. It is the first thing to know before starting any further research.
A final word: the difference between Protocols and Dapps
To avoid overburdening you, tell yourself that the protocol compiles a set of rules that will govern the blockchain or Dapps. In the protocol, important decisions of the general infrastructure of the project are recorded. While the protocol will define the rules of operations, the blockchain will implement them.
Essentially, protocols are the foundations of the blockchain and are often the first layer on which Dapps are built. It can also be the basis of other protocols on other layers like Layer 2.
Decentralized applications are built on protocols and do not require specific coding. We can define three leading families of Dapp:
- Type 1: dApps that have their blockchain. Ethereum and Bitcoin are perfect examples of Type 1 dApps.
- Type 2: dApps that use the existing blockchain and the protocol on which they build their protocol and tokens. We can think of Omni Layer, the protocol built on the Bitcoin blockchain.
- Type 3: dApps created on top of Type 2 dApp (an application is running on a protocol running on the blockchain). For example, it uses the SAFE Network Omni, which runs on Bitcoin. Likewise, DEXs are often typing three dApps.
