Preface

Decentralized Finance (DeFi) is one of the most popular technologies of the Web3 era. It incentivizes people to come to the world of blockchain for investment and makes blockchain the Internet of Money. Since Ethereum was born, there have been tremendous Decentralized Applications (DApps) built on top of various blockchain networks. DeFi applications constitute a giant share of DApps because of the innovation they bring and their ease of adoption by new users.

There are many resources that introduce the Web3 revolution, including elaborating the concepts and usage of DeFi applications. However, when interacting with various DeFi applications such as Decentralized Exchanges (DEXs) or crypto loan systems, users may be curious about the concepts involved (such as liquidity pools), the mathematics behind the scenes, and how they might build a profitable DeFi application. This book will reveal the mystery and make you an expert in building various DeFi applications.

After exploring various DeFi applications on the market, I found that DeFi jargon and applications usually come from simple mathematics and classic financial principles. If you have an engineering background, it will be easier for you to dive in and implement DeFi concepts with code once you understand the underlying principles.

In this book, you will explore some of the most popular DeFi applications. For every DeFi application, you will start by learning what it is, how it works with the aid of mathematical formulas and architecture diagrams, and then implement the core – the math and the business logic – and finally, you will see how we wrap the core with UI code to make it a ready-to-use application.

There are thousands of DeFi projects on the market that offer various applications and continue to empower blockchain as the Internet of Money. A lot of traditional companies are approaching Web3 and especially applying DeFi to monetize their products and acquire customers. Meanwhile, Web3-native projects and start-ups are still booming. This book will help you gain practical experience in building and adopting DeFi and Web3 technologies for your projects and businesses.

Who this book is for

Whether you have DeFi experience or not, you will gain practical skills with experience of building full stack applications. Even if you have no experience in programming, this book will help you to understand how various DeFi applications work and how to build these features from a high-level view.

There are four main personas that are the target audience of the book:

• Web3 developers who want to advance their knowledge of DeFi and gain hands-on experience with DeFi applications
• Software engineers who are not familiar with DeFi or Web3 but want to dive into the area and learn how to build DeFi applications
• DeFi application users and crypto investors who want to learn how DeFi works and use DeFi products to optimize their return on investment
• Entrepreneurs seeking to introduce DeFi features into their business or wanting to learn how to monetize DeFi applications

What this book covers

Chapter 1, Introduction to DeFi, explores the main characteristics of DeFi and introduces some of the popular DeFi applications. It also discusses the general architecture of DeFi applications, uncovers possible vulnerabilities in DeFi applications, and provides solutions.

Chapter 2, Getting Started with DeFi Application Development, shows how to create a starter DeFi project with an ERC20 token smart contract using the Solidity programming language that will run on Ethereum Virtual Machine (EVM). You will learn how to use Hardhat to compile, deploy, and debug the smart contract.

Chapter 3, Interacting with Smart Contracts and DeFi Wallets in the Frontend, guides you through building the frontend of DeFi applications with Node.js, React.js, and Material UI. You will also learn how to write code for interacting with smart contracts and connecting DeFi wallets to your applications to call smart contract functions.

Chapter 4, Introduction to Decentralized Exchanges, introduces different types of DEX. It dives into Automated Market Maker (AMM), which is a type of DEX we will build in this book. Meanwhile, we will explore the mathematics principles and the architecture of AMM.

Chapter 5, Building Crypto-Trading Smart Contracts, explores how to write smart contracts for token swapping, liquidity pool minting, and liquidity pool burning for a Constant Product Market Maker (CPMM), which is one of the most popular types of AMM on the market. By reading through the chapter, you will also learn how to deploy and verify smart contracts.

Chapter 6, Implementing a Liquidity Management Frontend with Web3, guides you through the process of building a frontend for liquidity management, including adding and removing liquidity. You will learn how to use ethers.js to interact with the smart contracts implemented in Chapter 5, Building Crypto-Trading Smart Contracts.

Chapter 7, Implementing a Token-Swapping Frontend with Web3, explores how to write the code for the frontend for the user to perform token swapping. Besides that, this chapter also discusses and implements code to find the swapping path between any pair of tokens in the DEX using a graph and explores how to calculate the price impact for each swapping.

Chapter 8, Working with Native Tokens, discusses how to deal with the native tokens of a blockchain network in smart contracts. It also shows you how to support native tokens in the smart contracts. Meanwhile, this chapter also implements improvements to the frontend code from Chapter 6, Implementing a Liquidity Management Frontend with Web3 and Chapter 7, Implementing a Token-Swapping Frontend with Web3 to support native tokens.

Chapter 9, Building Smart Contracts for Staking and Farming, explains the two DeFi features: of staking and farming by diving into the architecture and reward calculation. It also shows how to implement and verify smart contracts for staking and farming.

Chapter 10, Implementing a Frontend for Staking and Farming, guides you through the implementation of the staking pool listing dashboard, the pages for administrators to create staking, pool, and supply rewards, as well as the pages for users to deposit and withdraw tokens and harvest rewards.

Chapter 11, Introduction to Crypto Loans, introduces the characteristics of a crypto loan system and the architecture of the crypto loan smart contract we will build in this book. It also discusses the interest rate model we will use for our crypto loans, the concept of an asset pool, and the token to represent the shares of the asset pools.

Chapter 12, Implementing an Asset Pool Smart Contract for a Crypto Loan, explores the implementation of the most important component of a crypto loan system: asset pool smart contracts. By exploring this smart contract, you will learn how assets are managed and how user ledgers are implemented to keep track of lending and borrowing records.

Chapter 13, Implementing a Price Oracle for Crypto Loans, introduces and implements a price oracle smart contract based on the DEX implemented in Chapter 5, Building Crypto-Trading Smart Contracts. A price oracle is an essential component of a crypto loan system. After implementing the price oracle, the chapter also shows you how to deploy and run the price oracle for a crypto loan system.

Chapter 14, Implementing the Crypto Loan Frontend with Web3, discusses how to interact with the smart contracts in a crypto loan system with ethers.js. It guides you through the implementation of a crypto loan frontend, including the pages for displaying account summaries and asset pool information. Also, you will learn how to implement the pages for deposit, withdrawal, borrowing, and repayment by interacting with crypto loan smart contracts.

To get the most out of this book

You need to have basic knowledge of programming and building software to read through the code examples in this book. If you have some experience with Solidity, JavaScript, and/or React.js, you will have a smoother experience of learning with the book.

Software/hardware covered in the book	Operating system requirements
Solidity	Windows, macOS, or Linux
Node.js	Windows, macOS, or Linux
React.js	Windows, macOS, or Linux
Ethers.js	Windows, macOS, or Linux
Hardhat	Windows, macOS, or Linux
Material UI	Windows, macOS, or Linux

The book provides guidance to install and configure the software and tools whenever it is necessary. For now, it is totally fine if you have no idea what they are, because it won’t impact your understanding of the DeFi concepts we introduce in this book. But we highly encourage you to refer to the official documentation or communities for more information on these tools to help you while exploring the book.

If you are using the digital version of this book, we advise you to type the code yourself or access the code from the book’s GitHub repository (a link is available in the next section). Doing so will help you avoid any potential errors related to the copying and pasting of code.

Besides the code, the book also elaborates on several concepts in DeFi. We highly recommend you read the links in the Further reading sections in some of the chapters to learn the background and knowledge behind the concepts.

Download the example code files

You can download the example code files for this book from GitHub at https://github.com/PacktPublishing/Building-Full-stack-DeFi-Application. If there’s an update to the code, it will be updated in the GitHub repository.

We also have other code bundles from our rich catalog of books and videos available at https://github.com/PacktPublishing/. Check them out!

Conventions used

There are a number of text conventions used throughout this book.

Code in text: Indicates code words in text, database table names, folder names, filenames, file extensions, pathnames, dummy URLs, user input, and Twitter handles. Here is an example: “First, let’s create a file called TokenPair.sol in the src/backend/contracts/ folder.”

A block of code is set as follows:

pragma solidity ^0.8.0;
import "@openzeppelin/contracts/token/ERC20/ERC20.sol";
import "./interfaces/ITokenPair.sol";
contract TokenPair is ITokenPair, ERC20 {

When we wish to draw your attention to a particular part of a code block, the relevant lines or items are set in bold:

<Routes>
  <Route path='/' element={<TokenOperations />} />
  <Route path='/liquidity/*' element={<LiquidityRouter />} />
</Routes>

Any command-line input or output is written as follows:

$ mkdir css
$ cd css

Bold: Indicates a new term, an important word, or words that you see onscreen. For instance, words in menus or dialog boxes appear in bold. Here is an example: “To do that, you can click the icon on the top-right corner of the MetaMask plugin, go to Settings, click Advanced, click the Clear activity tab data button, and confirm the operation in the popup dialog.”

Tips or important notes

Appear like this.

Get in touch

Feedback from our readers is always welcome.

General feedback: If you have questions about any aspect of this book, email us at [e-mail] and mention the book title in the subject of your message.

Errata: Although we have taken every care to ensure the accuracy of our content, mistakes do happen. If you have found a mistake in this book, we would be grateful if you would report this to us. Please visit www.packtpub.com/support/errata and fill in the form.

Piracy: If you come across any illegal copies of our works in any form on the internet, we would be grateful if you would provide us with the location address or website name. Please contact us at [e-mail] with a link to the material.

Share Your Thoughts

Once you’ve read Building Full Stack DeFi Applications, we’d love to hear your thoughts! Please click here to go straight to the Amazon review page for this book and share your feedback.

Your review is important to us and the tech community and will help us make sure we’re delivering excellent quality content.

Download a free PDF copy of this book

Thanks for purchasing this book!

Do you like to read on the go but are unable to carry your print books everywhere?

Is your eBook purchase not compatible with the device of your choice?

Don’t worry, now with every Packt book you get a DRM-free PDF version of that book at no cost.

Read anywhere, any place, on any device. Search, copy, and paste code from your favorite technical books directly into your application.

The perks don’t stop there, you can get exclusive access to discounts, newsletters, and great free content in your inbox daily

Follow these simple steps to get the benefits:

1. Scan the QR code or visit the link below

https://packt.link/free-ebook/9781837634118

2. Submit your proof of purchase
3. That’s it! We’ll send your free PDF and other benefits to your email directly