DeFi vs. Web3: Key Differences

The internet has become one of the major aspects of the life of people worldwide. Technological advancements have offered new definitions for the ways in which people interact with technology. The DeFi vs. web3 debate is one of the notable examples of the ways in which innovation in technology leads to the discovery of new value advantages. Blockchain offered a new method for storing data and processing transactions with a decentralized network of computers. 

Therefore, developers could come up with DeFi, as a means for enabling access to financial services without intermediaries. At the same time, the web3 vs. DeFi comparisons also point to the ways in which blockchain offers the right tool for decentralization in web3. The following post offers you a detailed overview of DeFi and Web3 alongside a discussion on the differences between them. 

The Arrival of Web3 and DeFi

The most common technology used worldwide is the internet, which has been improving constantly since its origins. You can find a better impression of the DeFi vs. Web3 difference by reflecting on the different phases of technological advancements in the internet. The earliest version of the internet, which was available for public use, was known as Web 1.0. In the first stage, the internet only offered basic websites and applications which offered information. The developments in Web 1.0 provided the foundations for the dot-com boom alongside its impact on generating growth.

The next stage of the Internet emerged in the form of Web 2.0, which offered a user-centric and interactive Internet. Web2 introduced a new user-centric and interactive internet where users can create and share content. Most of the top platforms on the internet, such as Facebook, YouTube, Instagram, and Twitter, have emerged in the web2 space. However, web2 presents the problem of centralized architectures and rent-based economic models. 

You can find answers to “What is DeFi and Web3?” in the problems associated with existing forms of digital interactions. Web3 represents the third generation in the evolution of the internet and uses blockchain technology to provide truly user-centric experiences. DeFi is the term used to describe a new category of financial services based on blockchain technology for decentralization. It provides a new approach to a dynamic ecosystem featuring open platforms and financial products and instruments. DeFi is one of the subdomains in the larger web3 landscape. 

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Diving Deeper Into Fundamentals of DeFi

You can find better responses for the difference between DeFi and web3 by reflecting on the fundamental definitions associated with DeFi. The answers to “Are DeFi and Web3 the same?” would point at the definitions of both terms. DeFi serves as an example of an emerging financial system in web3 with the facility of new approaches for value creation and utility. 

Web3 serves as a new paradigm for user experiences on the internet. It focuses on the assurance of using blockchain to offer more democratic control over user data. DeFi has also become a new paradigm for a transparent financial system that offers new approaches to utility and value. The responses to “What is the difference between DeFi and Web3?” would also reflect on how DeFi works to improve financial utility. It is a promising subsector in the field of web3 and offers a broad range of services. DeFi solutions help users in managing their assets in a non-custodial manner by using DeFi crypto wallets. Here are some of the popular DeFi solutions which have gained the attention of users. 

Decentralized exchanges, or DEXs, are one of the foremost examples of DeFi solutions. DEXs offer a peer-to-peer marketplace where users can exchange crypto assets with the advantage of non-custodial solutions. The next popular example of DeFi applications points to peer-to-peer lending and staking platforms. 

As a matter of fact, you can find multi-purpose peer-to-peer money markets with a diverse range of products and services suited for DeFi platforms. Decentralized money markets help users in borrowing, lending, and staking crypto assets by offering liquidity in the protocol through liquidity pools. Another noticeable example of DeFi solutions that have been gaining momentum in recent times points to synthetic assets. 

The discussions around DeFi vs. web3 also draw attention to the applications of DeFi services for transferring, using, storing, and trading different types of crypto assets, such as stablecoins, liquidity provider tokens, governance tokens, and utility tokens. On top of it, DeFi also suggests the possibilities for mainstream adoption of central bank digital currencies across the legacy financial infrastructure.

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Impact of Web3 on DeFi

The interplay between DeFi and web3 has been one of the notable reasons for fuelling concerns regarding the web3 vs. DeFi comparison. Web3 technology provides viable improvements in the secure and decentralized nature of DeFi, which lead to more value advantages. As a result, DeFi could provide better trust, accountability, transparency, and accessibility of the financial systems.

The radical growth in the popularity of cryptocurrencies in recent times has led to a higher pace of innovation and development in web3 and blockchain. Considering the role of web3 as the future of internet, it has been expected to come up with new approaches that dictate the functions of money in the financial world.

The outline of the DeFi vs. Web3 difference would revolve around the potential of web3 for supporting DeFi customers. The number of internet users continues to grow every year, with around 5.07 billion users in 2022. Therefore, it is clearly evident that the transition of users to web3 would provide benefits to DeFi ecosystem in terms of the number of users. 

It is also important to remember that digital assets such as cryptocurrencies are gradually becoming a popular form of payment. Interestingly, the younger generation is more drawn towards digital assets such as cryptocurrencies and NFTs. The preferences for a cashless lifestyle and faster evolution of technology would ensure that DeFi would become a mainstream choice for financial services.

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Comparison between DeFi and Web3

The comparison between DeFi and web3 is a top highlight in tech communities worldwide. However, the answers to “What is the difference between DeFi and web3?” would point to the ways in which the two terms share crucial similarities. You can find a detailed impression of the difference between web3 and decentralized finance by taking a look at the common traits between them. Here are some of the factors which can explain the connecting links and differences between web3 and DeFi. 

The review of comparisons between web3 and DeFi draws attention to the permissionless nature of the two solutions. Web3 and DeFi have been designed in a manner that enables easier and more equitable accessibility for users. Permissionless is an important term in answers to “Are DeFi and web3 the same?” as users don’t require permission to participate in the networks. The users and participants in a permissionless network don’t have to depend on authorization from central authorities to access the network.

Web3 focuses on introducing open and public blockchain systems, which can allow the participation of any individual. The permissionless feature in web3 ensures that users can access crypto wallets or any other web-related infrastructure directly from laptops or mobile devices within a few clicks. 

You can find the DeFi vs. Web3 divide in terms of the permissionless trait by focusing on the relevant implementation alongside developer usage. DeFi relies on blockchain technology and could offer decentralized access to financial services. On the other hand, web3 suggests a broader term that includes DeFi and other popular decentralized technologies, such as decentralized autonomous organizations, NFTs, and dApps. 

The comparison between DeFi and web3 also sheds light on the element of decentralization. Blockchain has gained traction in the world of technology for its ability to introduce decentralization. You can find difficulties in pointing out the DeFi vs. web3 difference as both of them rely on decentralization. 

The definition of decentralization suggests that the DeFi or web3 network would remain free from the control of centralized agencies. DeFi and web3 have decentralization through a globally distributed network of nodes responsible for administering the network. Furthermore, web3 and DeFi have to follow decentralization by design. 

Web3 utilizes peer-to-peer protocols for creating a decentralized and open network without the concerns of centralization. DeFi leverages blockchain to achieve decentralization that could help in conducting financial transactions without depending on centralized institutions like banks. 

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Another important aspect in the comparison between web3 and DeFi draws attention to the custody of assets. Non-custodial solutions are unique in the fact that they do not hold user funds in a bank or a centralized financial authority. The answer to “What is the difference between DeFi and web3?” would refer to the flexibility for users in capitalizing on multiple financial instruments. 

Users can extract the best results from different financial instruments, such as lending, staking, and borrowing, according to their own conditions. Without the need to rely on centralized authorities, users could withdraw their assets without approval or supervision from the bank. 

DeFi applications are generally non-custodial, which implies that users have complete control over the ownership of private keys to their assets. As a result, owners have complete control over how they want to use their assets. On the other hand, Web3 applications can be custodial or non-custodial, depending on the use case. In the case of custodial web3 solutions, a third-party agent or service provider retains control of assets and private keys to the assets. 

The next important point of comparison in the web3 vs. DeFi debate would refer to interoperability. It points to the capability of blockchain networks and DeFi protocols to communicate with each other. Interoperability also refers to the flexibility for the seamless sharing of data, tokenized assets, and technology. Blockchain interoperability refers to the extent to which blockchain networks can communicate with each other. It is important to note that DeFi services on one blockchain or a shared blockchain network can exhibit promising levels of interoperability. 

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• Economic and Governance System 

Another notable pointer for differentiating web3 from DeFi would point at governance structures and economic systems. Interestingly, DeFi and web3 rely on tokenization and asset decentralization. Different blockchain networks and DeFi platforms use the Proof of Stake infrastructure, which ensures that network participants can define the future of the systems. 

The ability to purchase, trade, and invest in completely divisible and fractionalized digital assets can reduce entry barriers for users. In the case of DeFi protocols, the developer team makes major decisions about future developments in the project. Similarly, you can notice examples of decentralized governance systems in the examples of DAOs or Decentralized Autonomous Organizations. 

• Cryptographic Verification 

The difference between DeFi and web3 also draws attention to the flexibility of cryptographic verification. DeFi solutions use verifiable cryptography for introducing immutable, irreversible, and tamper-proof systems. As a result, they present significant difficulties in changing, reversing, or falsifying the records documented on-chain. The answers to ‘Are DeFi and web3 the same?’ would refer to the use of immutability for improving the security of DeFi ecosystems. 

Apart from security, the trait of immutability in DeFi and web3 solutions offer transparency and privacy in the right proportions. All the traits enabled by immutability are crucial for the long-term feasibility of the DeFi and web3 industries. Web3 blockchain systems feature tamper-proof abilities through on-chain documentation and cryptography safeguards. Web3 solutions also ensure formidable transparency alongside security against the forgery of records on the blockchain.

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Conclusion 

The review of the differences between web3 and DeFi shows that they are actually interrelated with each other. You can represent the DeFi vs. web3 debate as a Fractions vs. Mathematics comparison, as DeFi is a subset of web3. The evolution of the internet has led to substantial growth in the popularity of prospects for web3. It provides a new approach to a democratic internet that could offer seamless access to all users with assurance of security for their digital assets. 

In addition, web3 and DeFi enable users to access a broad range of crypto and blockchain-based assets. Rather than comparing web3 with DeFi, it is important to uncover the common highlights between the two terms. Learn more about DeFi fundamentals and web3 concepts in detail to uncover the possibilities for synergy between them right now.

*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. 101 Blockchains shall not be responsible for any loss sustained by any person who relies on this article. Do your own research!