You can tell that most blockchain users cannot tell Web3 and DeFi apart. This is because the two terms are used interchangeably, pointing to the same thing. Plus, Web3 and DeFi drive the hottest conversations in the blockchain space till today, as they have a few features in common. So I thought it was ok to genuinely spotlight Web3 and DeFi and how they differ. Come with me.

Web3 Explained in Simple Terms

Web3 is the third generation of the internet, you can call it a new version of the internet. It introduces decentralization to the internet using blockchain powered technologies. Web3 aims to make the internet open source, cut down mainstream control, and give more power to internet users.

Let me take you back a little bit. So far we have had three generations of the internet namely, web1.0, web2.0 and now web3.0. Web1 fed users with contents. The creators of some social media like Facebook were the ones who uploaded contents for users to see. No interactions, no comments, no likes. Just read only. Web2 introduced interactivity to the internet. That is why you can now comment on peoples posts, like and share them. Web2.0 most importantly introduced user generated content (UGC). In that case, the internet now depended on users for content generation including writeups, videos. and images. Now we have Web3.0 which has introduced decentralization to the internet.

Web3 has decentralized public systems where users’ data are involved and income is generated , especially social platforms. With web3, users who are active participants in a social platform can have control of their data, become part of the decision making process, and earn rewards for contributions to the platform.

DeFi Explained

Decentralized Finance ( DeFi) is a decentralized financial system that is built to function within the blockchain network. It is built to imitate the existing traditional financial system but in a decentralized manner.

DeFi is basically built to facilitate transactions in a permissionless system. Hence, it does not need any central authority to approve transactions. Instead, DeFi uses smart contracts to make this possible.

With smart contracts, DeFi transactions are self-executing. This is because all the terms of transaction approval have already been written. So users only need to meet those criteria to get a transaction done successfully. DeFi provides financial services including asset trading, lending, borrowing and staking.

Differences Between Web3 and DeFi

Web3	DeFi
The third internet version built on the blockchain	Decentralized financial system built on the blockchain
Decentralizes social platforms/ systems in the internet	Connects Users directly to financial systems without third party
Introduces social tokens and creator economy	Uses crypto tokens
Uses social systems/platforms	Uses smart contract

Meanwhile, there is a reason most internet users hardly tell Web3 and DeFi apart. This is due to the similarities they share. The include the following:-

Both Web3 and DeFi function using the blockchain technology. Infact blockchain is the foundation on which the two systems are built. Henec, they function using blockchain based infrastructure.
Web3 and DeFi are decentralized. In web3 three users have control over their data. Users also participate in the governance, in content creation and contribute actively the governance of those social platforms. In return, users are rewarded for participation. In DeFi, there are no third party transactions, No banks, no escrow. The transaction is between user and user or user and the system.
Web3 and DeFi work with tokens. Financial services with DeFi ‘happens using cryptocurrencies. Web3 on the other hand uses social tokens to reward participation. These tokens can be converted to fiat.

Wrap Up

Web3 and DeFi are not one and the same. While Web3 is the third generation of the internet that is built to function using the blockchain technology, DeFi on the other hand is a decentralized financial system that imitates the traditional financial system but functions using the blockchain technology. However, at the core of Web3 and DeFi is blockchain technology, decentralization, interoperability and tokenization.