Web3 and DeFi: rivals or they complement each other?

To understand what Web3 is, we need to look at the evolution of the Internet.

In the early years, the Internet was used to browse websites with hypertext menus, JPEG and MP3 files, search engines such as Yahoo, and e-commerce sites such as Amazon and eBay. This era became known as Web1.?

The next stage was the interactive Internet with data sharing in the form of Web2: from Myspace to Facebook, online banking and mobile apps, an approach that, so far, is prevalent among today's users. But unlike Web1, where users and companies were just learning how to work with the Internet as a new revolutionary product, this stage is characterized by rent-seeking, media monopoly and content production. The most important and controversial difference is centralization. In centralization, there are bodies who set the rules to be followed by others. These authorities check information and can edit or delete it whenever and however they want.?

Web3, which relies on decentralization, has become more popular for 3 years in a row thanks to blockchain and economic alternatives to Web2.

DeFi as part of Web3

We can define Web3 as a decentralized version of the Internet. It has no place for the monopoly of corporations like Google or Facebook. On the other hand, DeFi is the financial system of the new version of the Internet. It allows you to be independent of entities that have authority on financial exchange, such as banks, lending institutions and government agencies. Because DeFi is built on blockchain, none of the users have control over the network of transactions that can be similar to traditional (e.g., lending or exchange) but not dependent on any intermediaries, and with open data. With smart contracts, DeFi also allows users to manage their funds without having to set up a crypto wallet inside the platform. The most common DeFi solutions are:

1. Decentralized exchange (DEX) is a peer-to-peer (P2P) marketplace where the seller and the buyer are equal participants who remain anonymous when trading online. Since there is no central authority in DEX because of blockchain, transactions are recorded using smart contracts that perform certain actions under specified conditions. The main difference with CEX, or centralized exchange , is that transactions are not recorded in the marketplace's database but proceed immediately on the blockchain.?
2. Synthetic assets: Synthetic assets are derivatives, that is, contracts for stocks and bonds, precious metal and fiat currencies that have been translated into blockchain in the form of tokens - the main difference from "real world" derivatives. And so, they are all those commodities or securities that the user does not own but wants to buy or sell for a particular reason, for example, to profit from price fluctuations. The blockchain records the conditions that the user will fulfill with respect to the underlying asset before anything can be tokenized and sold.
3. Non-fungible tokens (NFT): We couldn't help but mention it!? NFTs are immutable; they are cryptographic assets that act as the signature of an object on the Internet - a meme, a 3D model, a GIF, etc. It’s by far the largest DeFi market. NFTs are used as in-game items in blockchain games. They also serve as a commodity for buying and selling in NFT marketplaces. You can learn more about what NFTs are and how to create them in our blog post.

What DeFi and Web3 have in common:

Decentralized

The network operates without the control of some centralized intermediary, such as a bank or government agency. Anyone can conduct transactions.?

Mutually compatible

The ability of blockchain networks and DeFi platforms to seamlessly exchange data, technology and tokenized assets with each other.

Non-custodial

User funds are not held by an individual, a special body or a place on the Internet, but only by the user himself in the blockchain. Accordingly, the user can withdraw funds at any time and from any device.?

Immutable, cryptographic verification.

Transactions are verified by miners and other users on the network using cryptographic methods. Hence, exchange of funds or information transmission is difficult to falsify.

Token economy system

Both DeFi and Web3 use economy systems and governance structures that rely heavily on asset tokenization - equity ownership of a single asset in the form of tokens expands the entry barrier for users, compared to the traditional approach.

DeFi, like Web3, continues to evolve. Developers and entrepreneurs are left to analyze and predict which solutions will be most in demand on the market and will facilitate the creation of a new economy of the future.