DeFi vs. Web 3.0

This post was originally published on February 12, 2019, and sent to Messari Pro subscribers.

There are two possible long-term, world-altering futures for crypto: Decentralized Finance, or “DeFi," and "Web 3.0.” Today these two often get conflated, but the end markets and maturity of the foundations of these markets are vastly different. The DeFi thesis (crypto can introduce a more free, open, and dynamic financial system) may be 5-10 years closer to fruition than the Web 3 thesis (crypto can give rise to a truly free and open internet, and introduce data sovereignty to all internet users). There are a few reasons for this.

Technical Foundations:

Most obviously, the main ecosystems for DeFi today, Bitcoin and Ethereum, have a 5-10 year head start on pre-launch Web 3-focused protocols such as Filecoin, Dfinity, and Polkadot. Almost all of today’s useful crypto applications have centered around censorship-resistant financial services: payments, fundraising, escrow, settlement, etc. And the network effects around Bitcoin and Ethereum - community growth and developer lock-in - has only continued to accelerate.

Scaling Issues:

In addition to technical maturity challenges, the new Web 3 focused blockchain systems may also face more pressing scaling challenges than their DeFi counterparts. "Data sovereignty" at scale will require more advanced solutions in computing and data storage. In fact, there’s a good chance Web 3 may never prove as scalable as Web 2. A more likely intermediate step seems to be that Web 2 companies would adopt (voluntarily or by force) what Albert Wenger refers to as a "mandatory end-user API”, allowing users to port their data between centralized data companies.