In Avacus articles, you'll often come across terms like "DApps," "DeFi," and "DEX." This article explains what each of these terms means, and how Web3 differs from Web2.
The Difference Between Web2 and Web3
Web2 refers to the conventional internet as we generally know it today, where services are provided on servers operated by companies such as Google or X (formerly Twitter). Users log in with an ID and password, and data such as accounts and post history is generally managed by the company's own systems.
Web3, on the other hand, is a new approach to the internet that uses technologies such as blockchain and wallets, aiming to let users manage their own assets and digital rights themselves.
A common analogy is that "Web2 is renting, Web3 is owning." In Web2, a company manages your account on your behalf. In Web3, the person holding the wallet's private key can manage their own assets on the blockchain directly.
What Are DApps?
DApps (Decentralized Applications) are apps that run on decentralized networks, combining blockchain-based programs called smart contracts with a user-facing interface. While typical apps — like banking apps or social media — store and process data on systems managed by the operating company, requiring users to log in with an ID and password, DApps instead execute a key part of their processing through smart contracts on the blockchain, and many of them use wallet connections instead of traditional logins.
DApps come in many forms, including trading, finance, gaming, and NFT marketplaces. DeFi and DEX are financial services and protocols that are often provided as DApps.
When connecting to a DApp, you'll confirm and approve (sign) transactions through your wallet. For a detailed look at what to watch out for when connecting and signing, see the related article "Precautions When Connecting Your Wallet to a DApp."
What Is DeFi?
DeFi (Decentralized Finance) refers to decentralized financial services and protocols provided on the blockchain, including DEX. DeFi covers more than just token swaps — it also includes banking-like functions such as depositing assets to earn yield, or using assets as collateral to borrow other tokens.
DeFi lending is similar to a pawn shop in the sense that you "borrow against collateral," but it differs in some key ways: you can also be the one depositing assets to earn yield, and some platforms use mechanisms that automatically liquidate your collateral if its value falls below a certain threshold due to price fluctuations.
What Is a DEX?
A DEX (Decentralized Exchange) is a type of DApp that specializes in exchanging and trading tokens. Uniswap and PancakeSwap are well-known examples.
Token swaps are executed automatically by smart contracts, without going through a central operator. There's no need to register an account with an exchange — you simply connect your wallet to trade.
The counterpart to this is a CEX (Centralized Exchange). Binance and Bitget are examples of this — essentially "Web2-style services that handle Web3 assets." Account creation and KYC (identity verification) are required, and the operating company may freeze assets or delete accounts at its own discretion.
Summary
Here's how these terms relate to one another:
- Web3: A new approach to the internet that uses technologies like blockchain and wallets, aiming to let users manage their own assets and digital rights
- DApps: Apps in general that run on decentralized networks (trading, finance, gaming, etc.)
- DeFi: Decentralized financial services and protocols, including DEX, often provided as DApps
- DEX: A type of DApp that specializes in exchanging and trading tokens
Related articles: Precautions When Connecting Your Wallet to a DApp / Is Avacus an Exchange?