DeFi 2.0: An Upgrade to the First Generation of DeFi

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DeFi 2.0

Contents

This article covers the fundamentals of Defi 2.0 while discovering the need for DeFi 1.0 evolution.

Several crypto users are getting weary of DeFi 1.0 due to its many flaws and inconsistencies. To newbies, these flaws are not obvious, but to oldies, these flaws are very obvious. All of the flaws associated with DeFi 1.0 are due to its instability and lack of popular acceptance. 

Seeing that DeFi 1.0 can’t match the pace of crypto advancement, there is a need to launch into a better crypto world. Hence, the essence for the creation of DeFi 2.0.

DeFi 2.0 is an advanced version of the DeFi 1.0 with several improvements and addition to its networking. As a trader, we’ll recommend that you know so much about this new system network.

In this article, we’ll be discussing DeFi 2.0 in detail and the problems it will be solving. Also, we’ll be discussing how DeFi 2.0 solves these problems and why it is better than DeFi 1.0.

What is DeFi 2.0?

The DeFi 2.0 is an advancement of the DeFi 1.0 with improvement on its liquidity infrastructure layer and sustainability of the Decentralized Financing project. 

DeFi 1.0 offered users liquidity mining, AMMs, lending, and token exchange. The DeFi 1.0 network was also offered alongside many projects that made transactions on the ecosystem comfortable and secured. Some of these projects are 

Although these projects were incredible, there had to be improvements on the DeFi 1.0 ecosystem to accommodate the newly developed projects. The DeFi 2.0 will offer everything DeFi 1.0 will offer and many more. That is, the DeFi 2.0 ecosystem will offer liquidity, AMMs, lending, token exchanges, new finance technologies, user experience, and some improvement to capital utilization. 

To improve on the capital utilization and use experience, DeFi 2.0 will be solving problems DeFi 1.0 couldn’t solve. 

Meanwhile, here are some drawbacks to DeFi 1.0 

  • So far. DeFi 1.0 has not been able to form close connections between its users. It forms weak vertical links and horizontal connections. To worsen it all, DeFi 1.0 is responsible for the cold transactions that occur on the website. 
  • DeFi 1.0 didn’t focus on decentralized finances. It allowed transactions based on interest and enthusiasm. So, authorization of transactions was assigned to only specific individuals on the network.
  • A major disadvantage of the DeFi 1.0 was its means of accruing funds for transactions. It is used to acquire funds to loans via deposits from depositors for deposit claimers. This means of funding loans became a big problem over time. Hence, a need to find other alternatives of funding liquidity pools for loans. 

These said, just like DeFi 1.0, DeFi 2.0 will come alongside various, better, and more problem-solving projects too. Some of these projects are:

The Next Three Projects in DeFi 2.0

Olympus DAO

The Olympus DAO serves to solve one of the biggest problems with DeFi 1.0. DeFi 1.0 was DeFicient in how it sourced funds for loans. It focused majorly on using funds from users to supply its bridge pool. 

It’ll mean that if there is no supply from users, there won’t be a supply of funds to the bridge pool. Consequently, there won’t be loaning in the network.

To properly handle this, Olympus DAO will be sorting funds for bridge pools without getting any from users. This is why Olympus DAO is often referred to as the alternative model to liquidity mining.

Olympus DAO is an algorithmic protocol that utilizes bond mechanisms to help it serve as an alternative for liquidity mining. It’s the first protocol to use this kind of liquidity mining mechanism. 

Olympus DAO can function effectively by issuing its tokens at lower costs for easy purchase. With this, the OHM (Olympus DAO Token), will be able to secure a position in the market to create protocol-owned liquidity. 

Each OHM is oftentimes backed by DAI. It means that one OHM is backed by 1 DAI. So, higher OHM prices will mean more DAI pumped into the pledge contract. Consequently, more returns are available during participation in OHM pledges.

With this mechanism, the price of OHM is constantly maintained above 1 DAI and the market cap steadily approaches the overall asset value of Olympus treasury. 

In addition to all these said about the Olympus DAO, we must mention that users don’t own the tokens on this system; it is the protocol that owns the tokens. 

This is an advantage as it helps to prevent selling pressure from immediate liquidity providers. So, it is Olympus DAO filling in the place of liquidity providers.

Abracadabra

Abracadabra works like MakerDAO in that they both are lending platforms and collateralize users’ assets to generate stable coins. Also, they both function by using protocol incentive tokens.

But unlike MakerDAO, Abracadabra collateralizes assets with proceeds such that users can use tokens to mint or borrow stable coins some of the tokens Abracadabra uses are yvUSDT and xSUSHI being tokens. By using these tokens, they can free up assets, liquidity, and user revenue.

Abracadabra has lending advantages too and some of them are:

  • Abracadabra offers a very low cost of borrowing and low, stable interest rates
  • Independent liquidity risk with no linkage to other collateral.
  • Conversion of assets with high potential of yielding interest into liquidity for the increment of income and capital leverage.

On the whole, Abracadabra enhances the utilization of funds and reduces the chances of liquidation. 

Convex Finance

Convex finance has embarked on the journey to improve the user experience in DeFi 2.0. It will be doing this by showcasing a one-stop platform for its users for liquidity mining and CRV pledging. 

In the end, convex finance will be developing the CRV ecosystem by balancing CVX tokens by simplifying the CRVA locking, pledging, and process of the curve. 

Recent breakthrough with DeFi 2.0

One of the key indicators of the growth of DeFi 2.0 is the quick growth of its projects on the ecosystem. So far, Convex finances a Total Value Locked {TVL} of 14.55 billion surpassing yearn of .0 billion. 

In the same way, Abracadabra has accrued 4.2 million and Olympus DAO accruing 650 million growth change. All of these are clear indicators of the effectiveness and efficiency of DeFi 2.0.

Which Way to Go? 

We have seen the differences between the two DeFis, weighing their cons and pros, and have submitted our resolution to you to pick which best suits you. 

No one will prefer DeFi 1.0 over DeFi 2.0 seeing its ease of adaptability and its ease of incorporating ability into several crypto networks. You may want to deny it but several applications and transactions will soon wear out your patience for DeFi 1.0.

Instead of sticking to the old man, why not launch into newer experiences and enjoy smooth transactions on DeFi 2.0?

Also Read CURVE FINANCE: Let’s Take A Curve Into Defi Of Stablecoins

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