summary
DeFi 2.0 is a series of projects that address the problems of DeFi 1.0. Decentralized finance (DeFi), which aims to provide financial services to the general public, has been plagued by issues such as scalability, security, centralization, mobility, and accessibility of information. DeFi 2.0 hopes to overcome these problems and make the user experience more human. Once successfully conquered, DeFi 2.0 can reduce the risk of crypto usage, prevent it from happening, and eliminate the worries of crypto users.
There are already a variety of DeFi 2.0 use cases in the market. On some platforms, users are allowed to use liquid supplier tokens and liquid mined supplier tokens as collateral for loans. This mechanism can both release the additional value of the token and continue to earn mine pool rewards.
You can take out the self-repaying loan and keep the collateral as the lender to earn interest. The interest is sufficient to repay the loan, and the borrower does not have to pay additional interest. Other usage examples include insurance for damaged intellectual property and impermanent losses (IL).
In DeFi 2.0, DAO governance and decentralization have gradually become a trend. However, the actions of the government and regulators will eventually affect the scale of the projects to be operated, and it is important to keep this in mind when investing, as the services provided may have to be adjusted.
Introduction
Decentralized finance (DeFi) emerged in 2020 and has been around for almost two years. During this time, we have seen the success of various DeFi projects, such as Uniswap, the decentralization of trading and finance, and new ways to earn interest in the crypto space. Similar to the development of Bitcoin (BTC), new frontiers are always facing problems that need to be solved. In response to these issues, the concept of DeFi 2.0 has gradually gained traction as a new generation of DeFi decentralized applications (DApps).
As of December 2021, we have not yet waited for the full adoption of DeFi 2.0, but the development trend is already beginning to appear. Read this article to learn how you think about DeFi 2.0 and why DeFi 2.0 is a necessary means of addressing the outstanding issues in the decentralized finance ecosystem.
What is DeFi 2.0?
DeFi 2.0 is focused on solving the problem in the beginningDecentralized Finance (DeFi)There are problematic escalation changes in the wave. Decentralized finance (DeFi) provides innovative decentralized finance services for all crypto wallet users, but it’s not perfect. Crypto currencies have seen this happen, and second-generation blockchain chains such as Ethereum (ETH) are the result of improvements to Bitcoin. DeFi 2.0 also needs to take countermeasures against the new regulatory oversight introduced by government planning, such as identity verification and anti-money laundering rules.
Let’s take an example.Liquidity pool(LP) has had great success in the decentralized finance (DeFi) space, where liquid providers earn fees by staking token pairs. However, as soon as the token price ratio changes, liquid suppliers will be exposed to the risk of capital losses, i.e., suffering “Impermanent loss”。 The DeFi 2.0 agreement can provide insurance against such risks at a lower cost. This solution not only encourages more investment into the liquidity pool, but also benefits users, stakers, and the decentralized finance (DeFi) sector as a whole.
What are the limitations of decentralized finance (DeFi)?
Before diving into the use cases of DeFi 2.0, let’s explore the problems that DeFi 2.0 is struggling to solve. The many issues mentioned here are equally prevalent in the blockchain technology and cryptocurrency domains:
1.Scalability: DeFi agreements in the blockchain are usually network congestion,Fuel As a result, it leads to high service standards and nobility. Even simple tasks can take too long and have a lower price-to-value ratio.
2.Voicemailand third-party information: Financial products that rely on external information have higher quality requirements for forecasters, i.e., third-party data sources.
3.CentralizationIncreasing decentralization should be a goal of decentralized finance (DeFi). However, many projects are still unfinishedDAOprinciple.
4.Security: Most users have neither managed the risks of decentralized finance (DeFi) nor even know what they are. They pledged millions of dollars in smart contracts without knowing if the funds were safe. Although there is a security audit, but only to An update has occurred, and security audits are almost non-existent.
5.Liquidity: Liquidity is distributed throughout various blockchains and platforms, and liquidity pools disperse liquidity everywhere. provide liquidity means Funds and their total value need to be locked in. In most cases, tokens staked in liquid pools cannot be used elsewhere, resulting in inefficient capital allocation.
Why is DeFi 2.0 important?
Even experienced crypto users and holders will find decentralized finance (DeFi) difficult to understand and daunting. However, DeFi aims to lower the barrier to entry and bring new opportunities to crypto currency holders. Users who can’t get a loan from a traditional bank may be able to dream of a decentralized finance (DeFi) dream come true.
In the context of strict risk control, DeFi 2.0 is crucial because it can make finance useful to the general public. DeFi 2.0 strives to solve the problem mentioned in the previous chapter, which is to improve the user experience. If it can be successfully resolved, and more attractive incentives are provided, all parties can be happy.
DeFi 2.0 use cases
We don’t need to wait for DeFi 2.0 use cases to emerge. In fact, there are already projects that offer new DeFi services in a variety of networks, including: Ethereum,Binance Smart Chain、Solana, as well as other support for smart contracts. The following are the most common use cases:
Release the value of the pledged funds
If you have staked tokens into a liquidity pool, you will receive liquidity provider tokens as a return. Using DeFi 1.0, users can stake liquid provider tokensMobile miningLet the profits continue to create recreation. Before the advent of DeFi 2.0, this was the limit to extract value on the chain. Millions of dollars worth of funds are locked in a pool of machine guns to provide liquidity to the market, but there is still potential for further improvement in the efficiency of capital allocation.
DeFi 2.0 is taking a step forward by using liquid supplier tokens in liquid mining as collateral. Which one can obtain this from the loan agreement cryptocurrency loansOr in class similar to MakerDAO (DAI)Tokens are minted in the process. The specific mechanisms vary from project to project, but the purpose is to release the value of liquid supplier tokens that can both generate annual returns and seek new opportunities for profit.
Smart contract insurance
Conducting due diligence on smart contracts is not an easy task, unless you are an experienced developer. Without knowledge in this area, the project assessment will be incomplete. As a result, the risk of investing in DeFi projects can be very high. With DeFi 2.0, it is possible to insure DeFi for specific smart contracts.
Let’s say you’re using a yield optimizer and staking liquid provider tokens in their smart contract. In the event of a loss of a Smart Contract, all of your deposits may be lost. The insurance program provides protection for user deposits and only collects a certain fee from liquid mining. 請注意,這僅限特定智約。 IfLiquidity poolContracts are damaged and the funds are usually not recovered. However, if there is a loss on an insured liquid mining contract, then it is possible that the funds will be recovered.
Impermanent loss insurance
If you invest in a liquidity pool and start mining liquidity, you will incur a financial loss if there is any change in the price ratio of the two locked tokens. This process is called “impermanent loss,” and the new DeFi 2.0 agreement is exploring new ways to mitigate that risk.
For example, if you add a token to a one-way liquidity pool, you don’t need to add a token pair, and the agreement will add its native token to the other party of the token pair. In this way, the user and the agreement will receive a payment fee for the exchange of the corresponding tokens at the same time.
Subsequently, the agreement used these fees to establish an insurance fund to protect user deposits from impermanence loss. If the fee is not enough to cover the loss, the agreement will mint new tokens to cover the loss. If the number of tokens is exceeded, they can be stored for later use or destroyed to reduce the supply.
Self-repayment of loans Loans usually involve liquidation risk and interest payments. But with DeFi 2.0, there’s no need to worry about that anymore. For example, let’s say the borrower gets a $100 loan from a cryptocurrency lender. The lender offers $100 in cryptocurrency, but requires the borrower to put $50 as collateral. The borrower provides a deposit, and the lender uses the interest earned on this deposit to repay the loan. The lender returns the borrower’s deposit after earning $100 and an excess price using the cryptocurrency provided by the borrower. There is also no liquidation risk involved. Even if the token collateral is depreciated, it will only take longer to repay the loan.
Who is in control of DeFi 2.0?
DeFi 2.0 has all of these features and use cases, so who is in control? The decentralization trend of blockchain technology is not stopping, and decentralized finance (DeFi) is no exception. MakerDAO (DAI), one of the first DeFi 1.0 projects, sets the standard for future development. At present, it is becoming more and more common for projects to confer the right of speech on the community.
Many platform tokens are charged at the same timeGovernance tokens, the holder will have the right to vote. We have reason to believe that DeFi 2.0 will make the field more decentralized. However, regulatory regulation will also play an increasingly important role in the development of decentralized finance (DeFi).
What are the risks of DeFi 2.0? How to prevent it?
DeFi 2.0 faces the same risks as DeFi 1.0. Here are a few major risks, as well as measures to ensure the safety of personal funds:
1.Smart contractual interactions may have backdoors, weak links, or hacker attacks. Auditing is also unable to guarantee the safety of a project. Users should research the project as thoroughly as possible and understand that there will always be risks associated with investing.
2.Surveillance may affect individual investment. Governments and regulators are keeping a close eye on the decentralized finance (DeFi) ecosystem. Although regulatory regulations ensure the security and stability of cryptocurrency, some projects still need to change their services in accordance with the new regulations.
3.Impermanent loss. Even if there is an unconventional loss loss insurance, there is still a huge risk for users who want to dabble in liquid mining. Risks can never be completely avoided.
4.It is difficult to obtain personal funds. If you need to use the user interface of a DeFi project to conduct a pledge, it is recommended to use the blockchain browser to locate the smart contract. Otherwise, once the website fails, the pledged funds will not be able to be withdrawn. However, direct interactive intelligence contracts require some technical knowledge.
summarize
While successful projects abound in the decentralized finance (DeFi) space, we have yet to see DeFi 2.0 unleash its full potential, and the topic remains complex for most users. And people really shouldn’t invest in financial products that they don’t fully understand.Creating a simplified process suitable for new households is also a long and arduous task. We have seen some new ways to earn annual returns while reducing risk. However, it remains to be seen whether DeFi 2.0 can fully deliver on its promises.