Take you to understand DeFi 2.0 from four perspectives

Throughout the development of DeFi, DeFi has already emerged in 2019 and is defined as the first year of DeFi. At that time, the total lock-up amount (or “TVL”) of DeFi was US$270 million; this trend will continue in 2020. It was when Compound launched the liquidity mining of its governance token COMP, which set off an upsurge and started the first horn of liquidity mining.

As of November 3, 2021, the overall TVL has reached 269 billion U.S. dollars, a full 990-fold increase. Many representative DeFi projects have emerged, such as Curve, Aave, Compound, MakerDAO, Sushiswap and Yearn Finance. With DeFi The project grew rapidly, and the concept of DeFi 2.0 emerged.

Take you to understand DeFi 2.0 from four perspectives

DeFi total lock-up volume (since January 2019) Data source: Footprint Analytics

DeFi 2.0 is the new track? Different people have different opinions. From the perspective of the rapid development of DeFi projects, it can be divided into two tracks, DeFi 1.0 and DeFi 2.0. DeFi 1.0 is the cornerstone of the entire DeFi, providing users with liquidity mining, token exchange, Lending, AMM and other functions lead the mission of continuous innovation. However, the arrival of the DeFi 2.0 track represents that it has realized “micro-innovation” on the basis of DeFi 1.0, changed the relationship between the agreement and liquidity providers, and many emerging and representative DeFi 2.0 projects have emerged. Olympus, Abracadabra and Convex Finance have laid a solid foundation for the ecosystem.

This article will take you to understand the era of DeFi 1.0 to DeFi 2.0 from the following 4 perspectives:

      1. DeFi 2.0 concept

      2. What problems and representative projects DeFi 2.0 solves

      3. Data performance of DeFi 2.0 project

      4. Opportunities and Challenges

1. DeFi2.0 concept

Before getting familiar with DeFi 2.0, what is DeFi 1.0?

DeFi 1.0 is the early decentralized financial infrastructure that constitutes the current DeFi scenario, such as decentralized central trading applications DEX ( Uniswap , SushiSwap, etc.), lending applications (Aave, Compound, etc.), stable currency applications (MakerDao, etc.) , Liquid machine gun pool applications (Yearn, etc.), etc. It also includes synthetic assets derived from them (Synthetix, UMA), insurance projects (Cover, Nexus Mutual), etc.

And DeFi 2.0 is a DeFi application built on the first-generation protocol. Because of the innovation from 0 to 1, it can be regarded as the second-generation protocol, called DeFi 2.0. Its core is to turn liquidity into the infrastructure layer of DeFi and make DeFi more sustainable. From this perspective, DeFi 2.0 will be an evolutionary trend of the DeFi ecosystem.

2. What problems and representative projects DeFi2.0 solves

Each enterprise or each project will have its own development history. After it has developed and stabilized in a new field, it will innovate and iterate in another field, so that the enterprise or project can develop better and more steadily. Similarly, in the DeFi 1.0 stage, many representative projects demonstrated the powerful subversive capabilities of decentralized finance. For example, Curve occupies nearly one-third of the total TVL of the DEX track, with more than 100 pools and quite attractive APY mechanism and other functions, and Maker protocol is Ethernet Square (DApp) one of the largest on the block chain of decentralized applications, as well as the head of the project to introduce more liquidity mining, lending and other functions, so that we have witnessed one of the most Vibrant DeFi ecological development.

Take you to understand DeFi 2.0 from four perspectives

Top 20 agreement TVL ranking data source: Footprint Analytics

Take you to understand DeFi 2.0 from four perspectives

Top 20 protocol TVL market share data source: Footprint Analytics

Its DeFi 1.0 innovation is to provide Pool to allow users to provide liquidity and solve the problem of cold start of the project. As time goes by, more people and projects participate in practice and exploration, and some new problems slowly appear:

  • Liquidity supply compensation is continuously released, and there is a problem of selling pressure
  • The problem of ruthless “digging and selling” by users who provide liquidity
  • Borrowing needs to provide over-collateralized assets, and there is a problem of low capital efficiency
  • Reasonable community organization form and governance structure and other issues

With the emergence of DeFi 2.0, projects will propose new ideas to solve the above-mentioned problems of DeFi 1.0 through new mechanisms. The following three representative projects will explain its breakthrough progress.

Olympus DAO: Alternative to “liquid mining” model

Olympus DAO is an algorithmic currency protocol with the goal of becoming a stable cryptocurrency. It is the first project to use the bond mechanism to create an alternative “liquidity mining” model program. By issuing its native token OHM at a discounted price, Olympus can purchase LP positions from the market to create “agreement-owned liquidity” “.

Take you to understand DeFi 2.0 from four perspectives

Coupon discount status (from November 3, 2021) Data source: Olympus DAO

Each OHM is supported by 1 DAI. When the OHM price is higher, the more DAI enters the pledge contract, and the more rewards are obtained from participating in the OHM pledge. This makes the market price of OHM continue to be much higher than 1DAI. Create ultra-high pledged APY (annual rate of return) through Chaofa, and keep OHM prices close to the total asset value in the treasury through continuous gaming.

For example, users can create LP tokens, such as OHM-DAI LP, to issue “bonds” and purchase OHM at a discounted price within a certain period of time (about 5% discount rate as of November 3, maturity in 5 days). Therefore, when a user purchases OHM at a discounted price, the LP tokens made by the user will be exchanged with the agreement. Unlike existing liquidity providers who can stop providing liquidity at any time and receive liquidity through the agreement, Olympus’s pledge and bond structure can maintain liquidity by binding LP tokens to the agreement in the form of bonds.

Take you to understand DeFi 2.0 from four perspectivesLP token situation (since November 3, 2021) Data source: Olympus DAO

In addition, it is the agreement itself, not the user, who owns the LP tokens, thereby generating transaction fees from the liquidity pool, while preventing immediate selling pressure from the liquidity provider. Olympus DAO changed its relationship with liquidity providers and overturned the traditional DeFi liquidity model.

Abracadabra: Appreciate mortgage assets and improve capital utilization

Abracadabra is a lending platform. The protocol incentive token is SPELL. Its model is similar to that of MakerDAO. Both are over-collateralized assets to generate stable coins. Unlike MakerDAO, the assets pledged by Abracadabra are assets with income. Users can use interest-bearing tokens, such as yvUSDT and x SUSHI , to borrow or mint a type called MIM (Magic Internet Money) linked to the US dollar on Abracadabra. Stablecoins, thereby releasing the liquidity of such assets and increasing user benefits.

The advantage of borrowing is to convert the original interest-bearing asset certificate into liquidity, increase the leverage of funds, and earn more income.

    • Low borrowing costs and stable interest rates
    • The stable currency MIM has good liquidity on the multi-chain Curve

Its liquidation aspect

  • Only independent liquidation risk, no linkage with other collateral

From the perspective of Abracadabra as a whole, in addition to improving the utilization rate of funds, it also reduces the possibility of liquidation. Because these mortgage assets will add value. This is a type of innovation based on user needs.

Convex Finance: Improve user experience

Convex was officially launched on May 17 this year. On June 3, 2021, the CRV locked by Convex surpassed Year and became the platform with the highest proportion. Convex is committed to making up for Curve’s shortcomings in user experience. Through the launch of a one-stop platform for CRV pledge and liquidity mining, it aims to use CVX tokens to simplify the lock and pledge of Curve and CRV through a simple and easy-to-use interface. Process and increase the remuneration of CRV holders and liquidity providers to promote the development of the CRV ecosystem.

Innovative product functions and new economic models are important features of DeFi 2.0.

3. Data performance of DeFi 2.0 projects

Recently, agreements such as Olympus DAO, Abracadabra and Convex Finance have received the most attention from everyone, and they have made innovations in the incentive mechanism. According to Footprint’s data, their TVLs all hit record highs, and TVL is one of the important indicators to measure the scale of DeFi ecological development. Therefore, the development of a project and whether it has a new concept can be considered from its data performance.

Take you to understand DeFi 2.0 from four perspectivesChanges in TVL ranking of the top 10 protocols Data source: Footprint AnalyticsTake you to understand DeFi 2.0 from four perspectivesDeFi2.0 platform TVL trend Data source: Footprint Analytics

According to Footprint data, Convex Finance’s TVL (US$14.55 billion) has surpassed Yearn Finance (US$6.05 billion) to become the leader of Yield, and in the past January, Convex Finance is the platform with the largest rate of change of the top 10 agreements in TVL, exceeding Many mainstream DeFi projects. The reason for its growth is that it makes up for Curve’s shortcomings in user experience, simplifies the locking and pledge of Curve and CRV, and increases the income of currency holders and liquidity providers, thereby achieving better development.

In addition, the TVL of Abracadabra and Olympus has grown rapidly in the past 30 days. The current TVL is 42 and 650 million US dollars, respectively. Compared with the growth rate of Convex Finance in the past 30 days, the TVL of Abracadabra (205.2%) and Olympus (178.9%) have increased. Bigger. In this innovative DeFi 2.0 ecosystem, they still have room for added value.

Take you to understand DeFi 2.0 from four perspectives

Token Price trend of DeFi2.0 platform Data source: Footprint AnalyticsTake you to understand DeFi 2.0 from four perspectivesMarket Cap trend of DeFi2.0 platform Data source: Footprint AnalyticsTake you to understand DeFi 2.0 from four perspectivesToken Trading Volume trend of DeFi2.0 platform Data source: Footprint Analytics

The token situation of Convex Finance, Abracadabra and Olympus. The current token prices are 0.031 USD, 27.85 USD and 1045 USD respectively. The difference in the token price of the three projects is quite large, but it does not affect their development in the DeFi 2.0 ecosystem. develop.

Its market value and transaction volume have increased significantly in the past two months. The increase in market value reflects the market value of its project in the DeFi industry; the increase in transaction volume indicates a high level of user activity.

4. Opportunities and Challenges

Blockchain technology itself is an innovation, and innovation is also an important cornerstone of human social progress and technological development. The emerging project platforms were not seen in the DeFi 1.0 stage. They used their innovative mechanisms to solve the problems of users, thus bringing huge opportunities to the development of DeFi 2.0, and helping users to better understand the positive effects of decentralized finance. Impact, improve the operational efficiency of funds, prevent immediate selling pressure from liquidity providers, and a more reasonable form of community organization.

However, the opportunities are accompanied by challenges and risks. In the new agreement model, users should not blindly do a good job of project research and reasonably control risks. For example, in the Abracadabra agreement, once the agreement of its mortgage assets goes wrong, then it will also have problems; in addition, regarding the liquidation, the mechanism of the project largely relies on the stability of MIM, relying on the Curve pool to have sufficient liquidity to support transactions; There is also the Olympus token OHM, which has skyrocketed and then recovered. The price of the stable coin DAI (see the Token Price trend chart above for details) shows that the volatility is high, so while seeing its advantages, we must also see it. Potential risks.

Summarize

The track of DeFi 2.0 is inseparable from the foundation of DeFi 1.0. There are more projects with new concepts and new ideas, and we are constantly improving all parts of the DeFi ecosystem so that users can get a good experience, so distinguish a project Whether you have the concept of DeFi 2.0 depends on whether there are important features such as innovation in the incentive mechanism.

In addition, the DeFi market is unpredictable, and the speed of replacement is too fast. There are opportunities and risks coexisting. While optimistic about the growth of the project, it is also necessary to prepare for research and in-depth project background, business model and mechanism. Understand, and the development of DeFi 2.0 takes a long time to observe and layout.

For more data dynamics and content of the DeFi ecosystem, click the Footprint link to view more project dashboards and analysis content.

The above content is only a personal opinion, for reference and communication only, and does not constitute investment advice. If there is an obvious understanding or data error, feedback is welcome.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/take-you-to-understand-defi-2-0-from-four-perspectives/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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