How Will DeFi 2.0 Change Finance?
DeFi (Decentralised Finance) is a unique blockchain-based form of finance that does not rely on traditional financial intermediaries (such as banks or exchanges), but rather on smart contracts on blockchains.
DeFi has proven to be extremely popular, with a total value locked exceeding $270 billion as of November 26, 2021. One of DeFi’s main draws is undoubtedly its high yields, which are far higher than those offered by banks and most other traditional financial instruments. Blue-chip DeFi protocols, for example (e.g., Curve, Sushi), often give approximately 2% to 15% APY on various crypto assets, but other riskier protocols may offer eye-popping payouts of up to 35,000% APY.
DeFi 2.0
DeFi 2.0 is a set of activities that aim to fix the problems of DeFi 1.0 and make it a better product. DeFi’s mission is to make finance more accessible to the general population. However, the organization has had challenges with scalability, security, centralization, liquidity, and information accessibility. DeFi 2.0 aims to fix these issues and improve the overall user experience. If DeFi 2.0 is a success, it will contribute to reducing the risks and complexity that deter crypto consumers from utilizing it in the first place.
We have a small number of DeFi 2.0 use cases that are already in use and working properly. However, this is not necessarily the case on some platforms, where you can use your LP tokens and yield farm LP tokens as collateral for a loan. The advantage of using this strategy is that you may extract additional value from them while still getting all of the benefits of having a pool.
Alternatively, you can obtain self-repaying loans, in which your collateral creates income for the lending organization, which is less expensive. In order for the borrower to avoid paying interest on his or her loan, this interest must be used to pay down the principal balance of the loan. Two other use cases are insurance against faulty smart contracts as well as protection against temporary financial loss (IL).
DAO governance and decentralization are growing trends in DeFi 2.0. Governments and regulators, on the other hand, may be able to affect the number of projects that are completed in the future. Keep this in mind before making a financial commitment, as the services being given may need to be revised.
https://twitter.com/Darrenlautf/status/1404787912823107592
Why is DeFi 2.0 significant?
As previously said, DeFi 2.0 is an improvement to DeFi, and an upgrade would undoubtedly improve on the shortcomings of the previous version. In this situation, the DeFi 1.0 has to improve on sustainability, which is one of its flaws; thus, the 2.0. Finally, the concept of liquidity was crucial in the development of DeFi 2.0.
https://twitter.com/VitalikButerin/status/1274443124375523329?s=20&t=jaI1D1Lfzj2vfNWx-ZiTDw
How is DeFi 2.0 better than DeFi?
In comparison to the DeFi 1.0, the DeFi 2.0 is more sustainable. They are fundamentally different in their understanding of sustainability. The 2.0 upgrade layers were installed on top of the existing 1.0 in order to increase the liquidity of its infrastructure. DeFi 2.0’s project sustainability would thus be improved as a result of this. — The following features are included in the 2.0 upgrade:
Break the cold transaction mode, allowing users to engage in close advocacy with one another. This will assist them in forming close horizontal string links as well as vertical string links.
It would also provide additional driving force and vigour to the entire ecosystem, which would help to keep the liquidity mining pool operational.
Because they are more or less the stakeholders, the members are in charge of making the majority of the choices.
https://twitter.com/tyler/status/1284250658183565313?s=20&t=qrj0yjHdK-VMqZfYC6tOxg
Conclusion
While there are numerous successful efforts in the DeFi arena, we have yet to see DeFi 2.0’s full potential. Most users still find the subject difficult, and no one should use financial products that they do not completely comprehend. There is still work to be done to simplify the procedure, particularly for new users. We’ve seen success in innovative approaches to limit risk while earning APY, but we’ll have to wait and see if DeFi 2.0 lives up to its promises.
