What Is DeFi 2.0?
Crypto Basics

What Is DeFi 2.0?

Created 2yr ago, last updated 2yr ago

While the actual meaning of DeFi 2.0 is currently evolving, its key component is the inclusion of alternatives to the pillar of DeFi 1.0, i.e liquidity mining. Read more!

What Is DeFi 2.0?

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While the actual meaning of DeFi 2.0 is currently evolving, a key component of this future generation of DeFi is the inclusion of alternatives to the pillar of DeFi 1.0: liquidity mining.
The term DeFi is the combination of two words: Decentralized and Finance. In essence, DeFi is a mechanism for making financial items available on a blockchain network that is decentralized and open to the general public. As a result, instead of going through intermediaries, like brokerage firms or banks, anyone can access and make use of DeFi. Furthermore, there is no need for official identification documents, which makes it even more accessible.

While the actual meaning of DeFi 2.0 is currently evolving, a key component of this future generation of DeFi is the inclusion of alternatives to what previously defined itself to be a pillar of DeFi 1.0: liquidity mining.

OlympusDAO leads the DeFi 2.0 wave and is a project that is exploring new and innovative means of gathering users and establishing a consumer base while figuring out how to make sure these users stay on the platform.

What Is Olympus DAO?

With OHM as its native token, Olympus is a decentralized autonomous organization (DAO). To avoid any declination in price, OHM is supported by a mix of crypto assets within the Olympus Treasury, including FRAX and DAI.

The holders of OHM have the authority to vote on the future destiny of the Olympus DAO system, thereby building a financial platform that is community-led and community-based to ensure transparency and stability.

Olympus hopes for itself to be a worldwide unit of trade and a means of exchanging currency within the real world at some point in the future.

How Do Users Earn Through Olympus DAO?

Users on Olympus DAO can choose between two basic techniques in order to earn profits: staking and bonding. Both of these methods are linked to the OHM token, further expanding its usage.

  1. Staking

Staking is an approach for the long-term in which users are rewarded for staking a certain amount of OHM tokens on the Olympus platform. With generally higher stakes having a higher reward, users are rewarded based on the amount of OHM tokens they stake.

Furthermore, users are rewarded sOHM, which can be leveraged on various DeFi protocols. In order to get OHM from sOHM, all that the users have to do is burn their sOHM tokens.

  1. Bonding

Bond sales provide OHM as rewards. Bonding is a short-term profit approach, which lets Olympus possess the reserve assets and liquidity that has been entrusted to it. Bonders give LP tokens (liquidity provider tokens) or their crypto assets (for example LUSD, DAI, wETH, and/or FRAX) in order to obtain discounted OHM tokens.
Bond sales produce profit for the Olympus Treasury, allowing it to accumulate its own liquidity. The Olympus system provides its users with DAI bond, wETH bond, FRAX bond, OHM-FRAX LP bond, and OHM-DAI LP bond. Users can strategically select a bond based on its ROI (return on investment) percentage.

The only other way to acquire OHM, besides earning it directly through staking and/or bonding, is buying it. Users can buy OHM on DeFi exchanges, such as Gate.io, Uniswap, and SushiSwap, to name a few.

The Shortcomings of DeFi 1.0

DeFi 1.0 was based on liquidity mining. Simply put, liquidity mining is a mechanism where platforms reward users with their own native token in return for depositing resources that some other user may trade or borrow.

The issue is that these protocols are diluting their token supply in return for capital contributions, which are usually impermanent. So what happens is that individuals come in, commit their resources to the protocol, reap its benefits, and then withdraw both their resources and their rewards, dumping the native token in the market.

There are numerous cases of this conundrum taking place. According to DeBank, one such case is of an initiative named Big Data Protocol, which garnered approximately $6 billion in combined worth locked throughout a six-day period of liquidity mining incentives, only to steeply collapse to a present rate of $3.1 million.

However, liquidity mining operations aren't always so brief and short-lived. COMP coin by Compound Finance has sustained a long-term and continuous liquidity mining operation.

Regardless, despite the length, liquidity mining is a risky strategy to employ in DeFi. It waters down the supply of a project and draws money from mercenary users, as evidenced by Big Data Protocol's initiative.

Why Is Olympus DAO Introducing DeFi 2.0?

A number of new projects are abandoning liquidity mining (which was employed largely in DeFi 1.0) in favor of exploring new substitutes. Olympus DAO is introducing DeFi 2.0 to overcome the shortcomings of DeFi 1.0.

The mechanisms of staking and bonding have enabled Olympus to be the owner of its own liquidity, which is a significant distinction from many (but not all) DeFi 1.0 projects that see liquidity dwindle when rewards are distributed to farmers.

According to Olympus DAO's statistics on their website, the protocol possesses more than 99% liquidity of the OHM-DAI bond. The platform is quite confident that the liquidity is not going to go away since it is owned by none other than Olympus itself. On top of that, they're even getting LP fees!

Olympus DAO Forks

Forks refer to tweaked versions of the codebase of a certain project. Owing to the success of the protocol-owned model of liquidity of Olympus DAO and its subsequent catalyzation of the DeFi 2.0 movement, it is no surprise that forks of Olympus DAO came about.

The most popular Olympus DAO forks are currently Wonderland, Hunny DAO, and Klima DAO.

  1. Wonderland

Wonderland (TIME) is the first decentralized reserve currency protocol that allows users to receive compounding interest through staking. According to their website, as of December 6, 2021, Wonderland’s APY is around 78,442.3%.
  1. Hunny DAO

Hunny DAO (LOVE) is a fork of OlympusDAO by Hunny Finance, which promises scarcity and consistency over price in the long term. According to their website, as of December 6, 2021, Hunny DAO’s APY is almost 3,727,368.7%.
  1. Klima DAO

Klima DAO (KLIMA) aims to expedite the price inflation of carbon commodities so that enterprises and governments are encouraged to adjust to the reality of global warming more promptly, thereby inventing technology to reduce carbon emissions.

There are multiple other up-and-coming forks of OHM as well, including but not limited to Venom DAO, TaiChi DAO, Snowbank, Spartacus, Temple DAO, OtterClam, Exodia, and others.

Final Thoughts

DeFi 2.0 claims to be a solution to DeFi 1.0's shortcomings. While both have the same goal, their protocols matter a lot in terms of their longevity. Regardless, decentralized finance is arguably a good concept, especially for the consumers, but whether DeFi 2.0 will continue to soar is something only time can tell for sure.

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