Rikkei Finance

<p>One of the most important and successful waves of blockchain-based innovation has been decentralized finance, or DeFi. DeFi refers to a broad range of decentralized applications that disintermediate traditional financial services and open up completely new economic eras with the assistance of secure oracle networks and blockchains with built-in smart contract functionality.</p><p>DeFi protocols are specialized autonomous programs that have been developed to handle problems relating to the conventional banking sector. Over half of the world’s population lacks access to a bank account, and the DeFi protocol seeks to change that. In recent months, in the context of DeFi ecosystem growing quickly, there is a new wave with a focus on liquidity that has ushered in what is known as DeFi 2.0. So, is DeFi 2.0 truly available? And before analyzing the financial difficulties that DeFi 2.0 protocols attempt to tackle, this article reviews past breakthroughs that paved the way for the DeFi 2.0 trend.</p><h3 id="early-defi-developments">Early DeFi developments</h3><p>Early DeFi pioneers established a solid basis for the growing DeFi economy by bringing multiple vital and interchangeable “money LEGOs” to the ecosystem.</p><p>Users may swap tokens without losing custody for the first time, courtesy of Uniswap and Bancor, two pioneering decentralized automated market makers (AMMs). Lending and borrowing were decentralized with the help of Aave and Compound, enabling on-chain yield for deposits and permissionless access to operating cash.</p><p>For the ecosystem’s participants to hold and use in transactions, MakerDAO offered a decentralized stablecoin, acting as a safety net against the volatility of cryptocurrencies. Through these protocols, users gained access to stable pegged currencies, frictionless lending and borrowing, and reliable exchanges — three essential financial primitives that are frequently available in traditional financial markets.</p><p>In terms of transparency and user control, the infrastructure that enables these well-known DeFi-based services differs significantly from that of centralized system. The numerous technology advancements that support these decentralized services serve as the foundation for DeFi innovations.</p><h3 id="defi-1-0-limitations">DeFi 1.0 limitations</h3><p>However, the infrastructure that enables DeFi platforms differs significantly from that of centralized organizations in terms of transparency and user control. The numerous technology advancements that support these decentralized services serve as the foundation for DeFi innovations.</p><p>Scalability does not make things any easier. High costs and lengthy approval wait times continue to impede the user experience. We’re all aware that the bulk of DeFi solutions are built on the Ethereum blockchain, which has a large user base but suffers from considerable latency and escalating transaction prices. Users with earnings below a few thousand dollars find it unprofitable to utilize DeFi devices.</p><p>Many have short attention spans, especially in the cryptosphere, and it is clear that people are quitting DApps in search of more profitable alternatives. Yields, especially for DeFi’s blue chips, are less appealing than they formerly were. As a result, there has been a repeated “farm and dump” scenario, which has resulted in unfavorable cash flow for practices and a slew of other issues that lead to the inefficient use of assets.</p><p>All cryptocurrencies require liquidity in order to trade on decentralized exchanges (DEXs) and AMMs without affecting the token’s price. Although incentive programs may provide a temporary reprieve, they are not optimal and pose a greater underlying risk to small investors.</p><p>Despite DeFi regularly using oracles, some projects are still unaware of their relevance and will not connect with a reliable oracle. As a result, many protocols have been assaulted and sustained losses.</p><h3 id="what-is-defi-2-0">What is DeFi 2.0?</h3><p>DeFi 2.0, a new phrase in the blockchain world, refers to a subset of DeFi protocols built on top of prior DeFi developments such as yield farming, lending, and other things. Liquidity issues are typical in on-chain systems using native tokens, and notable DeFi 2.0 solutions have prioritized this.</p><h3 id="the-goal-of-defi-2-0">The goal of DeFi 2.0</h3><p>In contrast to the prior generation, which was created with users in mind, the newest DeFi apps have a clear business-to-business (B2B) focus. DeFi 2.0 protocols benefit from the fact that the first generation of DeFi products successfully bootstrapped the industry by building an initial user base and the necessary DeFi primitives that future manufacturers may now employ to construct the next wave of DeFi apps. This new generation of DeFi protocols safeguards the industry’s long-term existence.</p><p>The sector’s reliance on third-party providers and token incentives to get liquidity and its essentially non-existent correlation with traditional finance and the global economy are the key challenges that are now preventing it from becoming viable. The primary purpose of DeFi 2.0 and later versions is to address these concerns.</p><p>Early DeFi 2.0 users are focusing on developing strategies for long-term liquidity. OlympusDAO, a protocol aiming to build decentralized reserve money, is one such pioneer. OlympusDao’s further introduction of Olympus Pro, a tool that enables other DeFi protocols to employ the bonding mechanism to boost their liquidity, demonstrates DeFi 2.0’s B2B focus.</p><p>DeFi 2.0 is also expected to help decentralized automated enterprises by building protocol-controlled value systems (DAOs). The B2B focus of the movement will be reinforced by a new wave of DeFi products that will provide useful tools that will allow DAOs to compete with enterprises.</p><h3 id="conclusion">Conclusion</h3><p>The decentralized finance models have a variety of repercussions for users and developers. Aside from the answer to the question “What is DeFi 2.0?”, it is critical to dig beyond and discover potential improvements. The primary goal of DeFi 2.0 with enhancements over existing DeFi 1.0 solutions is to address the difficulties of DeFi 1.0.</p><p><em>For more information, join Rikkei Finance Discord community: <a href="https://discord.gg/GM3U44e6PG" rel="noopener noreferrer nofollow">https://discord.gg/GM3U44e6PG</a></em></p><p><em>Disclaimer: The information herein is for reference purposes only and should not be considered financial, investment, or trading advice. Please conduct your own research and due diligence before making investment decisions. You understand that you are using the Information provided at your own risk.</em></p>

The transition from DeFi 1.0 to DeFi 2.0

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