Feeling like you missed the Decentralized Finance (DeFi) bull run in summer 2020? Well, fear not because DeFi 2.0 might be your shot at redemption.
Since the flame behind non-fungible tokens (NFTs) has slowed in recent months, crypto investors need something new to get excited about. We are predicting the next trend is going to be DeFi 2.0. DeFi 2.0 consists of the same type of protocols as DeFi 1.0 but built on non-Ethereum platforms like Avalanche or Solana. Investors and developers have turned their attention away from Ethereum to Ethereum’s competitors as Ethereum’s high gas fees have made using and/or developing DeFi 1.0 projects uneconomical and frustrating. And on these non-Ethereum platforms are the DeFi 2.0 projects being created that we are excited about.
DeFi 2.0 consists of either forked from DeFi 1.0 projects such as Aave or Uniswap or completely new projects to amend DeFi 1.0 projects’ shortcomings. These upgrades fix network problems, such as scalability, liquidity protocol, centralization, and security. One major problem of DeFi 1.0 protocols is excessive yield farming or liquidity mining. Many protocols water down their token’s supply in exchange for capital deposits, which most of the time are temporary. So in order to fix this draining of projects’ rewards, DeFi 2.0 projects have started using protocol-controlled liquidity (PCV). These projects acquire funds to support their protocol rather than borrowing from their users promising high returns in an almost Ponzi-scheme-like fashion. The innovations on DeFi 2.0 protocols show that developers are learning from the mistakes of DeFi 1.0 and we are looking forward to the future of DeFi.
Some DeFi 2.0 projects that are on our watch list include OlympusDAO, Jet Protocol, Dot Finance, and KlimaDAO.