DeFi 2.0 is inseparable from the foundation of DeFi 1.0, and it also requires innovative mechanisms to open up new frontiers.
Recommended reading: ” DeFi 2.0, which is hotly discussed in the community, is it a real upgrade or a play concept? 》
Original title: “Footprint: Take you to understand DeFi 2.0 from four perspectives”
Written by: Vincy, Footprint Analyst
Throughout the development history of DeFi, DeFi has already emerged in 2019 and is defined as the first year of DeFi. At that time, the total lock-up volume (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, which is more than 990 times. Many representative DeFi projects have emerged, such as Curve, Aave, Compound, MakerDAO, Sushiswap and Yearn Finance. The project grew rapidly, and the concept of DeFi 2.0 emerged.
DeFi total lock-up volume (since January 2019) Data source: Footprint Analytics
The data in this article comes from DeFi2.0 Dashboard
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 liquid mining, token exchange, and 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 agreements and liquidity providers, and has many emerging and representative DeFi 2.0 projects. 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:
DeFi 2.0 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, for example, decentralized central transaction 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.
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.
What problems does DeFi2.0 solve and representative projects
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 continue to 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 attractive APY mechanism and other functions, and the Maker protocol is one of the largest decentralized applications (DApp) on the Ethereum blockchain, and more top projects introduce functions such as liquidity mining, lending, etc., let us witness the most Vibrant DeFi ecological development.
Top 20 agreement TVL ranking data source: Footprint Analytics
Top 20 protocol TVL market share data source: Footprint Analytics
The innovation of DeFi 1.0 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” for 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” .”
Bond discount situation (from November 3, 2021) Data source: Olympus
Each OHM of DAO 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. Through Chaofa, we create ultra-high pledged APY (annual rate of return), and through continuous game, the OHM price is constantly approaching the total asset value in the treasury.
For example, users can create LP tokens, such as OHM-DAI LP, to issue bond discounts (from November 3, 2021) Data source: Olympus “bonds”, and purchase OHM at discounted prices within a certain period of time (as of November About 5% discount rate on 3 days, 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.
LP token situation (since November 3, 2021) Data source: Olympus DAO
In addition, it is the agreement itself, not the user, who owns LP tokens, which incurs transaction fees from the liquidity pool while preventing immediate selling pressure from liquidity providers. 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 stablecoins . Different from MakerDAO, the assets pledged by Abracadabra are assets with income. Users can use interest-bearing tokens, such as yvUSDT and xSUSHI, to borrow or mint a type of USD-linked MIM (Magic Internet Money) on Abracadabra. Stable coins, thereby releasing the liquidity of such assets and increasing user benefits.
Its borrowing advantages
- Convert the interest-bearing asset certificate into liquidity, increase capital leverage, 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 overall perspective of Abracadabra, 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 to become 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 simplify the lock and pledge of Curve and CRV through a simple and easy-to-use interface with the help of CVX tokens. 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.
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 innovated in the incentive mechanism. According to Footprint’s data, their TVLs are all hitting 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.
Top 10 agreements on TVL ranking changes Data source: Footprint Analytics
TVL trend data source of DeFi2.0 platform: Footprint Analytics
According to Footprint data, Convex Finance’s TVL (US$14.55 billion) has surpassed Year 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 in the TVL of the top ten agreements, 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 US$42 and 650 million, 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 changed growth. Bigger. In this innovative DeFi 2.0 ecosystem, they still have room for added value.
DeFi2.0 platform Token Price trend data source: Footprint Analytics
DeFi2.0 platform Market Cap trend data source: Footprint Analytics
DeFi2.0 platform Token Trading Volume trend 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 status 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 projects in the DeFi industry; the increase in transaction volume indicates that users are more active.
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 user problems, thus bringing huge opportunities to the development of DeFi 2.0 and helping users 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, the Abracadabra agreement, once the agreement of its mortgage assets goes wrong, then it will also have problems; in addition, with regard to liquidation, the project’s mechanism largely relies on the stability of MIM, and the Curve pool has sufficient liquidity to support transactions; There is also the Olympus token OHM, which has skyrocketed and then recovered and recovered to be equal to the price of the stable coin DAI (see the Token Price trend chart above for details), indicating 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 DeFi 2.0 concept 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 that coexist. While optimistic about the growth of the project, we must also prepare for research and conduct in-depth project background, business model and mechanism. Understand, and the development of DeFi 2.0 takes a long time to observe and layout.
