What is DeFi 2.0? Growth DeFi Partners with Olympus DAO

 

DeFi 2.0

What Is DeFi 2.0?

There’s a new youngster on the block named DeFi 2.0. We’ll discuss what it is, what it does, and what the future may hold in this article.

Hello, and welcome to another article from The Proficiency Post, where we talk about all things Cryptocurrencies, Technologies, and Science. This material is only for educational purposes only and does not contain any financial advice. So without any delay let’s start-

Blockchain is always changing, and because of this, whenever a new amazing thing emerges, it quickly becomes the center of attention. DeFi 2.0 has attracted increased attention, and many people believe it will be the next big thing. 

However, DeFi 2.0 is still in its early stages of development, so let’s have a look at DeFi 1.0 first.

DeFi 1.0.

The initial goal of DeFi 1.0 was to generate liquidity pools for new and existing projects from people all over the world. It was created with the intention of revolutionizing the financial system. 

However, as more people were capable of launching their own projects, they began to withdraw their crypto from pools and fund their endeavors on their own.

This created a supply problem, which we can all see now as the market is full of projects, with new ones being released on a daily basis. The following are some of the problems with DeFi 1.0 and the obstacles it has faced.

DeFi 1.0 Issues and Obstacles

1. Usability of DeFi platforms. Because of the complexity of some projects’ UX (User experience) and UI (User interface), new or inexperienced users may find it difficult to properly utilize decentralized products. With the increased complexity, many people lack the time, money, and/or willingness to look into the details, which is why many stay to just playing with cryptocurrency.

2. Scalability of DeFi 1.0. Users are under pressure because of high fees and long wait times for transactions to be approved by the network. The Ethereum network, which has substantial delays and high fees, is used by the bulk of DeFi. This indicates that if you want to make money using DeFi platforms, your first investment should be in the hundreds of dollars range.

3. Human Nature. People’s attention spans have been demonstrated to be decreasing. People’s choices vary on a regular basis in the blockchain sector. For a brief while, cryptocurrency appears to be the way of the future. DeFi is the future the next day. 

Another day, some random person comes up with a smart name for a project, which receives funding from a tech billionaire, and people go crazy spending and investing in it.

The entire industry is built on the concept of hype. Many of the existing popular projects will be overlooked if it is not provided. FUD (fear, uncertainty, and doubt), pumps, and dumps occur because certain people use hype to their advantage.

 DeFi initiatives rely largely on stable coins, such as fiat, USDT, USDC, and DAI, given the shakiness and uncertainty. Even here, though, there is a problem, as many people do not believe these coins are backed by the treasury.

4. Centralization. The attractiveness of blockchain is decentralization and the lack of a single authority that sets the rules and monitors everything. Many people mistakenly believe that anything cryptocurrency-related is decentralized. 

While complete and absolute decentralization is true for some initiatives, it is just half-true for others. Some features of partially decentralized projects may be centralized.

5. Risks. There are risks connected with security, as there are with anything new. With all of DeFi 1.0’s restrictions, new ideas and approaches have begun to emerge.

DeFi 2.0

The aim of DeFi 2.0 is to fix the problems that DeFi 1.0 couldn’t. These are: 

1. Scalability. This is DeFi 2.0’s primary concern. Why? Because interacting with Ethereum and its high gas fees and delayed transaction times has been a big barrier for DeFi users, especially newcomers.

2. Design. Another area where DeFi 2.0 can help improve the situation is design. Many individuals are unfamiliar with DeFi protocols and how to use them, which is why simplicity is important.

3. Human Nature. DeFi 1.0 users were most interested in increasing their APY (annual percentage yield). DeFi 2.0 aims to change this by experimenting with new techniques to capture customers’ attention and keep them there.

4. Centralization. One of the issues with DeFi 1.0, as previously discussed, is the authority. Many partially decentralized projects have parts of their features controlled by a small group of people, which causes community trust.

While some people join DeFi to make money, others desire to be free and independent of third parties, which is why DeFi 2.0 prioritizes decentralization. 

Decentralized Autonomous Organizations (DAOs) are becoming increasingly popular. There is no centralized leadership in these member-owned communities.

Everyone has the chance to vote on the project’s progress. The interaction between users, capital suppliers, and the protocol itself is at the heart of this new method. 

The protocol will also be in charge of the liquidity. This is a topic that cannot be fully discussed in a single article. There’s more to it, such as capital efficiency, liquidity mining limitations, and so on.

But let’s take a look at one specific DeFi 2.0 example. Olympus DAO (OHM) is most likely the driving force behind the new DeFi 2.0. This is one of the first DeFi 2.0 projects, with the goal of creating a stable coin that can compete with fiat currencies. In other words, it’s a central bank project with a free-floating currency.

Olympus DAO (OHM) 

Olympus Dao (OHM)

What motivates Olympus DAO to compete with stable coins? The total number of dollar-pegged stable coins in circulation now exceeds 100 billion. Olympus DAO is an algorithmic currency protocol that was launched in the first half of 2021.

A mining model is an alternative to a liquidity model. As previously stated, this is the project with a central bank free-floating currency. Each OHM token is backed by a treasury holding of 1 DAI. 

No one can mint or burn tokens except the protocol, and the protocol only does it in response to price fluctuations.

When the price of OHM falls below 1 DAI, the protocol buys it back and burns it; when it rises above 1 DAI, the protocol mints and sells new OHM.

So as the Olympus team said:

 Because the treasury must hold 1 DAI and only 1 DAI for each OHM, every time it buys or sells it makes a profit. It either gets more than 1 DAI for the sale or spends less than 1 DAI on the purchase.

 

This suggests that the price of OHM will remain stable and not go below its value. Some have even compared Olympus DAO to a private bank, the Federal Reserve, or a Reserve Bank because the currency it controls is fully backed by its assets.

The course of future DeFi development will be determined by the possibility of DeFi 2.0 projects to join the crypto mainstream. Many people profit from this system, but there’s more to it than that. It’s a new era, a new generation of financial systems.

DeFi 2.0 is only the next step in the evolution of DeFi protocols. However, I believe we are simply at the start of a lengthy journey. People will upgrade existing platforms and establish new ones in the next years. Blockchain technology is incredible. 

Decentralized finance allows users to use programs at any time and from any location without having to rely on a centralized authority.

However, there is much more to be done in terms of both decentralized applications and DeFi. This concludes today’s post; we’ll see you in the next one!

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