DeFi stands for Decentralized Finance. DeFi is a term that refers to financial services on public blockchains. With DeFi, you can do most of the things that banks support such as earning interest, borrowing, lending, buying insurance, trading derivatives, trading assets, etc., but faster and without requiring formalities, documents or a third party. DeFi is global, peer-to-peer (meaning directly between two people, not through a centralized organization), open and anonymous.
According to data from the famous statistics site Defi Llama on October 18, 2021, the value of TVL (total value of locked assets) in DeFi projects has reached a new ATH, over $224 billion and is on the rise, constantly increasing, despite such a high number of assets, but the use of this large amount of assets is not optimal at present, most of them are locked and lie still, without circulation. Therefore, the development of a new DeFi trend that can take advantage of this cash flow and at the same time overcome the weaknesses of DeFi is currently highly expected by the community and is called DeFi 2.0.
So what problems is Defi 2.0 expected to solve compared to current DeFi? Let’s find out in this article!
DeFi 2.0 is currently just a community project, without a specific definition, but we can expect the problems that DeFi 2.0 will solve:
The first barrier today for users to participate in DeFi on Ethereum is Ethereum’s sky-high transaction fees and slow transaction processing speed.
To solve the scaling solution problems on Ethereum, layer 2.0 platforms like Matic, FTM or asset transfer bridges help to expand the ecosystem, bringing assets from Ethereum to another blockchain, like how Aurora Bridge doing is essential for users to use DeFi and increase the number of new users.
To support the development of Defi and other DAO projects, we will need:
A governance framework to help build trust and unleash the power of its community.
Layer 2 or new blockchains are capable of providing more functionality for the community to organize and run community activities.
Mechanisms against manipulation from whales.
So, the DAO will not simply be a voting tool as it is today, Defi 2.0 aims to be a more complete DAO, upgrade the governance mechanism and really leverage the decentralized power of the community.
Existing projects have a high amount of TVL (Total Locked Values) on the platform, and are considered by users as a yardstick to evaluate projects, a project with a high TVL volume will bring more confidence.
The problem here is that the optimal use of the project’s TVL assets is still low, the TVL is high, but these assets are only loaded in, not used much by the project, causing waste.
DeFi 2.0 aims to solve this problem, make the assets used as much as possible, use better cash flow to help the project grow sustainably, limit the current work, users use the project. because of high interest → farm out project tokens → discharge → farm → continue to discharge until the interest rate drops sharply, no longer attractive to users → discharge all, withdraw farm and find new projects. The optimal project using TVL will limit this problem.
Security is a very important issue in DeFi, with DeFi 2.0 this issue needs to be handled even more carefully. In addition to the risk of system problems such as faulty smartcontract, buggy code, in addition tokenomic balance is also extremely important to the survival of the project.
- Source: GFS blockchain, Coindesk -