As some DeFi projects grew wildly, the concept of “DeFi 2.0” came out. As we all know, the representatives of DeFi 1.0 are MakerDAO, Compound, Aave, Uniswap, Sushiswap and yearn.finance.
Drawing lessons from the worldview of traditional financial markets, DeFi 1.0 has achieved:
- The central bank of the decentralized financial world (such as MakerDAO)
- Commercial banking sector (such as money market Aave and Compound)
- Non-bank financial institutions (such as trading platform Uniswap, aggregator Yearn.finance)
The development of DeFi has been developing in two directions:
- Release credit potential: From over-collateralization, to income certificates (such as Compound’s deposit certificate cToken), LP Token, and then to synthetic assets (such as Synthetix’s synthetic asset sToken), gradually release the credit potential.
- Improve capital utilization efficiency: Provide different types of products according to duration management and risk preference, and reduce mortgage rates through tiered interest rates or credit loans.
DeFi 2.0 does not deviate from these two directions. For example, DeFi 2.0 typical case Abracadabra (governance token $SPELL), Alchemix benchmarking MakeDAO, by supporting LP Token mortgage, allowing locked assets to obtain liquidity, essentially unlocking the LP Token credit value , It also improves the efficiency of capital utilization.
In addition, the key to DeFi 2.0’s attention lies in better composability and a more encrypted native organization and governance structure. There have always been models supporting LP token mortgage, fixed interest rate, and algorithmic stable currency. The difficulty is a wonderful incentive model. Just as the AMM model has long appeared, liquidity mining is the one step to bring DeFi to the sky.
DeFi 2.0 feature 1: Innovative incentive mechanism
Olympus DAO is currently the most concerned protocol of DeFi 2.0. It created a new type of stable currency that completely abandoned the peg to the US dollar. simply put:
- Each DAI owned by the Ministry of Finance can only issue 1 OHM.
- If the price of OHM is lower than 1 DAI, DAO will buy back and burn OHM.
- If the OHM price is higher than 1 DAI, 1 OHM is purchased through the bond mechanism, and the part exceeding 1 DAI is allocated to the pledge contract and DAO.
- For example, the current price of OHM is 901 U.S. dollars, and Alice buys 1 OHM with 901 DAI through the bond mechanism. At this time, the agreement receives 901 DAI and casts 901 OHM, one of which is given to Alice, 810 OHM (90090% ) Enter the pledge contract, and the remaining 90 OHM (90010%) are stored in the DAO.
- Another bond mechanism is to purchase the LP token of the Sushiswap OHM-DAI trading pool at a discount. This mechanism ensures the liquidity of the market while keeping the liquidity in the hands of the DAO itself. The current agreement holds up to 99.90% of the liquidity.
- Participate in OHM pledge to get 90% of the profit of the agreement. This mechanism encourages OHM holders to not only purchase OHM, but also pledge and continue to hold OHM. The current OHM pledge rate is as high as 91.4%.
OlympusDAO does not use liquidity mining to attract liquidity for the protocol, but instead uses the concept of “protocol controlled value” and an innovative pledge mechanism to subvert the traditional DeFi liquidity model. The higher the OHM price, the more DAI that enters the pledge contract, and the more rewards you can get from participating in the OHM pledge. This makes the market price of OHM continue to be much higher than 1 DAI. Through Chaofa to create ultra-high pledged APY, through the continuous game, the OHM price keeps approaching the total asset value in the treasury.
The current market value of OlympusDAO treasury assets is US$447 million, of which the value of “risk-free assets” is close to US$117 million. According to statistics, based on the current gold inventory, the current pledge of APY can be maintained for at least half a year.
DeFi 2.0 feature 1: High composability
There are currently five DeFi agreements in cooperation with Olympus Pro: Abracadabra, Alchemix, Float, Pendle and StakeDAO. They are the starting point for each other and promote each other to build an ecosystem.
- $TIME: Olympus’s imitation of Wonderland’s platform token on Avalanche, and Wonderland ranks 10th in Avalanche’s lock-up volume.
- $OHM: The stable currency of Olympus DAO.
- $MIM: Abracadabra’s stablecoin Magic Internet Money (MIM), with a circulation of nearly 1.5 billion U.S. dollars. The LP Token of the OHM-DAI liquidity pool can be mortgaged in Abracadabra to lend out MIM.
- $SPELL: Abracadabra stable coin pool (MIM-DAI\USDT\USDC) liquidity incentive token.
- $ICE: IRON Finance’s governance token.
Projects with DeFi 2.0 concept
If you take high composability as a symbol of DeFi 2.0, you will find that there are many such projects, such as:
- Alchemix, a mortgage-debt stablecoin project that also cooperates with Olympus, is built on YFI, unlocking the liquidity of yDAI and minting the stablecoin alUSD.
- Tokemak connects liquidity between different decentralized exchanges and protocols, making liquidity more open.
- Ribbon is built on Opyn, lowering the threshold of option products, and users can get benefits by depositing funds in the capital pool according to their expectations of the future market.
- Convex is built on CurveFinance, Pooltogether is built on Compound, and even Terra is a typical high composability. From the beginning, Terra aims to provide a rich set of currency combinations to meet the needs of stablecoins in different regions and different scenarios.
Take a closer look at the DeFi 2.0 protocols Olympus and Abracadabra, which are currently the most concerned, all have innovations in the incentive mechanism. Therefore, to distinguish whether a project has the DeFi 2.0 concept, it depends on whether there is innovation in the incentive mechanism.
New models and new protocols are often accompanied by greater risks. The Olympus token OHM skyrocketed first and then cut back, with extremely high volatility. In Spell’s token distribution, the team accounted for as much as 30%, and 50% was unlocked in the first year. New concept investors need to control risks reasonably. When participating in anonymous projects, there must be more risk awareness.