In the words of Scoopy Trooples, DeFi 2.0 provides three things:
In the simplest terms, DeFi is an ecosystem by which various financial products become available on public decentralized blockchain networks. DeFi makes these products open to anyone and users do not have to go through financial intermediaries such as brokerages and banks.
As best described by Sam Kazemian: DeFi 2.0 protocols bring more efficiency in holding assets on their balance sheet and deploy stablecoins, liquidity, incentives, and assets through the hivemind of their token holders. DeFi 2.0 does not expect token holders to be just voters but also creates platforms with socially coordinated processes, mechanisms, and incentives to produce and deploy within the protocol.
Messari coined two major trends pushing DeFi out of its comfort zone: LaaS and Second-Order Protocols.
Liquidity as a Service (LaaS) providers are there to help protocols solve their addiction to liquidity mining. Liquidity mining is no longer attractive in DeFi because it is a perpetual expense on the balance sheet of a protocol. LaaS providers are beneficial as they help various protocols buy liquidity from the market or even rent it in a cheap and quality manner.
These are protocols that seek to automate, extend or enhance existing DeFi models. Second-order protocols leverage DeFi’s composable nature. These protocols are also built on existing DeFi infrastructure to enhance, automate or extend existing processes or models.
Most of the DeFi 2.0 protocols we have in the current ecosystem are experimenting with social and algorithmic rules that formalize their capital deployment. Some of the things that differentiate such protocols are collateral, liquidity, incentives, governance tokens, and stablecoins.
This protocol uses the Olympus DAO’s bond mechanism to grant projects a chance to get their own protocol-owned liquidity. A project can exchange its tokens for an underlying asset or any kind of LP token it wishes at discounted prices. Such an approach is a great improvement to the traditional liquidity mining programs where projects must keep mercenary liquidity.
Olympus Pro allows protocols to permanently purchase liquidity while at the same time guaranteeing a new demand channel for these tokens. The underlying token in Olympus Pro bonds does not have any relation to the $OHM token. However, projects can pair with sOHM or OHM and gain exposure to OlympusDAO’s ecosystem.
Projects are offered a chance to spend native tokens and acquire liquidity in perpetuity without loss fear. This is unlike the current setup, where liquidity mining has a similar high upfront cost but with no benefit in return.
Tokemak is one of the first protocols to introduce Liquidity as a Service. Within Tokemak, projects can provide a single token to a reactor, which will then be paired with a base asset such as USDC or ETH.
Projects that acquire $TOKE can direct their liquidity to venues of their choice. It is an upfront investment that is far much better than traditional liquidity mining.
Tokemak is designed to be primarily used by:
Fei is a protocol with a decentralized and scalable stablecoin known as $FEI that is backed by on-chain reserves. Fei protocol is a giant MakerDAO CDP that has formalized ways of deploying liquidity. The mechanism has proved to be more efficient than that of market-based individual CDPs.
Fei Protocol announced a partnership with OndoFinance that will enable it to deliver an expensive and short-term LaaS option for DeFi. As such, protocols do not need upfront capital cost but will be exposed to impermanent loss. Fei Protocol will take a small fixed fee at the maturity of the liquidity period.
Jason Choi summarized some of the expectations in DeFi space through a Twitter thread:
The following are some of the takeaways:
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