How the ‘DeFi 2.0’ term evolved?
In the past months, some Youtubers and other crypto & DeFi influencers started using the term DeFi 2.0 frequently, in order to describe Olympus and Olympus forks, and similar projects – Tomb Finance and its forks, etc.
So… what is ‘DeFi 2.0’? One of the ‘problems’ in DeFi can be depict with the following chart –
It’s the usual degen farm routine, that started in ETH network, accelerated in BSC and finally died in Polygon – token launches and dumped in few hours, project displays huge APR pools for native token and high APR pools with high deposit fee.
It’s a lose-lose situation for most of the investors – the token is dumped and used as farm token so its price decline continuously. The high deposit fees plus some campaigns and partnerships might raise its value temporary however they all aspire to zero eventually.
The investors that were stuck with the farm token are the bag holders, the ones in the other pools (BTC / ETH / LINK, etc.) are waiting for vain to return their investment: the 2%-4% deposit fee, however since the farm token price is so low, and the rewards are paid with the dumped farm token – they will wait forever.
So… they created a closed financial system with mega-inflationary token, OK… now what’s the big deal?
Wait – this is not all. There were rug pulls, and scams, and a whole industry involved with it, fancy launches and pre-launches and ‘layers’ and Youtubers social networks communities… it was a whole industry.
And people lost money. A lot. I mean… look at the graph, it’s a 99% chance loss whenever you get into this system.
So people got tired from been scammed and rugged or just losing money – and the steam of the degen farms went down. They had to come up with something better – Olympus, Wonderland, and other forks.
What’s the difference between them and the classic degen farm? well.. technically it works totally different – the bonds and mints and all this crap… looks entirely different.
However the problem it ought to ‘fix’ can’t be fixed – cause IT IS NOT A PROBLEM, it’s a fact of life. Money can’t come out of the air. They ‘fixed’ the inflationary financial system with a more inflationary system (higher APR), however the pyramid marketing was so good (lambo calculator? ‘Frog Nation’?? Game theory?…), that people (I confess – me too, for a while) really believed they found a way to keep it going forever, spread tokens without making the pyramid collapse.
Of course it collapsed. The moment whales started to play with it and found some ways to dilute the token value even more (mint & stake every rebase), with high volumes, the pyramid started to shake and that was the signal for the first investors to run out, and then everybody else. Except from the bag holders, from the degen farms story – I’ve told you it’s the same… Oh no, now they’ve got a nice name – ‘Frog Nation’, what a difference.
So this is not DeFi 2.0 for sure. But what IS DeFi 2.0?
First, we need to find a real problem to fix, not another way to grab people’s money. What valid fundamental problems DeFi currently have?
- ETH scaling – it already has the ‘2.0’ name for the solution.
- Impermanent Loss – I really think it’s a genius idea: the AMM and liquidity pools/providing and farming and everything. This is REALLY DeFi 1.0. However there are problems with this system, and some projects are trying to compensate the investors already for Impermanent Loss, however I didn’t hear too much about initiatives to design an alternative system, not to fix/compensate… this will be DeFi 2.0!
- Babylon Tower – all those L1/L2 don’t speak the same language. Bridges and fees, it’s tedious. There are some initiatives on this direction, however they’re too relied on yet-another-propietary system, e.g. THORchain (which I like), connects multiple blockchains however force you to use their own token… (RUNE)
- Liquidity & trading tools – as much as I hate to say it, when you wanna really trade and not just ‘swap’, DeFi is yet way far behind the least popular CEX.
And there are other things to be fixed and corrected, that needs to be addressed and improved – maybe a guideline/standard for security, taxes, audits and more… in traditional banking system you can’t lose half a million dollars due to typo or something (!)
Epilogue
So… when it will be really DeFi 2.0 time, you’ll know it.
Just like web 2.0. When our parents could create a website or use the Internet without us, then the massive adoption arrived. When fundamentals DeFi problems will be solved – only then the gate for the masses will be open, and DeFi 2.0 will be announced retroactively, as always.