What exactly is DeFi 2.0? We have summarized these views and projects from 5 articles

Organizer: Nianqing, Hu Tao

With the continuous rise of the crypto market, the total locked value (TVL) of major public chain DeFi has recently surpassed the $240 billion mark, setting a new historical high, which is nearly a 46% increase compared to the peak before the significant drop on May 19. The DeFi market has once again become the focus of market attention.

However, despite the fact that the locked amounts of major mainstream DeFi projects have all reached new highs, the token prices of mainstream projects like Aave and Uniswap are still a certain distance from their all-time highs. This phenomenon reflects the issue that most of the incremental funds have flowed into DeFi ecosystems outside of Ethereum and so-called DeFi 2.0 projects.

On October 12, the co-founder of the DeFi lending protocol Alchemix first published an article to promote DeFi 2.0 projects, highlighting five projects: Olympus, Tokemak, Alchemix, Spell, and Convex. It was pointed out that these DeFi 2.0 protocols would make DeFi more capital efficient, and the token economic models would be more refined, thereby enabling all DeFi protocols to achieve sustainable development.

Subsequently, many KOLs in the domestic and international crypto markets have written about their understanding of DeFi 2.0. However, so far, there is no universally accepted definition of DeFi 2.0 in the industry, and some even jokingly say, "If it goes up, it's 2.0; if it doesn't, it's still 1.0."

Has the DeFi ecosystem really opened a new round of iteration? Or is it merely a micro-innovation based on the original smart contracts? What exactly is DeFi 2.0, and what direction should the next big trend take?

Around these questions, we have summarized the core viewpoints of several articles, hoping to provide some new perspectives for everyone.

1. What specifically does DeFi 2.0 refer to?

1. "DeFi 2.0: Higher, Faster, Stronger" (Author: Pianmian Crypto)

I believe that the scope of DeFi 2.0 should include new protocols that utilize existing DeFi protocols based on the original DeFi. These protocols generally meet the criteria of: higher capital utilization, smoothing or transferring risks, more directly meeting previously unmet needs, more reasonable community organizational forms, governance structures, etc.

The core of DeFi 2.0 should be based on leveraging the true charm of DeFi: Lego games. Therefore, DeFi 2.0 must utilize other protocols more and strongly rely on existing protocols to function.

2. "DeFi 2.0: Incentive Mechanisms Beyond Liquidity Mining" (Author: Xiangzhi Research Institute):

The development of DeFi has always unfolded along two directions:

• Releasing credit potential. From over-collateralization to yield-bearing certificates (such as Compound's cToken), LP Tokens, and then to synthetic assets (such as Synthetix's sToken), gradually releasing credit potential.
• Improving capital utilization efficiency. Providing different types of products based on duration management and risk preferences, reducing collateral rates through tiered interest rates or credit lending.

DeFi 2.0 has not deviated from these two directions. For example, the typical case of DeFi 2.0, Abracadabra (governance token $SPELL), and Alchemix benchmark against MakerDAO, by supporting LP Token collateralization, allowing locked assets to gain liquidity, essentially unlocking the credit value of LP Tokens while also improving capital utilization efficiency. In addition, DeFi 2.0 has gained attention due to better composability and more crypto-native organizational and governance structures. Models supporting LP token collateralization, fixed interest rates, and algorithmic stablecoins have always existed; the challenge lies in creating an ingenious incentive model. Just like the AMM model had already emerged, liquidity mining was the final push that propelled DeFi.

OlympusDAO did not attract liquidity for the protocol through liquidity mining but instead utilized the concept of "protocol-controlled value" and an innovative staking mechanism to overturn traditional DeFi liquidity models. The higher the price of OHM, the more DAI enters the staking contract, and the more rewards participants receive from OHM staking, which keeps the market price of OHM consistently far above 1 DAI. By over-issuing to create extremely high staking APY and through continuous games, the price of OHM keeps approaching the total asset value in the treasury.

Thus, projects realize they need better systems to ensure sustainable liquidity—liquidity-as-a-service protocols that can directly purchase their liquidity from the market or rent liquidity from protocols aimed at providing the best quality and price.

3. "Only the Digital Kingdom Remains" (Author: Dashuo)

In my view, if there really is DeFi 2.0, it must have rich scenarios and vertical composability. Vertical composability relies on the internal components of the ecosystem to produce mutually reinforcing effects. DeFi projects are no longer standalone protocols; they become the underlying layer upon which third parties build their own products and profit.

In the assumptions of traditional DeFi, each protocol has its own independent tax revenue, which contradicts the goal of maximizing product adoption rates. To resolve the conflict between value capture and adoption rates, group development is inevitable. Axie Infinity's choice to build its own sidechain, DEX, and NFT marketplace reflects the ambition and inevitability of the crypto community's group development. Building DeFi services can reduce the economic activity costs of the community, which is a necessary condition for large-scale adoption.

All directions and solutions can actually be summarized in one sentence: Let people and capital flow faster, that is, stimulate individual users to contribute to projects through DAOs and fully improve capital utilization through new composable protocols.

4. "What is DeFi 2.0? Will the upgraded version become a hit?" (Author: Soomie)

Currently, DeFi 1.0 projects still suffer from three common issues: excessive capital input, liquidity mining causing short project lifecycles, and excessive focus on the TVL index. The TVL index has almost become an indirect industry standard, so users only focus on TVL, and project parties pour more funds into subsidizing projects to attract investment and users. However, the money in these pools has not truly flowed, and users have not been activated, inadvertently contributing to the development of the protocol. Once APY (annual percentage yield) decreases, users will withdraw their funds.

Projects focused on capital efficiency may bring "new hope" to the DeFi market. Optimizing the TVL index will allow assets to be allocated to protocols in use to achieve maximum potential. Quality projects can not only attract users but also retain them, encouraging them to contribute to the ecosystem, which is a good way to create cash flow and extend the project's lifespan.

5. "DeFi 2.0 New Projects Experimenting with Alternatives to Liquidity Mining" (Author: Owen Fernau)

Liquidity mining rewards users with tokens in exchange for capital deposits, but this is often temporary. Users leave with their assets and rewards after extracting project incentives, making the protocol dull.

DeFi 2.0 is primarily about DAOs changing the relationship between capital providers and the protocol itself. This requires projects to obtain funding to support their financial applications, rather than attracting users through liquidity mining rewards to mine users' funds.

The innovation of DeFi 2.0 lies in enabling protocols to have their own liquidity, which sharply contrasts with DeFi 1.0, where protocols gained TVL by providing the best user experience and improving capital liquidity.

6. Pima Tweet
   To put it bluntly, there is no such thing as DeFi 2.0/3.0; the difference is whether retail investors can make money in the secondary market. I have never seen a community that isn't wealthy not become a rich community. You will find that every so often, there is a wave of resistance against VCs.
   The so-called DeFi 2.0 recently, many of them have developed gradually without VC involvement, as such projects enjoy significant community dividends, with a solid grassroots foundation. Native projects emerging from the bottom of the crypto market have gained tremendous momentum. Of course, any project will encounter different bottlenecks as it develops to a certain stage, and this is when the capabilities and nature of the team, especially anonymous teams, are tested.

2. What are the DeFi 2.0 projects?

Olympus DAO (OHM): The first project to create an alternative to the "liquidity mining" model using a bond mechanism. By issuing its native token OHM at a discount, Olympus can purchase LP positions from the market to create "protocol-owned liquidity."

Abracadabra (SPELL): Allows users to use yield-bearing assets (such as xSUSHI, veCRV, etc.) as collateral to borrow MIM stablecoins, releasing liquidity for such assets and increasing user yields.

Tokemak (TOKE): Tokemak is a protocol designed specifically for liquidity provision, acting as a decentralized market maker. The native token TOKE represents tokenized liquidity, used to influence the liquidity direction across DeFi. The protocol earns TOKE rewards for "seeding" liquidity into the Tokemak ecosystem and can influence liquidity direction by staking their TOKE. Since liquidity is ultimately controlled by Tokemak, it retains trading fees associated with controlled assets but also bears impermanent loss. (Chase Devens)

Alchemix (ALCCX): A DeFi lending protocol using a synthetic asset token model that helps users obtain future yields from deposits. After users deposit DAI into the contract, the contract periodically uses the earned money to repay the user's debt until all debts are cleared. The 2.0 version supports multi-collateral and multi-strategy assets, extending collateral debt position functionalities to yield aggregators like Yearn, Pickle, and Harvest.

Fodl Finance (FODL): A decentralized derivatives trading platform launched by the team behind 0xb1, leveraging asset liquidity from lending applications like Compound and Aave, allowing traders to use leverage at low cost without paying financing rates while also earning token rewards from DeFi lending applications.

Ribbon Finance (RBN): Ribbon trades options based on Opyn. It then packages them into financial products that users can purchase directly without any knowledge or operation on options. The impressive aspect of Ribbon is that its V2 achieves decentralized pricing (which may still require some manual assistance), allowing weekly options trading to be executed by smart contracts, meaning the product's scalability can be significantly large. (Pianmian Crypto)

Visor Finance (VISR): A Uniswap V3 liquidity management protocol that improves users' capital utilization through active market-making strategies. (Pianmian Crypto)

Rari Capital (RGT): A permissionless lending protocol focused on long-tail assets, allowing any user to create and deploy lending pools for any asset through its interest rate protocol Fuse. It launched isolated asset pools, where assets in each pool only share risks within that pool, separate from the rest of the platform.

Convex (CVX): A one-stop platform for CRV staking and liquidity mining launched by the Curve community, aimed at simplifying the process of locking and staking Curve and CRV through a user-friendly interface, thereby enhancing rewards for CRV holders and liquidity providers to promote the development of the CRV ecosystem.

Ondo Finance (not yet issued): Through collaboration with Fei Protocol, this protocol will be able to deposit users' native tokens into the Ondo liquidity treasury for a specific period, pairing them with newly minted FEI, and then sending the token pair to AMM for liquidity provision.

In addition, various articles also consider projects such as Inverse Finance (INV), saffron.finance (SFI), 88mph (MPH), Pendle (PENDLE), and APwine (APW) to be in line with DeFi 2.0.

（Feel free to add WeChat ID gnu0101 to join the Chain Catcher group chat）