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DeFi 2.0

Updated: Dec 9, 2021

Another great video from Finematics again as we continue our education focus on Decentralised Finance/DeFi. As if DeFi couldn't move fast enough, we are already at a stage where new projects are coming in looking to improve what feels like projects that only launched recently. These new projects look at protocols that own their own liquidity instead of renting this out via liquidity mining incentives.

Finematics then highlights the current problems with DeFi where liquidity can move from project to project (e.g. it's not loyal). Some tokens have added vesting to try to take care of this as well as building other incentives in order to build what is known as a "moat" in investing/economic circles.

Depending on the protocol that's out there, e.g. lending or decentralised exchanges, there is a need to make sure that the project works well for users otherwise there is risk of their liquidity moving on. The video highlights how UniSwap had some advantages of being a first mover but eventually saw pools of liquidity move away (as can be seen in a previous article/video here: Vampire Attacks and Sushi).

To combat this and avoid what Finematic calls "mercenary capital", the new liquidity mining programs that have come in are looking more sustainable. This includes Olympus DAO which has built its bonding system to be able to own its own liqudity as it provides its Ohm tokens. Other protocols followed and Olympus Pro, a follow up to Olympus, provides this bonding capability as a service to other protocols.

Another they mention is Tokemak and its decentralised market making program. In their system they have Liquidity providers and Liquidity directors who get to direct where liquidity flows via reactors.

These are just some of the protocols starting to evolve the initial DeFi protocols and it's very interesting to see.

Additional information

There's another great video on this from the folks at Whiteboard Crypto which we show below so check this out for more information on DeFi 2.0


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