It’s hard to believe that decentralised finance – now central to the world of blockchain – only emerged two years ago.
At the beginning of 2019, the TVL of lending platforms (mainly MakerDAO) was $270 million. This momentum continued in 2020 as well, to the point where Compound launched its governance token, COMP which kicked off the craze and initiated the first call for liquidity mining.
By November 2021, the TVL of DeFi jumped 990x, reaching $269 billion. Some of the most significant projects that emerged are:
As new projects launched and these early players developed, many investors have begun using the term DeFi 2.0.
Footprint Analytics: DeFi TVL(since January 2019)
Whereas DeFi 1.0 gave people liquidity mining, token exchanges, lending, and AMMs, DeFi 2.0 promises to improve the user experience, introduce new finance technologies, and improve capital utilisation.
Among the most important projects likely to headline the next generation of DeFi are:
What do they do? What problems will DeFi 2.0 solve? Are these projects sound investments?
What is DeFi 2.0
First, let’s summarise DeFi 1.0.
DeFi 1.0 is the early decentralized financial infrastructure that constitutes the current DeFi ecosystem. It includes:
Decentralised central trading applications and DEXs (Uniswap, SushiSwap)
Lending applications (Aave, Compound)
Stablecoin applications (MakerDao)
Liquidity machine gun pool applications (Yearn)
Synthetic assets (Synthetix, UMA)
Insurance-type projects (Cover, Nexus Mutual)
DeFi 2.0 refers to a layer of applications built upon the first generation of the protocol. The core of DeFi 2.0 is to add liquidity into the infrastructure layer, making the development of the industry more sustainable .
What problems will DeFi 2.0 solve?
Many DeFi 1.0 projects demonstrated the powerful disruptive ability of decentralized finance. Curve, which occupies nearly one-third of the total TVL market share of DEXs, provides exchange services focused on stablecoins using an upgraded AMM formula. MakerDAO, one of the largest decentralised applications (dApp) on the Ethereum blockchain, is the platform to generate the first decentralised stablecoin DAI.