The DeFi ecosystem is constantly iterating and improving.
During the summer of 2020, DeFi apps experienced unprecedented levels of engagement. Protocols such as Aave and Compound launched liquidity mining programs; the use cases of crypto kept growing with no signs of slowing down.
But then the copycats and the hacks turned up. New protocols attracted more naive users with the promise of sky-high profits, like the early days of larger protocols. But, these protocols lacked true innovation and left many investors disillusioned. At the same time, the industry experiences persistent multimillion hacks. So, it was no big surprise when DeFi began to lose the momentum it had attained during what has been dubbed ‘Defi Summer.’
New investors had few places to turn; the communities were still fledgling, there were few resources to educate oneself, and the interfaces of many protocols were confusing to retail consumers. In short, these projects created more questions than answers.
Disclaimer: The author works at Sturdy Finance (mentioned below). Please DYOR before making any financial decisions; none of this should be taken as financial advice.
DeFi 2.0
Last year crypto news outlets were inundated with talk of DeFi 2.0, the latest generation of Decentralized Finance. We witnessed the rise of projects looking to fill the gaps left by the first DeFi primitives by developing long-term liquidity, improving capital efficiency, and providing intuitive UI designs.
While the first generation of DeFi primitives offered a slew of exciting ways for investors to have more direct control over their investments, they left much to be desired by users. DeFi 1.0 protocols tended to be daunting to retail users, with disorganized communities and convoluted governance practices.
The Result
DeFi 2.0 provided users with more inviting apps, straightforward governance, and even more ways to boost capital efficiency. Some succeeded, and some measured potential user returns in supercars; most importantly, DeFi was tested in groundbreaking ways.
Some of the most crucial protocols to come out of DeFi 2.0 were Convex and Frax. Built on the back of the stable exchange Curve Finance, Convex boosts capital efficiency by enabling users to earn boosted rewards on their CRV tokens without forcing them to lock up their tokens. Frax on the other hand provides decentralized, long-term scalable liquidity to address the issues of fixed-supply digital assets.
These protocols iterated upon the work of earlier teams to provide users with further possibilities while providing the infrastructure for future innovators to build on.
Going Forward
The latest generation of projects is working in tandem with existing infrastructure to provide a more intuitive and profitable experience for a wide range of investors, from retail to institutional.
Here are a few examples of protocols that not only address gaps created by peers or predecessors but also provide truly novel products. Each is contributing to a more sustainable and robust DeFi ecosystem.
dAMM is the first institutional capital markets platform with an emphasis on all tokens. It’s encouraging institutional players to truly interact with the DeFi ecosystem by providing 10-100x more tokens than any other institutional lending service. The platform provides organizations with a more diverse means of lending at the institutional level while also offering undercollateralized loans to high-quality institutional borrowers. Thanks to dAMM, institutional players can meaningfully invest without exorbitant fees, strenuous onboarding, or term negotiations.
Aevo is Ribbon’s order-book-based decentralized exchange with all the features necessary for a pro-options trader. More complex trading mechanics have been difficult to replicate in DeFi, options protocols have struggled to gain traction, and DeFi Option Vaults (DOVs) are often too simple for experienced traders. Aevo plans to fill this market gap by providing a sophisticated platform with over 100 instruments, deep liquidity, and cross-chain onboarding. Aevo has the potential to help usher in the future wave of DeFi investors by providing a fully built-out trading platform.
Sturdy enables experienced users to access up to 10x leverage for yield farming while offering more passive investors high-yield lending. The protocol has integrated several DeFi 2.0 assets to provide users with a unique borrowing and lending experience that benefits all users; borrowers get to farm top assets with high leverage, and lenders get greater yields than other lending platforms provide because they get a portion of farming rewards. With Sturdy, inexperienced lenders can benefit from yield farming profits without taking on the necessary risk or time obligation, while seasoned investors can easily take on high leverage to maximize their earnings.
The Future of DeFi
These protocols are a small selection of the various innovative projects currently building momentum in crypto. They all made unique contributions by furthering the use cases of preexisting protocols and assets while providing new and profitable user opportunities. While they all serve different functions, each is helping to move the needle of what is possible in crypto; be sure to check them out and make the most out of your digital assets.