The newly coined term decentralized finance (DeFi) 2.0 is making waves across the internet and beyond. Let’s discuss what it is and how you can financially benefit from the movement.

In 1929, a midwestern farmer made $2000 overnight ($32000 today) betting on a car manufacturer’s stock. Perhaps no event better illustrates the roaring twenties. And just a few years later, 9,000 banks had failed in the United States. Nearly half of US financial institutions collapsed during this time. What happened to banks?

First off, banks were irresponsibly extending credit. Take our midwestern farmer for example — a large majority of the money used in that stock investment was given out by the local bank. Banks also failed to listen to the federal reserve about pumping the brakes on their lending. All they could see were the short term profits. And last but not least, banks didn’t hold enough in their cash reserves.

When the market crashed in 1929, everyone ran to the banks to pull out their money, but the banks couldn’t handle it all at once. People weren’t able to get their funds, and loans for small businesses seized up as well.

So who got the short end of the stick? Individuals and small business owners who relied on these trusted institutions for their financial services. And what followed was a tragedy in American history — The Great Depression.

That’s my long winded way of setting up a conversation about decentralized finance (DeFi). DeFi aims to strip out the intermediaries and provides open source, borderless, and transparent financial services. No more failing banks.

DeFi 2.0 is a fairly new term. It follows the DeFi 1.0 Summer of 2020 that took the crypto/blockchain world by storm with yield farming, liquidity mining, and decentralized lending & borrowing.

The market started small in 2020, but since then we’ve seen a nearly 1000x increase in the total value locked (TVL) in decentralized finance services.

DeFi 2.0 looks to improve on the shortcomings of 1.0 through improved transaction speeds, user experience, and capital utilization. A really big part of this movement is through protocol controlled liquidity, rather than the renting of liquidity from a host of non-loyal individuals looking for the next highest return that DeFi 1.0 encountered.

This has allowed for stability and trusted growth in a number of 2.0 protocols, and leads to another question…

DeFi 1.0 was all the buzz last year. MakerDAO, Aave, Compound, Sushiswap, and many more were getting a ton of attention. Liquidity mining was the common thread.

Figure from Yahoo Finance

In short, liquidity mining is a process in which protocols offer their native tokens as a reward for users depositing assets that others can borrow and trade.

This approach to liquidity is temporary in nature. Protocols are inflating their tokens in exchange for short lived capital deposits that provide liquidity. Users get their token rewards, dump them, and leave with their initial deposits. This has led to a number of protocol’s token price and value locked crashing in a very short period of time. Seems like a complicated pump and dump.

Tyler Reynolds had this to say:

“DeFi 2.0 is mostly about DAOs changing the relationship between capital providers and the protocol itself. The move in DeFi 2.0 is for protocols to own their own liquidity.”

Through controlling their own liquidity, DeFi 2.0 protocols are able to prevent such disasters, and attract less mercenary capital.

OlympusDAO: Olympus aims to be the worlds decentralized reserve currency. An ambitious goal to say the least.

“Olympus is building a community-owned decentralized financial infrastructure to bring more stability and transparency for the world.”

It is an algorithmic protocol that aims to be a stable digital asset (stablecoin). Olympus is unique in that it pioneered the idea of protocol owned liquidity, and also uses a bond mechanism as opposed to the traditional liquidity mining model. Read more about this in their documentation, and decide whether or not you want to invest!

**Abracadabra Money: **Provide collateral in the form of various interest bearing crypto assets such as yvYFI, yvUSDT, yvusdt, xSUSHI and more.

With this, you can borrow magic internet money (MIM), which is a stable coin that you can swap for any other traditional stable coin.

This brilliant protocol basically allows you to maximize the liquidity, interest, and capital efficiency of your digital assets. It can get pretty risky, but those who know what they’re doing sure aren’t complaining. Look into it further before getting involved!

**WonderLand Money: **This protocol is a fork of OlympusDAO built on the Avalanche blockchain. Its offerings are nearly identical to Olympus, but with lower transactions fees on Avalanche.

WonderLand’s treasury is also made up of a basket of riskier assets than Olympus, which is part of the reason it can offer a higher APY (Currently over 80,000%).

WonderLand offers bonding/minting and staking opportunities for compound interest. It is a risky, but very attractive offer. You can read more about it here.

DeFi 2.0 has caught the attention of many. It’s easy for a lot of the world to still dismiss the resulting protocols as silly or unrealistic, but it’s difficult for me not to appreciate the intricacies and geniuses behind such efforts. I am excited for the ways in which DeFi will continue to challenge our TradFi world.