Born in August 2018, the term “DeFi” has come to represent ‘Finance without Borders or Central Authority.’ Rightly so, DeFi translates to Decentralized Finance, representing every money-related infrastructure on the blockchain.
Up until now, the first generation of DeFi has been built mainly on the Ethereum blockchain. The various infrastructures characterizing DeFi 1.0 include decentralized trading applications, lending applications, stablecoins applications, etc.
As revolutionary as these DeFi 1.0 infrastructures are, they are grossly limited and limiting. Hence, the need for DeFi 2.0, which leverages its predecessor’s strengths while offering solutions to the weaknesses. Let’s take a closer look at what DeFi 2.0 is.
- What is even DeFi 2.0? Then what is DeFi 1.0?
- The problem and solution
- Avalanche Network, the future of DeFi?
- DAOventures Avalanche Index Funds
WHAT IS DEFI 2.0?
As the name suggests, DeFi 2.0 is the second stage of the decentralized finance ecosystem. The aim of DeFi 2.0 is to solve the issues inherent in the first wave of decentralized finance infrastructures.
Generally, DeFi is an open and global financial network of infrastructures designed for the internet. The operations and relevance of these infrastructures transcend that of traditional systems. The original idea for the DeFi ecosystem was for it to be largely or wholly owned by users. However, that hasn’t exactly been the case.
Large and well-funded corporations are still behind the platforms, against the DAO model that should have been adopted. Apart from this, there are several other obvious lapses and inadequacies with DeFi 1.0. However, it’s been vital in getting the idea of finance beyond borders and traditional authorities off the ground.
Moreover, the idea of DeFi 2.0 became a reality when users and project owners began to identify problems with the current system, subsequently working to rectify them.
Below are the issues DeFi 2.0 solves:
- Scalability — The gas fees in DeFi 1.0 systems are high; hence, costly to use, resulting in a bad user experience.
- Liquidity — Liquidity is the ability to exchange between currencies easily.
- Centralization of Authority — So far, the only central authority DeFi has avoided is government. The platforms are still governed by centralized teams that decide on features, policies, community leadership, etc.
- Security and Oracle Attacks — DeFi’s heavy reliance on blockchain oracles can be a strength and a weakness. Not integrating with reliable oracles opens some DeFi protocols to attack. In the advent of an attack, the platform will have a hard time compensating losses.
HOW DEFI 2.0 SOLVES THE ECOSYSTEM’S PROBLEMS
- Scalability — DeFi 2.0 promises to reduce gas fees. With a reduction in gas fees, it becomes easier for users to maximize the benefits of DeFi. As a result, the development of an alternative infrastructure to Ethereum, Avalanche, is justified.
- Liquidity — DeFi 2.0 aims to solve the problem of liquidity by helping users earn yields. As of now, the total value of the DeFi ecosystem is at $235 billion. With more projects creating more value, the sector is bound to onboard more users and capital.
- Centralization of Authority — Creating Decentralized Autonomous Organizations (DAO) for DeFi platforms solves the centralization problem. When DAOs begin to function fully, everyone has a voting right on decisions across the platform.
- Security and Oracle Attacks — Security remains a major issue for DeFi 1.0. However, with the fully decentralized approach of DeFi 2.0, it becomes near impossible to compromise any part of the financial infrastructures, from the dApps to the blockchain oracles.
THE FUTURE OF DEFI?
Beyond solving the problems of DeFi 1.0, the second wave of decentralized finance promises to contribute to solving the world’s environmental menace. For instance, DeFi 2.0 promises to promote sustainable and healthy cash flow.
Several projects are bound to headline the next wave of Decentralized Finance. Examples of these projects are Olympus, abracadabra, convex finance, Avalanche, etc.
According to industry experts, Avalanche is the DeFi blockchain which will literally “rule them all” in the DeFi 2.0. The explanation for this is straightforward.
FOLLOWING THE HYPE OF DEFI 2.0, AVALANCHE NETWORK
Avalanche is one of the smart-contract blockchains, which focuses on increasing transaction speed while being eco-friendly and low cost. The avalanche platforms solve the problem plaguing DeFi 1.0 in one sweep. In addition, the platform provides scalability, sustainability, liquidity, decentralization and security.
Created by Ava Labs, the Avalanche project is ambitious and so far is the fastest blockchain platform. With the continuous reiteration and investment in the community, Avalanche keeps improving the solutions it provides.
HOW TO GET THE MOST PROFIT ON AVALANCHE
The DeFi 2.0 wave is coming faster than many had imagined, and the avalanche platform is at the vanguard of it.
As users, a major way to maximize the advantage of using avalanche network is by trading the token and staking on the platform. Just as there are Ethereum coins, there is also AVAX token (Avalanche tokens). The value of the token continues to increase, currently ranking 12th in the market.
As developers, you can take advantage of the avalanche network by building dApps on it. Avalanche offers everything you can possibly find on the Ethereum network but faster and cheaper. Also, development on the platform is with the familiar programming language — Go, and not Solidity.
RECOMMENDATIONS TO DAOVENTURES AVALANCHE INDEX FUNDS
DeFi 2.0 promises to be better, with speed at the core of everything it offers. The avalanche network contributes immensely to DeFi 2.0, which has seen the platform rise quickly in valuation. You can get started with the platform by learning more about the Avalanche ETF Index Fund by DAOventures.
DAOventures is a DeFi ETF Index Fund for fund managers and crypto investors. Its mission is to make DeFi simpler, more accessible, and inclusive. DAOventures provides baskets of auto-compounding LPs, upon innovatively designed crypto ETF index funds.