- DeFi 1.0: What’s Next?
In 2020 Decentralized Finance (DeFi) became one of the most influential vectors for value creation within the blockchain industry. After weathering the bear market post-ICO boom, DeFi emerged as a catalyst for substantial capital allocation back into the blockchain space. DeFi has proved to be an extremely strong product-market fit for blockchain technology. Total Value Locked (TVL) in the space has grown from 700m at the start of 2020 to over 50bn at the start of Q2 2021.
The DeFi sector is developing rapidly, despite that, users still face problems that prevent mass adoption of decentralized finance. Modern platforms are trying to solve these problems by making DeFi more accessible to a wide range of audiences.
Decentralized finance (DeFi), is essentially a blanket term to describe a collection of financial instruments and applications based on blockchain technology that offer an alternative solution to traditional financial services. With DeFi, users have access to a whole new financial realm that is decentralized and free of any third parties/intermediaries. DeFi offers a number of different financial services that are provided autonomously and managed by smart contracts.
The most popular types of DeFi applications include:
- Decentralized exchanges (DEXs)
In addition to these apps, new DeFi concepts have emerged around them:
- Yield farming
We witnessed the rapid growth of the DeFi sector towards the end of 2020 and early into 2021, when DeFi’s TVL exceeded $40 billion. That said the current state of DeFi is not perfect and the industry is still experiencing problems; with the limitations of DeFi revolving around two key issues: scalability and usability
Last year we saw the massive potential for DeFi value creation and the power of composability for financial products and services combined with no intermediary. Yet, the story is not quite all “moon and lambos”.
Indeed, TVL has done nothing but grow, and capital allocation into DeFi projects in Q1 2021 accounted for more than 48% of new deals. However, DeFi faces a scalability issue on its largest Layer 1 network — Ethereum, as well as UX issues and perhaps worst of all capital inefficiency.
Usability of DeFi Platforms: It’s no secret that that crypto space can be intimidating for some, it’s a whole new market and there is a lot to learn, DeFi included. So it is often quite difficult for newcomers to grasp how to utilize DeFi to its full potential. This is a by product of the UX and security issues that are prevalent in DeFi’s current form.
Capital Inefficiency: Capital inefficiency plagues the DeFi verse and affects projects, liquidity providers, and traders alike. Capital inefficiencies overall hinder adoption and growth because it hinders participants with less capital to invest from fully participating while concentrating utility to those with large amounts of assets.
Liquidity Providers have to deposit multiple tokens to the liquidity pools and often trades will swap between multiple pools, each swap attracting an associated fee. Making the process capital intensive and expensive for most. It impacts projects wanting to launch new tokens but do not meet capital requirements to create the market on AMMs (i.e. not enough ETH). As well as restricting projects from channeling capital into other facets of development such as engineering and marketing.
Similarly currently borrowing and lending models rely on over collateralized debt positions which again restricts users without ample assets from fully participating. Such capital inefficiencies are not conducive to creating a true decentralized financial system that’s open for all, regardless of your wealth.
Ethereum’s Limitations: Majority of the DeFi products that are available today are built on top of the Ethereum blockchain. Unfortunately, as the crypto space grows, traffic on the Ethereum network becomes more and more congested, as a result, there are long delays, and the cost of making transactions can be financially burdening for some. This makes the use of DeFi products unprofitable for users who have less than a few thousand dollars at their disposal. With low scalability, functions and UX are also limited.
In order to see healthy and sustainable growth within the DeFi industry, faster, more capable and more user-friendly platforms that will make financial services available to a wider audience need to be designed. That is where DeFi 2.0 comes into play.
DeFi 2.0 simply tackles the problems that currently face the first generation of DeFi. Problems such as UX issues, scalability issues and at the same time ushering new and innovative DeFi services into the industry.
DeFi 2.0 will be built on a much scalable and affordable infrastructure, which is represented by Layer 2 solutions and Ethereum 2.0.
With the support from Layer 2, more complex logic can be built into the smart contract, and the execution cost will be significantly reduced, so new decentralized finance products like derivatives will be created. And Layer 2 will also ease the derivative traders’ sensitivity to slippage and fees as they are more short term.
Advanced Governance Frameworks
DeFi 2.0 will have a much robust governance framework to guide the community’s power.
Due to the limitations on Layer 1 Ethereum, most of the current governance mechanisms are incompetent for DeFi to cope with complex collaborations in their community. Meanwhile, with more layer 2 solutions and Ethereum 2 coming, the governance mechanism will also have to evolve to keep pace with the technical progress.
But this is a very watered down account of what DeFi 2.0 will bring to the DeFi industry. Along with the many advantages of Layer 2 solutions (check out this article), DeFi 2.0 will bring a host of new features to the DeFi ecosystem.
A good example would be ELROND’s upcoming launch of “Elrond DeFi 2.0” which promises more scalability and throughput as well as a host of new advanced tools such as:
- Maiar — the mobile app that automatically & securely creates wallets for users using just their phones, giving everyone intuitive access to DeFi & other blockchain features
Smart accounts which allow their owners to store a wide range of data such as BTC addresses, emails, social media information and more
Meta-transactions, which will provide users with the ability to carry out blockchain transactions without owning cryptocurrency, and network fees will be paid by relayers, for example, app owners
ESDTs — Elrond Standard Digital Tokens implemented natively into the Elrond protocol, allowing them to be transferred at high speeds and low costs
NFT; — also integrated directly into the Elrond protocol, with built-in royalties and true ownership, thanks to Smart Accounts
DNS, which will convert complex addresses to simple names
As you can see, DeFi 2.0 unlocks a myriad of new DeFi services. With exciting new Layer 2 protocols on the horizon and the impending launch of Ethereum 2.0, huge steps are being taken on the road to realize the full potential of DeFi.
We, as the MonoX team, aim to play a part in optimizing and expanding the capabilities of Decentralized Finance which is why we are launching MonoX, our first product being an Automated Market Maker — Monoswap.
Monoswap is a new breed of Automated Market Maker in the DeFi arena. We have built a new AMM using a single token pool design. It works by grouping deposited tokens into a virtual pair with our own vUSD stable coin.
Monoswap will revolutionize the DeFi ecosystem by fixing the capital inefficiencies of current protocol models. If you want lower trading fees, capital efficiency, and launch a token with zero capital — then you are in the right place. Monoswap will expand the capabilities of DeFi.
WHAT WE HAVE TO OFFER:
- Capital Efficiency
Single Token Liquidity
A new stable coin vUSD backed by the liquidity in our pool
100% capital saving for new projects launching tokens
Lending and Swapping sharing the same pool = Boosted LP Profits
Thank you for reading. If you have any questions, leave a reply or reach out to us on Telegram or Twitter. You may also browse through our website or visit our Docs where you can also find our roadmap.
- Date of publication:
- Thu, 04/22/2021 - 12:38
Click on the link - it will be copied to clipboard