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DeFi 2.0: Everything You Need to Know About Next-Generation Decentralized Finance

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Reading Time: 4 minutes

WHAT IS DEFI 2.0, AND WHY DOES IT MATTER?

DeFi stands for decentralized finance and is a fast-evolving sector that is constantly developing. DeFi aims to revolutionize conventional lending and banking methods by letting its users earn interest on crypto tokens, borrow funds, and secure insurance without the involvement of a third party or intermediary.

Pretty standard knowledge for your hardened, yield-hunting crypto investor.

But now we have DeFi 2.0

DeFi 2.0 is the second generation of DeFi, an upgraded version of all the pre-existing models of DeFi, and limitations in DeFi 1.0 have now been resolved in DeFi 2.0

Read on to find out more.

WHAT IS DEFI 2.0?

DeFi 2.0 is the next generation of the original decentralized financial system (DeFi 1.0). If you understand decentralized finance in general, the new version will be second nature to you.

DeFi is an ecosystem that serves as a safe haven for all decentralized platforms and projects looking to escape from the traditional financial system to provide unique financial models and economic primitives based on blockchain technology.

The approval procedure for decentralized apps and projects is based on tried-and-true financial agreement models. These protocols grow based on permissionless composability and open-source development culture, providing the industry with distinct benefits.

DeFi 2.0 refers to a new era of decentralized finance that is a better and more innovative version of former DeFi models. Despite DeFi 1.0’s shortcomings, the system witnessed advancements in yield farming, liquidity limits, and other areas.

WHY DEFI 2.0 MATTERS

In a nutshell, its primary objective is to make it simpler for individuals to join the cryptocurrency market and discover new profit-generating opportunities. Those who have been unable to get a loan from a conventional bank can now do so using DeFi crypto. What’s more DeFi 2.0 has the potential to liberalize banking without reducing risk standards and improve the user’s overall experience.

WHAT ARE THE BENEFITS OF DEFI 2.0?

Flexibility for Staked Assets

In addition to these core value propositions, you may be required to store millions of dollars in several vaults to provide liquidity for their protocols. When users stake a pair of tokens in a liquidity pool, they are often awarded LP tokens. True for a number of DeFi protocols; however, in DeFi 1.0, users that invest LP tokens in a yield farm can sometimes treble their gains.

By allowing yield farm LP tokens to be used as collateral for loans or to mint more tokens, DeFi 2.0 adds another layer of usefulness and incentives. While the specifics of how this works for each site may vary, LP tokens in DeFi 2.0 can be used to access more opportunities while still earning a solid APY.

Self-Repaying Loans

Taking out a loan often carries the risk of liquidation and interest payments. This does not have to be the case with DeFi 2.0.

Let’s assume you get a $500 loan from a cryptocurrency lender. The lender gives you $500 in cryptocurrency but asks for $250 in collateral. When you make a deposit, the lender invests it in paying off your loan. Your deposit is reimbursed after the lender has earned $500 with your cryptocurrency plus any charges. There is also no danger of liquidation here. If the collateral token loses value, it just takes longer to pay off the loan.

Insurance-Protected Smart Contracts

Although DeFi relies on open-source and transparent infrastructures, it might be challenging for those without a technical background to do due diligence and risk analysis of protocols. By providing insurance on smart contracts, DeFi 2.0 protects consumers against the unclear nature of the market. In the past, LP token stakers ran the danger of losing all their money if the smart contracts backing their investments were breached.

DeFi 2.0 allows an insurance project to guarantee a yield farm deposit in exchange for a charge. While these insurance systems may reduce overall risk exposure, they are not without flaws, and their specifics depend on the underlying smart contract. For instance, the insurance company would not pay out if the yield farm contract was breached, but the liquidity pool contract was not.

Impermanent Loss Covering

Any fluctuation in the ratio of the two tokens you locked in price might result in a loss if you invest in a liquidity pool and begin liquidity mining. We call this impermanent loss, but innovative new DeFi 2.0 protocols are looking at ways to counter it.

It’s possible to add a single token to a one-sided LP instead of a pair, for instance. The protocol completes the pair by including their native token. You and the protocol will both get money from the fees that come from swapping the pair.

To protect your deposit from the impacts of temporary loss, the protocol will utilize a portion of its revenues to create an insurance fund. The protocol might create additional tokens if the collected fees are insufficient to compensate for the losses. Tokens that are not immediately needed might be put away for use later or burned to get rid of the surplus.

DeFi 2.0 will be worth the wait as it can mitigate the risks associated with DeFi 1.0. DeFi will become easier to use, making blockchain technology easier to use and, therefore, more accessible to the masses.

DEFI INVESTING WITH MINIMUM RISK AND MAXIMUM APYS

With companies such as Bolide.fi, you can start with any amount and invest in a vast range of staking and farming options while choosing a risk strategy that best suits your risk appetite. Even better, there’s no lock-up period, and you can get APYs of up to 30%!

Here are some of the benefits of investing with Bolide:

  • Low-risk, market-leading yields of up to 30% APY
  • Earn an extra 20% staking your BLID tokens and enjoy 11% APY on farming
  • Start investing with any amount
  • Hands-off, passive automated investments using your stablecoins
  • No lock-up period access your funds and profits instantly
  • No withdrawal limitations

Starting your yield farming and staking journey is easy with platforms like Bolide. Simply visit www.bolide.fi, connect your crypto wallet, deposit either $USDT / $USDC / $DAI / $BUSD, BTC or ETH and you’re good to go.

Start earning interest at the speed of light with Bolide today!