NFTs are slowing and this is the next big thing in crypto....Ann Inw's piece from last October...has it stood the test of time?
I was right when I said I’m not worried about the last month’s Evergrande-induced market pullback. I mentioned how this, to quote JPowell regarding inflation, is TRANSITORY. Crypto folk will find something to hype about, no bear market shall keep them bored.
The short attention span nature of crypto, combined to strive for innovation and growth — both in terms of net worth and tech — has made new things keep popping up in the crypto space.
See it as good or bad, but hopping into the newest shinier train is the norm currently. And every time, it is always interesting.
This time, it’s DeFi 2.0
The NFT hype is slowing down. NFTs are DAOnizing themselves now, launching tokens — like Bored Aped Yacht Club NFTs — and jumping around regulations to not be called “securities” (Gotta keep making money somehow but it’s proven to be difficult.)
In short, crypto needs something new to be excited about. And DeFi 2.0 is perfect. It comes at the right time.
Missing the first DeFi summer in 2020? This might be your chance to spot the next AAVE, Sushi, and MakerDAO.
DeFi 1.0 but on non-Ethereum chains
DeFi 2.0 has many faces.
One of those faces is: It is similar to the initial DeFi craze. Only this time, it doesn’t happen on Ethereum. But rather on a small up-and-coming chain like Avalanche, Solana, and my new blockchain crush, Fantom.
People are rushing into these platforms not without reason. The high Ethereum gas fee has made adventuring between protocols and dApp no longer viable nor it is fun. It will be hard for you to explore various DeFi apps’ features just because, unless paying $40 per smart contract execution is a no-brainer (i.e. you are a whale.)
You go to Ethereum when you want to park funds and wait until your kids are ready for college, not because you want to ape or degen-farm into some new and hyped protocols, get airdrops, or just to fulfill your curiosity. Those are the good old days.
Then people are going into lesser, cheaper chain offers that offer all these opportunities. In many areas, the experience is better too. Faster transaction speed, innovative UI, or simply fun theme and UX.
The Uniswap of Avalanche Chain is one of the fastest-growing protocols in 2021.
On August 12th, the total value locked of this protocol is a mere $22 million. As of October 12th, the total value locked according to Defillama is $1.2 Billion.
The price of Trader Joe’s native token, $JOE has raised from around $0.03 to $1.6, while reaching $4 during its peak.
On October 12th, Trader Joe also launched the Banker Joe, basically extending the protocol services into borrowing and lending, not just swapping tokens and AMM.
Geist Finance is another DeFi 2.0 star. This one is a Fantom lending protocol and is a fork of AAVE. Coming up seemingly so suddenly, no VC, from anonymous developers, and has multisig consists of some respectable people on crypto, the protocol gained traction very quickly. It locked volume from several hundred million to 2 billion in just one day, subsequently also raised Fantom price 30% in the same period.
I wrote about this phenomenon here.
These two, Trader Joe and Geist, are just a few among many examples. SpiritSwap on Fantom looking like it will follow Trader Joe’s path. Then there’s Tarot, Wonderland ($TIME), and the cross-chain Abracadabra ($SPELL).
Bluechip DeFi boomer
What’s interesting about DeFi 2.0 is that now, the stars of DeFi 1.0 are called the boomers DeFi. Crypto folks do not forget how these protocols are the ones who forged the initial path of DeFi. AAVE, Yearn, and Uniswap were the pioneer. But as it turns out, people want more. And they have some legit grievance as well.
Not much yield, not much opportunities
The most common complaint about DeFi blue-chips is that they have become boring. Yields aren’t as attractive as it was before, while DeFi 2.0 offers lots of creative ways for money lego-ing. Even if you are trading their tokens, price action on coins like AAVE isn’t that exciting especially in crypto taste, where huge volatility is expected.
They have become like Amazon. Stable, but again, boring.
Different, if not lesser, features on non-Ethereum chain
Plenty of protocols are deploying on other blockchain and layer twos. But they’re just not the same as the Ethereum ones. In most cases, it offers limited features and opportunities.
There isn’t enough liquidity. Some features — like Sushi staking — aren’t available, only on Ethereum one (please correct me because I tried this so far on Polygon and Arbitrum) A guy lost money because he transferred funds to MakerDAO vault address, but as it turns out there’s no Arbitrum version of that vault. Hence he sent to a non-existent smart contract address. (I’ll link if I found the guy’s post on Twitter.)
Or simply, they are getting outshined by native protocols like TraderJoe or Geist.
Being the TradFi they were trying to avoid becoming previously
One of the biggest grievances about bluechip protocols are they become too big and too “TradFi.” Bluechip Defi is now a playground for TradFi who are starting to dab into crypto. Hedge funds starting to look into DeFi would aim for AAVE or Yearn as a start. A French bank is proposing to MakerDAO for a $20 million loan and using the bank’s bond as collateral (Deposit ETH or BTC as collateral like everyone else please, not your junk bonds.)
It’s no wonder that crypto natives feel like they are getting set aside. A feeling that these bluechip have become too close and too accommodating to TradFi, a group they’re trying to revolutionize from. And worst of all, they too also become too compliant with the government. Losing all that cryptophunk rebel vibe.
I’m talking about KYC, UniSwap delisting 100 tokens, protocol creating a separate platform that’s compliant with regulators, and sometimes a doxxed team which means now they can’s protect themselves with anonymity. It’s just they become, so… normies.
Innovations on DeFi 2.0
I told you about how DeFi 2.0 has many faces. Apart from bluechip forks but on new layer ones, there are some fresh innovations, mind-bending ones.
One of them that is stealing people’s attention is OlympusDAO.
What Olympus offer is something DeFi never offers previously.
It aims to be the stablecoin of crypto that is not pegged by fiat. It introduces the concept of bonds. Put your crypto collateral, get OHM at a discount, olympus will use the collaterals as reserve assets. The value of OHM relative to that assets will determine whether the protocol will increase the supply (minting) OHMs or burning them. Just like a reserve bank.
It’s interesting that Olympus has no VC, no pre-sale, or airdrops (they raise initial funding on their existing discord members to prevent gaming and unfair distribution). They plan to never list on Centralized Exchange because there’s simply no point in that.
Olympus hopes for everyone to wins. It’s something they call the 3,3 scenario of the game theory. For example is when the price is up, the yield is down. But when the price of OHM is down, you get more yield on your staked tokens.
The most impressive thing about Olympus DAO to me is their strive for the true crypto spirit from the get-go. Fair distribution, no VC-accomodating, sustainable and long-lasting growth, besides solving the main problem of crypto (high dependence on fiat stablecoin.)
Abracadabra Money is another DeFi 2.0 phenomenon. You might hear about $SPELL a lot lately if you hang out on crypto Twitter. Visit their website and you’ll be welcomed with some “nonsense”. But like with everything in crypto, don’t be deceived by the outer appearance.
Quoting them, the formula is simple, yet brilliant. Interest-bearing tokens like xSushi in, then the magic internet money, called $MIM, will be out. Deposit your tokens and you’ll get a stablecoin which later you can exchange with good old USDC or DAI, and use them as you like.
People stake their crypto to get interests with interest bearing tokens (xSushi, yvUSDC). These tokens, on abracadabra, can be used as collateral, thus earning you money, while allowing you to borrow up to 90% of the value of it. Thus, it increases your capital efficiency. Since the collateral is productive assets, it safe to say that your collateral actually help you pay your debts.
In DeFi 2.0, you’ll hear more and more about “self repaying loans.”
Their native token is called SPELL, which is used as an incentive for users. Stake it and you’ll get sSPELL for revenue sharing and vote right.
DeFi 2.0 currently is happening on layer ones. But I can expect it will also be contagious to layer 2 such as Arbitrum. The new craze is here, and every day it’s curious to see which projects are attracting hordes of users. (Use DefiLlama to track new protocols.)
Especially the innovations part, it is something to pay attention to. Builders are getting creative in creating protocols (the concept of money lego) with max profit, max capital efficiency, and max decentralization, and max everything else. Tradeoffs are yet to be seen though some do exist. It looks like everyone is just excited as for now.
On a more philosophical sense, we learned a lot from DeFi phase one. Plenty of achievements and mistakes. Lessons from that not-so-distant era. This space is getting matured not only in terms of adoptions or tech but something like Olympus is attempting to re-introduce the decentralization spirit people are starting to forget as they merge with “the old world” — regulation/the government and Traditional Finance.
It’s interesting to witness.
Article originally published at: https://medium.datadriveninvestor.com/defi-2-0-a-new-hype-in-crypto-you-should-know-about-6e7b414a38db