The digital generation is the most advanced to date and is based on soft skills and practical knowledge of handling the same. When the decentralized network was launched as a white paper in the global market, it was suggested that there is no future for the same and no more development should be done in the field. But opposite to its contradictors, decentralized networks flourished satisfactorily and better. One of the derivatives in the field of finance over this decentralized network is decentralized finance or DeFi network. You might believe that everybody who invests in cryptocurrencies ultimately becomes an expert; they know the considerations for purchasing bitcoins.
The initial launch was called DeFi, but as soon as its utility increased and more people became its users, it became known next to DeFi as DeFi 2.0. In this article, we will learn the advanced version of DeFi and discuss the protocols necessary to run the same. So, let us start the journey!
About DeFi 2.0 and DeFi protocols
The main aim of the launch of DeFi 2.0 was to get over the flaws of DeFi’s original network. Thus, the main objective for launching it was the upgrade and fix the digital space. Sometimes, it is referred to as the subset of the DeFi protocols. With its facility, one can surpass the barriers of any transaction, and thus, everyone over the platform experiences the same amount of chance to complete the transactions. Though it seems it is perfect for the digital space for having DeFi 2.0, some flaws still need redress.
Limitations of DeFi
- Scalability- The platform is less scalable as compared to other platforms. The usage and performance of a decentralized network depend on the energy resources consumed and other developments that make the platform cost-inefficient.
- Centralization- Many projects of DeFi are not entirely centralized. The interference of properties having no DAO in the proper place always haunts the availability of DeFi.
- Oracles- Some projects are still not connected to oracle platforms, and some of the relations are not made due to the intentional behaviour of these platforms. This makes the platform prone to hacking and other soft attacks.
- Security- Having a digital platform needs protection to be in the first place. Due to constant updates, the previous security protocols become useless and thus become less usable.
- Liquidity- Liquidity causes a lack of funds and thus prevents the user from investing the amount at some other place. As a result, the value of money reduces, and the capital becomes inefficient.
Uses of DeFi 2.0
- Increasing the efficiency in the capital- It is possible to stack LP tokens in the case of DeFi 2.0. From a protocol, it becomes easy for the user to take loans and mint other tickets for commercial or personal use.
- Issuance of smart contracts- It is possible to issue multiple intelligent warrants using the facility of DeFi 2.0. Also, it is possible to attain insurance over intelligent contracts, thereby saving the number of assets in smart contracts.
- Automated loan payment- The lender can use the interest earned with time to pay off the loan over some time. Also, these do not have the risk of liquidation.
- Impermanent insurance for the losses incurred- The change in price ratio between two tokens causes financial losses to the user. The protocols of the new DeFi are bringing such changes that can help the user to prevent these losses and insure himself for the impermanent losses that are possible to be incurred.