DeFi 2.0: New era of decentralized finance emerges with improved security, scalability and interoperability

The decentralized finance (DeFi) landscape has proven remarkably resilient in the face of recent market shocks, and as the space matures with each passing year, a new generation of DeFi platforms and applications, commonly referred to as DeFi 2.0, to the fore. . These platforms are built on the strengths of DeFi 1.0 and strive to address some of its challenges and limitations. In the ever-changing financial industry, the launch of new products and services is a constant phenomenon. From credit cards and online banking to contactless payment and more recently, peer-to-peer lending, every financial product or service goes through several iterations.

In the same vein, the DeFi space has also undergone a process of evolution and development, with the initial offerings limited to creating decentralized versions of traditional financial products such as loans and insurance. However, as DeFi protocols have undergone testing, strengthening and improvement, the user experience has been greatly improved, and a wider variety of use cases have been developed.

With this continued momentum in innovation, it is likely that DeFi apps will soon be even more user-friendly and advanced compared to traditional banking apps or earlier versions of DeFi apps.

What are some of the features and technologies that distinguish DeFi 2.0 from its predecessor? Emphasis on community governance and collaboration DeFi 2.0 is characterized by an emphasis on community governance, collaboration and the integration of new technologies such as decentralized autonomous organizations (DAOs), non-fungible tokens (NFTs) and advanced smart contract protocols, leading to a new generation of transparent, accessible and inclusive financial applications. The use of newer technologies such as DAOs allows for decentralized decision-making, allowing users to actively participate in the management of the organization by holding and voting with tokens that represent ownership.

This in turn creates a fairer ecosystem where users have a greater say in the direction and management of the project rather than being solely at the mercy of centralized actors. In addition, DeFi 2.0 projects also use new protocols that make cross-chain interoperability more seamless and efficient. This allows assets and services to move seamlessly across different blockchain networks, further promoting a truly open and decentralized financial system. It has the potential to create new possibilities for decentralized applications, allowing them to communicate with each other and create an ecosystem of interoperable services that can be used in a variety of different ways, it can bring interoperability between different chains like Ethereum and BSC, also bring interoperability to DeFi applications and other centralized applications.

Using NFTs as a Customer Retention Tool As the DeFi space continues to advance, it is becoming increasingly clear that the integration of NFTs will drive the next wave of innovation in the ecosystem. While DeFi 1.0 models, such as yield farming, have been successful in generating growth in the space, they have limitations in creating long-term revenue streams for users, leading to liquidity leakage as users are constantly looking for the next profitable opportunity.

NFTs, on the other hand, offer a potential solution to this problem by serving as rewards for loyal behavior and potentially increasing in value, as well as bringing returns through a royalty-like feature. NFTs can act as a strong tool for customer retention, breaking the negative patterns of liquidity leakage seen in DeFi 1.0.

This can be observed in the ongoing projects such as Aave NFT mining, where users earn returns, as well as NFTs (Aavegotchis), which increase in value based on their participation and loyalty in a game closely aligned with Aave loan market economy . NFTs have the potential to reshape the future of DeFi by creating more engaging, sustainable and profitable revenue models for users. Potential for DeFi to reach mass adoption and serve billions of users

Finally, the decentralized finance space has come a long way from the initial days of creating decentralized versions of traditional financial products. The current progress in DeFi 2.0 further strengthens the ecosystem and makes it more user-friendly. With community governance and collaboration at its core, integration of newer technologies and protocols for cross-chain interoperability, scalability and security is poised to take the movement to the next level and drive greater adoption of DeFi in the coming years. The DeFi is expected to serve billions of users in the coming years, building on its current user base of 300 million.

The trend of the last few years, and the trajectory of the industry, suggests that DeFi will play a major role in shaping the future of the financial services industry. Imagine, in 2021, with limited features and use cases, the global market cap for DeFi has expanded to more than $150 billion. With the increased scalability, security and liquidity that DeFi 2.0 promises, think of the kind of scale and opportunity it will bring. Let’s seize it and shape it for the betterment of all.

Gaurav Arora is SVP-DeFi Initiatives at CoinDCX