What is DeFi 2.0, and How is DeHive a Part of It?

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DeHive

5 min readMar 9, 2022

The blockchain industry is transforming all the time, but now it’s going through the biggest changes. Many projects finally start to pay more attention to their security and think about how they can contribute to the future of DeFi. This is the dawn of DeFi 2.0, and we are extremely happy to be a part of it.

But let’s take a step back — what is this DeFi 2.0, and how is it better than what we have now? Let’s figure it out together!

What is DeFi 2.0?

DeFi 2.0 is a modern movement of progressive DeFi projects aimed at resolving the current issues of the industry.

Even though DeFi of the first wave was revolutionary for its time and pushed the overall crypto advancement, it is still far from perfect. DeFi 2.0 is focused on identifying such bottlenecks and addressing them to improve user experience and bring the whole industry to the next level.

Such things happened before. For instance, we all know how second-generation blockchains like Ethereum grew on the basis of Bitcoin, improving the technology and bringing new opportunities. So why not give DeFi 2.0 a chance?

What problems does it solve?

As we’ve mentioned before, the current DeFi industry faces several challenges that it struggles to overcome. Many of those are similar to the issues that blockchain technology and cryptocurrencies have encountered as well.

Here’s a brief list of the current issues faced by the DeFi industry.

1. Remaining centralization

The “DeFi” abbreviation stands for decentralized finance, which is the general goal of the whole industry. However, many projects still don’t have DAOs and stick to a centralized organizational structure since it’s easier to maintain and feels more “familiar”, which holds the whole market back.

2. Poor scalability, low speed, high fees

Every second project is currently boasting about high transaction speed and low fees, but in fact, only a few can actually prove that. Blockchains with high traffic and gas fees often provide slow and expensive services. Meanwhile, projects get stuck with one particular chain due to a lack of scalability and very few cross-chain opportunities.

3. Rigidity

Most older DeFi protocols lack flexibility. They are focused on one use case, one source of profit and cannot switch to other opportunities offered by the market.

4. Lack of user protection

Security is a constant pain in the neck of most DeFi protocols. Taking good care of project safety and user data security is a real challenge, considering all the risks and threats. Users can easily lose their funds and data due to hacker attacks, impermanent loss, absence of any insurance, and even simplest market fluctuations.

5. Locked liquidity

In the DeFi industry, liquidity is gold. At the moment, many platforms and liquidity pools are spread across different blockchains, splitting liquidity. Often, tokens staked in liquidity pools cannot be used elsewhere, and the liquidity gets locked in interconnected projects. This creates capital inefficiency and leads to a lack of liquidity.

Luckily, all these problems can be gradually solved if existing and new projects choose to adhere to the principles of the DeFi 2.0. Let’s see how it works.

How can DeFi 2.0 improve the industry?

DeFi 2.0 is a new generation of protocols that were created according to new principles and follow new paradigms. Here’s how they are better than the old solutions:

Being flexible and modular, DeFi 2.0 protocols usually support different interchangeable toolsets or consist of building blocks.
They have an off-chain part and off-chain-based automation that doesn’t decrease smart contract security.
New protocols are easily scalable, they can be enhanced by new instruments.
DeFi 2.0 enables multi-chain protocols that are not just a copy of the same protocol but can even interact within several networks.
New protocols allow for active management or work the liquidity in any other way.
They are user-centered, provide many useful tools, including insurance, compensation mechanisms, buffers and dampers, etc.

DeFi 2.0 use cases

DeFi 2.0 is already here — there are many projects in the market that already follow its rules and provide new DeFi services across multiple networks.

Here are just a few common DeFi 2.0 use cases that you can already spot:

active portfolio and investment management;
smart contract insurance that allows securing user’s investment on a particular protocol and receiving a payout if a smart contract is compromised;
impermanent loss insurance and volatility compensation;
product modularity and the possibility to compose new DeFi tools from different “blocks”;
better automation, for instance, self-repaying loans that allow users to avoid liquidation on lending protocols.

DeFi 2.0 can democratize finance without compromising on risk. It aims to solve the current problems of the industry and introduce multiple new possibilities, improving the user’s experience. Overall, DeFi 2.0 sounds like a win-win solution, so how can you switch to it?

To move to DeFi 2.0, the protocol can use already existing tools, such as secure oracle networks like Chainlink, off-chain workers, etc. Besides, the team should take into consideration the newest trends in smart contract development, boost protocol security, and enhance their products to a full-fledged platform instead of a single-case protocol.

The good news is that many projects have already moved to DeFi 2.0, so the industry is about to change for the better for all of us.

DeHive as a part of DeFi 2.0

DeHive is one of the projects that are already a part of the DeFi 2.0. We strive to adhere to all the key principles of the DeFi 2.0 by enabling high security, taking care of the scalability and user experience, and making liquidity work within different instruments.

At DeHive, we develop progressive financial instruments, such as crypto indexes and auto compounding tools. But we always put users first, prioritizing their security and the user experience of our platform. We don’t have any access to users’ funds since all the operations are done automatically by the underlying smart contract. This helps us ensure the high security of user data and funds.

Join DeHive and get stable profit from highly secure financial instruments!

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