What is DeFi 2.0? How Olympus and TIME actually work?

In this article we are going to explain what defi 2.0 is? Why it’s even a thing and how you could utilize the beginning of it to earn some very delicious rates.

I would have made a lot of money if I had been learning about crypto during DeFi summer which is what we call the summer of 2020 where a lot of new projects launched and gas fees weren’t as bad. Instead I was off learning about SEO designing the interior of a house and taking motorcycle trips nevertheless we all may get a second chance oh, by the way, stick around to the end of this article.

What is DeFi 2.0?

Let’s dig in so first off we as humans love to categorize things we love making things black and white or putting everything into a neat category so that we can actually wrap our minds around it and that’s exactly what was happening with web 1.0 ,web 2.0 and web 3.0 and even d5 2.0. We are basically just bundling up ideas and collectively calling them something so it’s easier to refer to them.

With that in mind let’s move on considering that defi 2.0 isn’t some magical term that’s just gonna make you a bunch of money but instead simply a name to categorize a new idea currently happening in the world of decentralized finance. Liquidity is the amount of money available for trading let’s use the example of a pawn shop you’re going to a pawn shop to buy a TV and you look around and you see there’s only five different TV’s this means that the pawn shop has five TV’s liquid or that their liquidity is five TV’s they can only sell you a maximum of five TV’s now you might be wondering why it matters how many tvs he has if you only want to buy one?

Imagine if he had 5000 TV’s he simply has a lot more supply with the same amount of demand however if he had only one TV he could charge a lot more for it because the demand would be the same but the supply would be a lot lower, when it comes to cryptocurrencies this liquidity number is really important because of where we actually go to buy crypto and i’m not talking about coinbase or binance or the big companies that sell you crypto although their liquidity definitely matters too but for defi 2.0 I’m specifically referring to the liquidity that decentralized exchanges or dexes like uni swap or pancake swap have.

These applications use a specific algorithm called a constant product automated market maker. These dexes only to have liquidity if people give it to them so basically you can only go to pancake swap and actually buy safe moon if someone else has come along and actually given pancake swap their safe moon for you to trade with. Now a little technicality here the people who actually give pancake swap their tokens technically give two tokens in a pair, like a safe moon and then USDC and they do this because they can earn a small fee that traders pay to actually make trades between these two tokens..

So all day long traders come to pancake swap and trade safe moon for USDC and then other traders trade USDC for safe moon but they’re using the liquidity that someone else provided. Now here’s why it’s important if there isn’t much liquidity the price is very volatile I’m talking like if there’s only ten thousand dollars worth of liquidity or ten thousand dollars worth of the tokens provided to the exchange, a whale could easily come along and 10x the price with not much money however if there are millions of dollars in liquidity a whale can’t really affect the price much and it takes large moves to start affecting the price simply because there’s more liquidity in the pool.

What is liquidity mining?

So a big part of DeFi 1.0 or the old system was that to incentivize people to actually provide their tokens to a place like a pancake swap or uni swap someone would give them extra money so that this way they could earn a small percentage on the trades automatically but then they would earn even more due to these incentives. Now these incentives are currently referred to as farming rewards or even liquidity mining the purpose of this was to increase the liquidity so that there would be more money for the traders to trade with, affecting the priceless and making the price not as volatile.

But there’s a problem where’d the extra money comes from?

Well the incentive is usually paid out in the token that you’re actually supplying to meaningthat you would provide the token and then earn it well technically this meansit is very inflationary since they’re giving out a bunch of tokens to a bunchof other people and usually what would happen is that other people would earn it and then sell it causing thatspecific tokens price to drop, it also meant that when the extra rewards ranout nobody would stick around because well they came for the money.

So What is the Solution

Now the solution is simple it’s for a protocol to own its own liquidity instead of trying to incentivize other people to provide liquidity and that’s exactly what Olympus Dao is attempting to achieve, so as a recap DeFi 1.0 is characterized by a bunch of cryptoprotocols that rely on other crypto users providing their tokens as liquidity for other people to trade with . Now this is okay for a while but it does have some down falls for example if someone sells their share of a large majority of the liquidity pool effectively reducing that token’s overall liquidity the token suddenly becomes much more volatile and can be affected by whales as another down side users who provide their tokens can experience something called impermanent loss which is basically a complicated way of saying that they have a risk of losing money without an even amount of upside.

The solution is that instead of having users provide their liquidity and taking on these risks that the protocol itself actually provides liquidity or atleast it buys the liquidity back from the users to put it simply a protocol can own its own liquidity this way a whale sell out their portion of a liquidity pool and cause the price to become volatile and in the case of Olympus Dao a new version of a stablecoin that’s actually backed by a protocol’s own funds is created changes long term to the protocol can be decided upon by members of a Dao.

Olympus DAO

What is DAO?

Now a Dao is a crypto term for an organization where members who hold the token get to propose and eventually vote on the changes that happen, the more tokens you hold the more votes you get. Anyways this idea of a protocol owning its own liquidity is the main idea of DeFi 2.0 and has actually caused many new projects similar to Olympus Dao to be formed and with that popularity these projects are able to offer crazy interest rates of which they’ve actually been able to hold for a decent amount of time.

Let’s get into how much money you can actually make from using it now I’m going to be explaining my experiments with some DeFi 2.0 projects including Olympus Dao and time wonderland. So obviously these improvements are supposed to allow protocols like Olympus Dao to function more efficiently in theory, but how doesit actually works in reality ? Well with something like Olympus Dao which has only been around since april of this year in just 7 short months .They’ve been able to accumulate over 670 million dollars in treasury assets. That’s not the market cap that’s not how much money has been invested in olympus that’s how much cold hard cash they have sitting in excess just ready to be spent and the way that something like olympus works is that this excess cash gets paid out to stakers like you and me which is how they have such a high apy.

But how much money can you actually make staking on a project like this. I’ve actually done experiments on two different DeFi 2.0 platforms the first one is Olympus Dao the second one is a fork of Olympus Dao called time wonderland. On olympus I started with an initial investment of $5000 and after just nine days I was able to bring in $1900 after that I decided to add in money and I increased my total stake to $17132 and over the next one week and three days ,I was able to make $3362 just from staking on olympus and today it’s been one month and ten days since my initial investment .

In my $17,132 initial stake today is worth $27,274 that’s a pretty awesome result from just one month of staking. On time wonderland i staked a little bit less, I staked $2000 and over the first five days, I was able to make $440 which might kind of seem like a smaller number compared to the numbers I was just throwing out but, at that rate, if it continues for the entire month I’ll more than double my initial stake.

Now obviously me getting good results doesn’t mean that these protocols are without risks they definitely have plenty of different risks it does seem that they figured out a very efficient process for generating income and rewarding that income to stakers but I guess we’ll continue to see how the space evolves from here.


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