In recent months, the crypto community has seen an increase in the number of initiatives attempting to address the existing issues associated with the increasingly popular Decentralized Finance model. 

DeFi 2.0 has been offered to all of these new platforms as a common denominator. 

It should be clear from the name that all of these platforms are an improvement on the existing DeFi 1.0 sector.

Cryptocurrency financing has been accessible to the general public since 2020 when DeFi 1.0 was launched. 

As a result of its multiple platforms, crypto users might begin trading, staking, borrowing, and lending crypto assets. 

Scalability, security, centralization, and liquidity are all challenges that have yet to be resolved.

Because of these unresolved difficulties, several new initiatives were born that are attempting to improve the user experience in the crypto realm. 

Decentralization in the global economy will be bolstered if this succeeds.

Also, See: Most Rewarding LP Program: hi’s 200 Million HI Liquidity Program

What are the benefits of moving on from DeFi 1.0?

The scalability of particular platforms has been a problem for DeFi protocols. 

Increased gas prices are a consequence of increased traffic on blockchains. 

Individual investors are no longer interested in these services since they are becoming slower and more costly. 

The employment of poor-quality oracles degrades the user experience.

Decentralization of the field as a whole is also a problem. 

In reality, these Decentralized Financial services aren't as decentralized as they claim to be. 

Engineers who designed the platform's mechanics are still in charge of each. 

They would need to go towards the DAO model to attain genuine decentralization.

Also, See: hi: Revolutionary Crypto Mobile Banking at your Fingertips

The Security of DeFi 1.0 is a big concern

Inexperienced crypto users may find themselves in the circumstances such as incorrect liquidity pool estimations, compromised private keys and front-running assaults, rug pulls and Ponzi schemes, inadequate access control, or 51 percent attacks. 

Security audits are critical to DeFi security, but they may become out-of-date when new features are added to the platform.

Liquidity is the last of our DeFi 1.0 roadblocks. Fund lock-up may lead to capital inefficiencies in liquidity pools. 

Smart contract hazards include unscrupulous behavior on the developers and, the most infamous of all — temporary loss.

Is DeFi 2.0 going to transform the landscape?

The DeFi 2.0 initiative aims to improve decentralized financial services' user experience and security. 

Some of the above-stated dangers have already been addressed by many approaches.

Liquidity

Initially, DeFi 1.0 attracted its users to participate in creating liquidity for a token pair in return for monetary rewards. 

As a result, long-term yield farming ventures had certain limits since investors were in danger of short-term loss. 

It is the goal of DeFi 2.0 to move away from the use of subsidized liquidity and toward one managed by the protocol. 

Protocol-controlled liquidity (PCV) platforms don't rely on third parties for liquidity, which reduces the danger of a platform's assets being lost in a protocol failure.

A Smart Contract Insurance

A lack of expertise in smart contracts poses a significant danger to new investors, making it difficult to do due diligence on protocols. 

Protect your assets if a particular smart contract or a liquidity pool contract is compromised with DeFi 2.0's insurance on individual smart contracts.

Repayment-as-you-go credit

Interest payments and liquidation risk are characteristic of loans. 

However, DeFi 2.0 services eliminate this danger. 

The depreciating value of the collateral token might result in a delay in the loan being paid off. 

You get $100 worth of crypto, but the lender needs $50 as security for a loan of $100. 

To pay off your loan, the lender utilizes your deposit as collateral. 

Your deposit is refunded after the lender has made $100 in profit using your cryptocurrency plus an additional amount as a premium. 

The premise is that the borrower never pays back the loan, but the lender gets paid back in the form of interest.

DAOs are a kind of decentralized organization

The eventual aim of the crypto community is total decentralization; hence shifting to DAOs will be one of the crucial stages toward the crypto end game vision. 

A lack of transparency and security will persist as long as Developers control Defi standards. 

All stakeholders will be able to co-govern every component of the protocol as DeFi 2.0 focuses on making its protocols become 

Decentralized Autonomous Organizations (DAOs). Individual communities will benefit from more openness, security, and general strength as a result of this.

Maximizing the return on invested capital

While still collecting APY, DeFi 2.0 investors may utilize their LP tokens for new options, such as a crypto loan from a lending network or mint tokens.

These LP tokens, which have been locked in different protocols until now, have a wide range of uses.

Consider the dangers

As with every update, DeFi 2.0 has its share of hazards. 

Even if the crypto industry is growing and protocols benefit immensely from security audits, there are still many threats to be found there.

Although smart contract insurance is available, users should avoid "aping" into a single protocol.

The DeFi 2.0 regulatory framework should also be considered.

I doubt that governments would sit back and watch as traders and decentralized exchanges move billions of dollars without getting a cut.

In order to prevent financial difficulties in the future, each member of DeFi should be aware of any changes in their country's rules and taxes policies.

DeFi 2.0 projects that are now hot off the press

There are already various intriguing DeFi 2.0 protocols running on Ethereum, Binance Smart Chain, Solana, and other smart contract-capable blockchains. 

Among the new DeFi 2.0 initiatives, these are some of the more notable ones:

• DAO ($OHM) – A decentralized reserve currency concept that incorporates bond issues as well as limited partnerships and other forms of equity stakeholder participation (LP). More information may be found in the OlympusDAO Investor's Guide.

• The Abracadabra ($MIM) protocol generates the Magic Internet Money (MIM) stable coin as a dividend for different lending practices.

• DAO governance, self-repaying loans, and a low-maintenance protocol are some of the features of Alchemix ($ALCX).

• Layer-1 and layer-2 smart contract technologies for scaling and interoperability centered on the Algorand ($ALGO) blockchain.

• Fast, low-cost, programmable smart contract platform (layer 1) that may be used to build DeFi 2.0 decentralized applications (dApps).

• Two of the top three (at the time of writing) TVLs for DeFi protocols are Curve Finance (CRV) and Convex (CVX).

• Created by MakerDAO, MakerDAI is a stablecoin linked 1:1 to the US dollar. $MKR token holders rule over the DAO that governs $DAI.

• Layer-1 smart contract platform Solana ($SOL).

• Cryptocurrency Synapse (SYN) is a cross-chain bridge and automated market-maker (AMM).

• Based on the selling of NFTs, Rarible ($RARI) provides DAO governance and dividend creation.

• Avalanche-based reserve currency system with responsive annual percentage yield (APY): Wonderland ($TIME).

• Yearn Finance (YFI) — An Ethereum-based platform for aggregating and lending and an insurance provider.

Who knows what will happen?

In the banking sector, DeFi services have had a considerable impact.

Think about the possibilities that a significant makeover will open up is thrilling.

There is still a long way to go before we can fully realize the promise of the DeFi 2.0 movement. 

Processes will have to be simplified to attract more users who lack an in-depth understanding of decentralized money. 

This might have a significant influence on the growth of the cryptocurrency sector.

The only thing we can do now is to wait and see whether DeFi 2.0 lives up to its promises.