More than two years have passed since the launch of DeFi as a decentralized financial system. From that time until the publication of this article, we saw the launch and design of various successful projects such as the Uniswap decentralized exchange and some new methods to attract people’s attention to the digital currency market. But this project, like many emerging projects in the field of digital currencies, has various challenges. The DeFi 2 project was introduced in December 2021 to solve the problems and challenges of DeFi, and we are currently witnessing the entry of this project into the field of digital currencies. In the continuation of this article, we intend to give you the answer to the question of what is DeFi 2 completely and fluently, so don’t miss this research.

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What is DiFi 2?

As mentioned, DiFi 2 is a new and emerging version of DiFi, which was created with the aim of solving the problems and challenges of the DiFi project. In fact, the goal of this project is to provide financial resources for various projects. Among other problems that Defi 2 is supposed to solve, we can mention scalability, security, liquidity, centralization and access to information. As we mentioned in the article What is DeFi, in some emerging projects users are given the opportunity to participate and vote in the future decisions of the project. This issue also applies to DeFi projects, and as a result, many people expect the decentralization of this platform.

One of the most important changes to be implemented in DeFi 2 is to provide a method to comply with government laws such as KYC and AML. To better understand this, consider this example: You must know that LPs have been very successful so far. These pools allow liquidity providers to receive fees for staking currency pairs. It should be noted that if the price of tokens changes in this regard, liquidity providers are at risk of losing their capital.

The DiFi 2 project intends to provide insurance to solve this problem at a low cost. In addition to solving the mentioned problem, this solution makes investors find more motivation in liquidity pools and receive more profit. To learn more about staking, you can read the article on the difference between yield farming and staking.

DiFi problems

Now that you have a better understanding of the answer to the question of what is DeFi 2, it is better to first familiarize yourself with the problems and challenges of DeFi.

Scalability

In the article What is Cardano digital currency, we explained the scalability problem in full. This problem also applies to DeFi projects. DeFi projects in blockchains with high traffic and gas costs (familiar with Ethereum gas), sometimes provide slow and expensive services. The scalability problem in DiFi caused simple tasks to be done at a high cost and a long time.

Oracle information

Financial services require higher quality oracles (third-party data sources) based on their needs.

security

Usually, most users active in Defi do not have a proper understanding of the risks in this platform and cannot manage it. Currently, many users are opening million-dollar deals in DiFi; While they do not have a correct understanding of its security.

Focus

As mentioned in the What is DiFi 2 section, many users are looking forward to the unveiling of DiFi 2 due to the use of the decentralization method. Meanwhile, many DeFi projects do not even fully comply with the principles of DAO.

Liquidity

Providing liquidity causes capital to be locked; Typically, tokens in liquidity pools cannot be used elsewhere, making the asset inefficient.

What is the use of DiFi 2?

So far, many famous projects such as Ethereum, Binance Smart Chain, Solana, and other blockchains that support smart contracts provide new Defi services. Here are some of the best uses of this platform:

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Smart contract insurance

A complete and accurate review of smart contracts is very difficult unless you are an experienced developer. This issue has increased the risk of investing in DiFi projects. As mentioned at the end of what is DeFi 2 section, DeFi 2 projects have considered insurance for smart contracts. However, if you lose your capital during a smart contract, the insurance will return your capital again.

Permanent loss insurance

If you invest in a liquidity pool to mine liquidity, any change in the price of the two tokens you have locked may result in heavy financial losses. This problem has been completely resolved in DeFi 2. Over time, DeFi 2 uses the fees received to build an insurance fund, thus guaranteeing your deposit against loss. Now suppose that in this case there is not enough fee, thus the protocol creates new DFI 2 digital currencies to solve the lack of fee. It should be noted that if there are many DiFi 2 generated currencies, they can be stored for later use or burned to reduce supply.

Release the staked capital

Note that by staking a pair of tokens in a liquidity pool, you will be awarded LP tokens. With the help of DiFi, you can enter the obtained tokens into a yield farm and earn money in this way. It should be noted that in DiFi 2, these tokens are used as collateral.

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Improving the conditions of loans

Another top benefit of DeFi 2 is improving loan terms. As you know, the risk of liquidation and interest payment is one of the main disadvantages of borrowing, and this problem has been solved with the help of DiFi 2. To better understand this, consider this example: suppose you received a loan worth $100, the lender gives you $100 in digital currency but requires $50 as collateral. Now when you pay this amount to the lender, the lender uses this asset to get interest. Once the lender receives the $100 plus interest, your deposit will be returned to you. With the help of this other feature, the risk of liquidation is eliminated and even if the value of the token you paid as collateral decreases, the loan repayment period also increases.

last word

As promised, we tried to provide a better understanding of the answer to the question of what is DeFi 2. It is better to know that the DiFi 2 project has many potentials that have not yet been fully utilized. Considering the many advantages it has over its initial version, we can definitely expect a good future from it.