The Road to Defi 2.0 | Hacker Noon

Metis
6 min readOct 28, 2020

As an advocate of open market and capitalism, in the book The Road to Serfdom, P. A. Hayek claimed that the competition in the free market would be much better than centralized and mandatory planning because he believed the open competition was the only way to coordinate social activities and stay away from the autocracy and manipulation.

I agree with Hayek in the aspects of open competition, especially when you observed and participated in the Defi movement in the market recently, you will understand what the free competition can bring to us. With the backbone of Ethereum and the whole Defi ecosystem, everyone can turn an idea into a product and quickly pool hundreds of thousands of funds to get started.

And almost simultaneously, innovations, scams, worship, curses, FOMO, FUD… all come out like a drama. Although everyone called it a social experiment, the fake experiments just won’t push society’s advancement, only leaving someone getting rekt.

It’s time to review what lead us here and what’s the way out.

Generation Zero and Defi 1.0

It was said that the phrase “Decentralized Finance” was first shown up at a meetup in San Francisco held by Dharma in May 2018. At that time, the Maker Foundation, Compound Labs, 0x, dYdX, Wyre, Bancor, Augur, Uniswap, and Dharma, which I defined as “Generation Zero”, have started their respective financial experiments for a while. They are all great projects, but just as other blockchain projects, they described a bright future, while their tokens’ liquidity still relied on CEX to provide. In December 2018, research data showed MakerDAO, Compound, and Uniswap as the top three applications, with almost 90% of all the collateral locked on MakerDAO. Combined, they held a mere$317 million.

Then in the early summer of 2020, ignited by the high APY of “Yield Farming” and the burst of DEX, Compound, Synthetix, YFI, Lend, Balancer, Curve, and a lot of Defi projects have evolved to Defi 1.0, which is featured by great liquidity, high APY incentives, and DAO governance structure. The total value locked(TVL) has passed $12 billion in October.

Problems

However, as Michael J. Casey suggested in his article Money Reimagined: DeFi-ing History

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