Welcome to Cryptique. A channel that gives critical evaluation or analysis, especially in dealing with Crypto. Everything regarding Money, Finance, Investing, Cryptocurrency and Blockchain related topics including ICO’s, NFT’s and Yield Farming.
First and foremost, crypto news is usually about ethereum, btc or bitcoin, we humans enjoy categorizing the things we enjoy, making things black and white or neatly categorizing everything so that we can comprehend it. That’s precisely what happened with web 1.0, web 2.0, web 3.0, and ultimately DeFi 2.0. We’re basically just grouping concepts together and giving them a name, so we can refer to them more easily. Bearing this in mind, let’s continue forward. DeFi 2.0 is simply a label to classify a new notion now occurring in the realm of decentralized finance. I’m going to explain this as simple for you. The amount of money accessible for trade is known as liquidity. Let’s look at a pawn store as an example. You’re planning to buy a television from a pawn shop.
When you glance around, you notice that there are just five different televisions. This indicates that the pawn shop has five televisions in its inventory, or that its liquidity is five televisions. They are only allowed to sell you a maximum of five televisions. If you only want to buy one television, you might be thinking why is it important how many he has. Consider how much more supply he would have with 5,000 televisions, with the same identical quantity demanded. If he only had one television, he could sell it for a much higher value. Since demand would have the same number, but supply would be significantly less.
When it comes to cryptocurrencies, the liquidity number is critical since it determines where we may acquire them. I’m not referring to Coinbase or Binance, or any of the other large crypto exchanges, but their liquidity is important. However, for DeFi 2.0, I’m referring to the liquidity provided by decentralized exchanges or dexes, such as UniSwap or Pancake Swap. These systems utilize a Constant Product Automated Market Maker algorithm. Liquidity is only available to these dexes, if individuals provide it to them. So, in essence, you can only visit Pancake Swap and buy Safe Moon if someone else has came along and offered Pancake Swap their Safe Moon to exchange with.
For more technical explanations: the people that provide Pancake Swap their tokens actually contribute two tokens in a pair, such as Safe Moon and then USDC. They do this so that they can profit on the modest cost that traders spend to actually trade these two tokens. Traders go to Pancake Swap all day to exchange Safe Moon for USDC. Other dealers then exchange USDC for Safe Moon. However, they are utilizing liquidity provided by someone else.