Opinion: Solana has the potential to serve as the breeding ground for defi 2.0 with the appropriate tools.
Disclaimer: The opinions expressed in this article are solely those of the author and do not reflect the views and opinions of the editorial team at crypto.news.
The trial of Sam Bankman-Fried, the founder of FTX and a former prominent figure in the crypto world, has attracted global attention. However, the media coverage surrounding the trial feels more like a true-crime series than a legitimate analysis of decentralized finance.
It is undeniable that the world of decentralized finance (defi) has gone through significant ups and downs in recent years. In 2021, defi gained immense popularity as innovative tools allowed people to earn yield and put their money to work in ways never seen before through platforms like MakerDAO and Aave.
Despite its sudden rise, the breakthrough of defi was a long time coming. Traditional financial markets and instruments have always excluded large portions of the global population, especially those outside of wealthy countries. Additionally, these markets have been slow to embrace technological advancements in the digital age.
Defi brought about innovations that opened the doors to new financial products previously unimaginable. However, this also led to a proliferation of defi projects, not all of which fulfilled their promises. Some projects turned out to be outright fraudulent, as evidenced by the FTX-Alameda saga.
The surge in defi activity put a strain on Ethereum, the blockchain that facilitated many of these early innovations. Combined with the macroeconomic downturn in 2022, defi experienced a setback. However, I believe we are on the verge of a new era of growth and possibility.
The key difference this time is that much of the growth will happen on Solana, provided we build the necessary infrastructure to support defi projects. I am confident that Solana can nurture the next iteration of decentralized finance, which I call defi 2.0. As an early participant in the ecosystem, I have witnessed the strengths that make Solana an ideal choice for the future of defi.
Solana is one of the fastest and most environmentally friendly blockchains in the industry. It can process up to 5,000 transactions per second, reaching speeds of up to 65,000 in testing, far surpassing Ethereum’s current speed of 15-25 TPS. Additionally, Solana has low transaction costs, making it attractive to innovative developers.
Throughout 2023, positive sentiments about Solana have grown, with strong performance reports and votes of confidence from various sources. In September alone, MakerDAO announced its plan to use Solana’s codebase as the foundation for its new chain, Visa revealed its intention to use USDC and Solana for settling in crypto, and former Goldman Sachs executive Raoul Paul praised Solana as the best major story in the defi space outside of Ethereum.
While these endorsements highlight Solana’s strengths, it still needs a critical mass of high-quality tokens to drive the emergence of defi 2.0. Token flow is crucial for defi, as it attracts investors and creates liquidity. With greater liquidity, Solana’s decentralized marketplaces become more efficient and less volatile, attracting even more investors. This positive cycle of increasing activity and value locked will lead to a thriving defi ecosystem on Solana.
To attract top-tier assets, we need tools and infrastructure that simplify tokenization for project teams from start to liquidity incentivization. Liquidity provision is essential, and providers now seek returns similar to those offered by exchanges like Uniswap v3. Automation and liquidity pools that offer concentrated liquidity are also in demand.
Additionally, introducing staking mechanisms that offer both returns and voting power without forcing users to choose between the two can further stimulate engagement within the ecosystem.
By introducing these tools and infrastructure and attracting a diverse user base, Solana can become the fertile ground for the flourishing of defi 2.0.
Tommy Johnson is the co-founder of PsyFi, a Solana-based options protocol that provides accessible financial tools and products. He has also worked on launching Armada, a suite of token launch and management tools for the Solana ecosystem in partnership with the Hxro Network. Follow Us on Google News.
