The Challenges of DeFi 1.0

Liquidity Dilemma:

DeFi 1.0 protocols heavily relied on high incentives to attract liquidity. When liquidity mining rewards decreased, funds rapidly flowed out, resulting in inefficient capital utilization.

Insufficient Risk Control:

DeFi 1.0 protocols were overly reliant on market sentiment. Whether it was the pegging mechanism of stablecoins or the liquidation mechanisms in lending protocols, these systems were prone to collapse due to sharp market fluctuations.

Low Capital Utilization:

High levels of idle capital were common, as users could only lock assets within a single protocol, preventing the efficient use of assets across multiple protocols.