Enhancers 4/8 17.11.2022 13:15 Beyond DeFi 2.0 What Is Driving DeFis Current Innovation? | Messari The first iteration of DeFi protocols created several 0 to 1 innovations that now serve as the bedrock of our programmable financial system. A few of the most prominent examples include Maker (collateralized debt positions or CDPs), Compound and AAVE (decentralized interest rate markets), Uniswap (automated market makers), and Yearn (yield aggregators). Unlike these first generation DeFi protocols, model enhancers do not actually introduce any new operating models for DeFi. Rather, they recycle the outputs from existing protocols to provide a more optimized model for the end user.

Source: Abracadabra.money One of the fastest growing projects of the last month, Abracadabra.money, serves as a great example of a project using the model enhancer strategy by creating CDPs from yield-bearing assets. The CDP model was originally introduced by MakerDAO as a way to create a permissionless credit system. Users mint the protocols native stablecoin Dai using a variety of overcollateralized vaults. The common knock on Maker is that its CDPs are capital inefficient since its assets remain locked in vaults and do not earn any interest. To improve the efficiency of

Not only does this put a users idle assets to work, it provides the borrower with a deeper liquidation backstop. Since collateral in Abracadabra is continually accruing interest and increasing in nominal value, the probability for liquidation decreases as a function of time, but never to zero. Although model enhancers like Abracadabra do not introduce any novel primitives to DeFi, this category of projects has found product-market fit through increased capital efficiency. Extenders Model extenders are protocols that introduce a similar 0 to 1 innovation that first order 5/8 17.11.2022 13:15 p

Beyond DeFi 2.0 What Is Driving DeFis Current Innovation? | Messari protocols created, creating new overall value for the system as a whole. Unlike their base layer counterparts, these primitives are only possible through the use of stacked DeFi protocols. Alchemix Finance is one example of a model extender. At first glance, Alchemixs use of CDPs built on top of yield-bearing assets looks very similar to Abracadabra. However, subtle differences allow Alchemix to create a capital efficient, overcollateralized borrowing model that is not subject to liquidations. Liquidations will always be possible in the Maker / Abracadabra model because the value of their collaterals are denominated in a different base asset than the issued stablecoins. Unlike Maker and Abracadabras multicollateral stablecoins, Alchemixs loans are synthetic versions of the underlying collateral making them denominated in the same base