Detailed Instructions

The foundational step was the creation of the Automated Market Maker (AMM) model, most famously the Constant Product Formula (x * y = k) pioneered by Uniswap. This replaced traditional order books with liquidity pools, allowing anyone to become a liquidity provider (LP).

• Sub-step 1: Deploy the core smart contract using the official Uniswap V1 or V2 factory. The factory address for Uniswap V2 on Ethereum mainnet is 0x5C69bEe701ef814a2B6a3EDD4B1652CB9cc5aA6f.
• Sub-step 2: Create a new liquidity pool for a token pair (e.g., ETH/DAI) by calling the createPair function on the factory contract.
• Sub-step 3: Understand the impermanent loss risk inherent to providing liquidity, where price divergence between the pooled assets can lead to a loss versus simply holding.

Tip: Early LPs had to manually calculate their share of trading fees, which were automatically added to the pool, increasing the value of their LP tokens.

Detailed Instructions

When a user deposits assets into a pool, they receive a Liquidity Provider (LP) token (e.g., Uniswap V2 LP tokens are ERC-20). This token is a fungible representation of their stake and accrues value from the pool's trading fees.

• Sub-step 1: Approve the router contract to spend your tokens. For example, to add liquidity to Uniswap, you first call approve on the DAI contract for the router address 0x7a250d5630B4cF539739dF2C5dAcb4c659F2488D.
• Sub-step 2: Add liquidity by calling addLiquidity on the router, which mints LP tokens to your address. The amount minted is proportional to your contribution relative to the pool's total liquidity.
• Sub-step 3: Store or stake the LP token. Its value can be queried using the pool contract's getReserves function and the totalSupply of LP tokens.

Tip: LP tokens themselves became a new primitive, used as collateral in other DeFi protocols like Compound or Aave, creating "yield stacking."

Detailed Instructions

The pivotal innovation was liquidity mining, where protocols issued native governance tokens (like UNI or SUSHI) as rewards to users who deposited their LP tokens into a designated staking contract. This created a powerful flywheel for attracting TVL (Total Value Locked).

• Sub-step 1: Identify a live liquidity mining program. For example, the original SushiSwap migration targeted Uniswap LP tokens for the SUSHI/ETH pool.
• Sub-step 2: Stake your LP tokens in the farm's smart contract. A typical transaction involves calling deposit on a master chef contract, such as SushiSwap's 0xc2EdaD668740f1aA35E4D8f227fB8E17dcA888Cd.
• Sub-step 3: Harvest rewards regularly by calling the harvest or withdraw function to claim the accrued governance tokens. Rewards were often calculated per block (e.g., 100 SUSHI per block distributed across all stakers).

Tip: Early miners had to actively manage reward claims and compounding due to high Ethereum gas fees, often requiring scripts for efficiency.

Detailed Instructions

Yield farming evolved into a competitive meta-game where farmers used aggregators and "money legos" to maximize APY. This involved complex strategies like providing liquidity, staking LP tokens, borrowing against them, and reinvesting rewards.

• Sub-step 1: Use a yield aggregator like Yearn.finance. A user would deposit a stablecoin (e.g., DAI) into a Yearn Vault, which automatically seeks the best strategy.
• Sub-step 2: Analyze strategy contracts. A simple vault strategy might involve depositing DAI into Curve's 3pool, staking the LP token (3Crv) on Curve's gauge for CRV rewards, and then selling half the CRV for more DAI to compound. The core logic is often in a harvest() function.
• Sub-step 3: Monitor impermanent loss and APY shifts across different pools, as yields could change dramatically within days. Tools like Zapper.fi and DeBank became essential for portfolio tracking.

Tip: This phase highlighted the composability of DeFi but also exposed users to smart contract risk across multiple interconnected protocols.

Detailed Instructions

Protocol-Owned Liquidity (POL) is a core DeFi 2.0 innovation where the protocol itself, rather than mercenary liquidity providers, owns the majority of its liquidity pool assets. This is achieved primarily through bonding mechanisms, where users sell assets like DAI or LP tokens to the protocol in exchange for discounted protocol tokens (e.g., OHM) over a vesting period. The acquired assets are then deposited into liquidity pools, making the protocol its own market maker.

• Sub-step 1: Analyze a bonding contract. Examine the OlympusDAO bond depository contract (e.g., 0x9025046c6fb25Fb39e720d97a8FD881ED69a1Ef6 on Ethereum) to understand the bonding terms.
• Sub-step 2: Calculate the bond discount. For a bond offering 1 OHM for 90 DAI with a 5-day vesting period, the discount is calculated against the current market price. If OHM trades at 100 DAI, the discount is (100 - 90) / 100 = 10%.
• Sub-step 3: Track POL growth. Use a subgraph or the protocol's dashboard to monitor the treasury's LP holdings, such as the OHM-DAI SLP balance in the Olympus treasury.

Tip: POL reduces reliance on inflationary yield farming rewards for liquidity, aiming for long-term sustainability. However, it introduces risks like treasury management and token dilution.

Detailed Instructions

The vote-escrowed (ve) model locks a protocol's governance token (e.g., CRV) to receive veTokens (e.g., veCRV), which confer boosted rewards and voting power. The core mechanism is a time-weighted lock, where longer lock durations grant greater power. This model, central to Curve's gauge system, directs liquidity provider (LP) rewards to specific pools based on veToken holder votes, creating a flywheel for deep, sticky liquidity.

• Sub-step 1: Lock tokens using the contract. To lock 1000 CRV for 4 years (maximum), call the create_lock function on the VotingEscrow contract (0x5f3b5DfEb7B28CDbD7FAba78963EE202a494e2A2).

solidityCopy
// Example interaction
votingEscrow.create_lock(1000 * 1e18, block.timestamp + 4 * 365 days);

• Sub-step 2: Vote on liquidity gauges. Use your veCRV balance to vote on Curve pool gauges (e.g., the 3pool gauge) via the GaugeController to direct CRV emissions.
• Sub-step 3: Claim boosted rewards. As an LP in a voted-for pool, claim your proportionally higher CRV rewards due to the boost multiplier, which can be up to 2.5x.

Tip: The veModel strongly incentivizes long-term alignment but can lead to governance centralization among large, long-term lockers.

Detailed Instructions

DeFi 2.0 introduces tokens with dynamic supplies (rebasing) and reward-bearing tokens that automatically compound yields. OlympusDAO's OHM uses rebasing to distribute treasury profits, increasing token balances for stakers. Meanwhile, protocols like Convex Finance issue cvxTokens (e.g., cvxCRV) that represent a claim on staked CRV and its accrued rewards, abstracting away manual claiming and compounding.

• Sub-step 1: Stake to receive rebase rewards. Stake OHM in the Olympus staking contract (0xFd31c7d00Ca47653c6Ce64Af53c1571f9C36566a). Your sOHM balance increases with each rebase epoch (every 8 hours) based on the protocol's RFV (Risk-Free Value) backing per OHM.
• Sub-step 2: Deposit into auto-compounding vaults. Deposit CRV into Convex's cvxCRV staking contract (0x3Fe65692bfCD0e6CF84cB1E7d24108E434A7587e). The vault automatically stakes your CRV, claims rewards, sells them for more CRV, and re-stakes, all represented by your cvxCRV balance.
• Sub-step 3: Calculate effective APY. For a vault with a base CRV APY of 10% and a 10% Convex boost, the compounded effective APY is calculated as (1 + 0.10/365)^365 * 1.10 - 1 ≈ 21.0%.

Tip: These mechanisms improve user experience and capital efficiency but can obscure underlying risks and create complex tokenomics dependencies.

Detailed Instructions

Composability reaches new heights in DeFi 2.0, allowing protocols to be used as lego blocks for sophisticated yield strategies. A common pattern involves using Convex Finance to boost Curve yields, then depositing the yield-bearing token (cvxCRV) into a lending protocol like Abracadabra.money to mint the stablecoin MIM, creating a leveraged yield farming position.

• Sub-step 1: Deposit LP tokens into Convex. Provide Curve LP tokens (e.g., stETH-ETH) to Convex to receive cvxLP tokens and boosted CRV/CVX rewards.
• Sub-step 2: Use yield-bearing assets as collateral. Deposit your cvxCRV tokens into Abracadabra's cauldron (e.g., Vault 0x5ec47EE69BEde0b6C2A2fC0D9d094dF16C192498) as collateral.
• Sub-step 3: Mint and deploy stablecoin debt. Borrow MIM up to a safe collateralization ratio (e.g., 75% LTV). Use the borrowed MIM to provide more liquidity on Curve, repeating the cycle to recursively leverage the position.

bashCopy
# Example command to check collateral value on Abracadabra
cast call $CAULDRON "userCollateralShare(address)(uint256)" $YOUR_ADDRESS

• Sub-step 4: Manage risk with monitoring. Continuously monitor your health factor (collateral value / debt value) using DeFi dashboards to avoid liquidation if the collateral value drops.

Tip: While highly lucrative, cross-protocol strategies significantly amplify risks from smart contract failures, oracle manipulation, and market volatility.