A look at the new features of Aave V3, cross-chain asset flow has become a highlight

“On November 5th, Aave developer Emilio released an introduction to the V3 version in the Aave community. The update of the new version will include the introduction of a cross-chain function called [Portal], which allows assets to pass through different blockchain networks in Aave V3. Seamless flow between markets; launch of the [Efficient Mode], allowing borrowers to obtain the highest borrowing capacity from their collateral, etc.; V3 is designed to create the next generation of layer 0 DeFi protocol, which can significantly improve users Experience, while providing higher capital efficiency, a higher degree of decentralization and further enhanced security.”

Author: Aave developer Emilio

introduce

2019, the first edition Aave intelligent protocol agreement ( “Aave Agreement”) to deploy Ethernet Square, the main online. The V1 of the Aave protocol provides users with a way to independently provide and obtain liquidity, and earn income from any liquidity provided to the protocol.

In December 2020, the second version of the Aave protocol was officially deployed, bringing new functions to liquidity provision and liquidity access in the DeFi ecosystem. One of the features of Aave Protocol V2 is credit commission, where users can choose between the stability of any borrowing transaction and variable interest rates, and it also brings some gas optimizations and improvements.

At about the same time, Aave Governance obtained the authority to manage and maintain the Aave Protocol V1 and V2, and was responsible for the continuous development of the ecosystem surrounding the Aave Protocol (“Aave Ecosystem”).

The Aave ecosystem has grown organically in the past two years, supporting the successful, safe, and risk-conscious operation of the Aave protocol. The community also supports the expansion of the Aave protocol from the Ethereum mainnet to the Polygon and Avalanche networks.

After two years of substantial growth, today’s request for comment on Aave governance (ARC) seeks community approval for the latest iteration of the Aave protocol: the introduction of Aave V3.

This ARC provides an overview of the main features of Aave V3, and requests the community to vote on the implementation of deployment through Snapshot.

As we know today, the functions related to Aave V3 represent a major technological advancement in the DeFi liquidity protocol.

In the following discussion, we will introduce the following features (and other features) introduced by Aave V3:

  • **Portal: ** Allow assets to flow seamlessly between Aave V3 markets through different blockchain networks;
  • ** Efficient mode: ** Allow borrowers to obtain the highest borrowing capacity from their collateral;
  • ** Isolation mode: ** Limit the exposure and risk of newly listed assets to the agreement by only allowing borrowing to reach a specific debt ceiling;
  • **Risk management improvements: **Provide additional protection for the agreement through various risk caps and other tools;
  • **L2 specific functions: **Designed for Layer 2 networks to improve user experience and reliability;
  • **Community Contributions:** Promote and inspire community use through a modular and well-organized code base.

These features make V3 the most powerful and efficient DeFi liquidity protocol ever designed.

Based on technology community feedback technique progress

The Aave protocol has operated efficiently in the past two years and has achieved tremendous growth. The community analysis on the protocol’s functions provides key support for technological progress:

  • **Capital efficiency: **V2 does not allow users to optimize the assets provided to the Aave agreement in terms of revenue generation (within the agreement and/or deployment on various networks across the agreement) or borrowing power. V3 solves this problem.
  • **Risk mitigation adjustment: **Although the Aave protocol currently has risk mitigation functions that can be activated by the community through Aave governance, such as adjusting borrowing capacity and maintaining margin, additional functions can improve the well-known security inherent in the Aave protocol smart contract. V3 solves this problem.
  • **Decentralization:** Through community members submitting proposals and creating sub-DAOs (GrantsDAO and RiskDAO), Aave governance has achieved steady and prosperous development. But in order to maximize decentralization, certain technical features will allow Aave Governance to further decentralize its functions by delegating to teams or other individuals. V3 solves this problem.
  • **Cross-chain promotion: **Through the efforts of the community, the Aave protocol has been deployed on many networks, and each network has a good level of liquidity. But users cannot seamlessly transfer their own personal mobility from the deployment of the Aave protocol on one network to another. V3 solves this problem.

The design of V3 is ready to create the next-generation layer 0 DeFi protocol, which can significantly improve user experience while providing higher capital efficiency, a higher degree of decentralization, and further enhanced security.

Aave V3 overview

V3 retains the core concepts known to the Aave protocol (aTokens, instant liquidity, stable interest rate lending, credit delegation, etc.), while providing new features that allow users to create new use cases for the Aave protocol, and may trigger new community-based A wave of innovation.

This overview describes the new elements of V3 at a level intended for wider use by the community. In addition, the developer’s technical white paper will be released separately.

Portal

Portal allows users to seamlessly move their assets from V3 deployments through different blockchain networks.

A look at the new features of Aave V3, cross-chain asset flow has become a highlight

In essence, the function is very simple: user-provided liquidity can be transferred from one network to another by burning aToken on the original source network (such as Ethereum) and minting on the target network (such as Polygon) at the same time they. The network interconnection built around this function is called a port.

Portal will be able to bridge Connext, Hop Protocol, Anyswap, xPollinate and other solutions that utilize the Aave protocol liquidity to facilitate cross-chain interaction. Aave Governance will be able to grant any cross-chain protocol access to the port after receiving the proposal.

Efficient Mode (eMode)

The Efficient Mode (or “eMode”) allows borrowers to ensure that they can use their collateral to obtain the highest borrowing capacity.

This code allows Aave Governance to “categorize” assets based on the following parameters:

  • Lifetime value
  • Liquidation threshold
  • Liquidation bonus
  • Custom price oracle machine (optional)

These factors set each different asset in V3 to a specific category.

If the borrower restricts the borrowed assets by category, eMode provides the borrower with more ways to obtain funds. In other words, in eMode, borrowers can choose the asset class they want to borrow. “Class” usually refers to a group of assets linked to the same underlying asset-for example, stablecoins linked to the U.S. dollar, assets linked to ETH , etc.

If the user chooses to use the Aave protocol in eMode, when the user provides the same type of asset as the user’s collateral, the lending capacity (LTV) and maintenance margin (liquidation threshold) will be covered by the eMode category configuration to allow higher capital efficiency .

A look at the new features of Aave V3, cross-chain asset flow has become a highlight

one example:

The protocol defines eMode category 1 (stable currency) as follows:

97% lifetime value

98% liquidation threshold

2% liquidation bonus

No custom price oracle

Karen chooses eMode category 1 (stable currency)

Karen provides DAI (usually 75% LTV)

Karen can borrow other stablecoins in category 1 (including DAI), and its borrowing capacity is defined by the eMode category (97%). As a result, Karen’s capital efficiency has increased by 22%.

Note: In this example, Karen can provide other non-category 1 assets as collateral; however, only assets belonging to the same eMode category selected by the user will have enhanced category-specific risk parameters.

V3 eMode can support up to 255 categories.

New risk management parameters

  • Isolation mode

The “isolation mode” is designed to allow Aave Governance to develop risk mitigation functions when creating a new asset market on the agreement.

When community members submit a governance proposal to create a new asset market on V3, the proposal can seek to list assets as “isolated collateral” so that users who provide these “isolated” assets can only borrow the stability that Aave Governance has “permitted” Coin borrows in segregated mode, up to the specified debt ceiling.

When a user provides “isolated assets” as collateral, the user can only use the asset as collateral; even if the user provides other assets to the agreement, the user can only earn income through these assets, and cannot use these assets as collateral.

A look at the new features of Aave V3, cross-chain asset flow has become a highlight

In the above example, Chad provides $TOKEN2 as collateral. $TOKEN2 is a segregated asset with a maximum debt limit of 10 million U.S. dollars. USDT, DAI, and USDC are regarded as ” borrowable ” assets. After providing $TOKEN2 as collateral, Chad will be able to borrow up to 10 million USD in USDT, DAI and USDC. Even if Chad provides another asset-let’s say ETH-the V3 smart contract will not allow Chad to borrow these assets as collateral, but Chad will still earn income from the ETH provided. If Chad wants to use all assets as collateral and exit the isolation mode, Chad only needs to trade to disable $TOKEN2 as collateral (subject to all the usual restrictions on collateral ratios, liquidation, etc. in smart contracts).

When Aave Governance votes on the proposal to cancel the debt ceiling related to the asset, $TOKEN2 can also exit the isolation mode.

  • Risk management function

V3 technology provides Aave Governance with a further enhanced risk management mechanism to prevent agreement bankruptcy:

  • Supply and borrowing caps: Aave Governance will be able to configure borrowing and supply caps. The borrowing cap will allow governance to set limits on the amount of each asset that can be borrowed, while the supply cap will allow governance to vote to limit how many specific assets can be provided to the Aave protocol. The upper limit of borrowing can minimize the bankruptcy of the liquidity pool, and the upper limit of supply can reduce the risk of the agreement to specific assets and help prevent attacks such as unlimited coinage or manipulation of price oracles.
  • Granular borrowing power control: Aave Governance will be able to change the collateral factors of future borrowing transactions without affecting existing borrowing positions or triggering liquidation. If Aave Governance believes that the collateral factor should be reduced (ie, borrowing transactions require more collateral), Aave Governance can vote on the proposal to improve the overall health of the agreement without affecting existing borrowers.
  • Risk Manager: V3 introduces the ability of Aave Governance to register entities on the “permitted list”, which will enable these entities to change certain risk parameters without the need for governance voting. These entities can be DAOs (for example, RiskDAO, Gauntlet) or automatic agents, and they can be built on top of this function to automatically react when an invariant is destroyed. Any entity added to the “permission list” must be added through the typical governance proposal process.
  • Price oracle Sentinel: The Sentinel feature is designed for the Layer 2 (L2) protocol to handle the final downtime of the sequencer (but can be extended to handle other situations, even in the future L1). It introduces a grace period for liquidation and prohibits borrowing under certain circumstances, which is determined by Aave Governance in response to community proposals.

Decentralized addition of new assets

V3 introduces a new concept of “asset list administrator”. With this feature, Aave Governance can create and grant rights to any entity (even smart contracts) to implement new strategies to add assets to the Aave protocol instead of voting on the chain. This will allow builders to create custom asset list strategies that can be designed to implement true unlicensed asset lists.

Other functions

  • Functions related to token transfer (for example, supply, repayment) support EIP-2612 license (important for L2 deployment);
  • Credit entrustment will support EIP-712 signature;
  • Users can use aTokens to replace the original borrowed underlying assets to repay the borrowed position;
  • Aave Governance can “allow” entities to obtain instant liquidity;
  • Aave Governance can reconfigure any fees for clearing or instant liquidity transactions provided to the Aave DAO Ministry of Finance;
  • The new flashloanSimple() reduces gas consumption by up to 20% (standard, full-featured functions are still available);
  • The price oracle logic can provide generalized calculations of basic assets (that is, it is no longer just ETH);
  • The new interest rate strategy optimizes stable interest rate calculations (and eliminates the need for loan interest rate predictors);
  • The code is reorganized to be more modular; compared with the V2 single repository, the V3 code will be divided into three different repositories-V3 core, V3 periphery, and V3 deployment. This promotes the contribution and deployment of the community on different networks;
  • Smart contract refactoring to reduce code size (leave more room for other changes in the future) → Run up to 100K optimizer!

With all these new features, the gas cost of all features is still reduced by about 10-15% across the board!

V2/V3 code compatibility

The Aave V3 code base is a set of independent smart contracts and is not compatible with V2 smart contracts. However, once all reviews are completed, the V3 code will be open source, and a specific repository containing the retro-compatible version V3 will also be released. This compatibility will allow the community to update the V2 contract if they choose to do so.

Once the V3 code undergoes more practical testing, the V3 code will be open sourced with the main V3 repository for deployment on Ethereum, Avalanche and Polygon networks.

Community snapshot voting

This ARC aims to gather feedback from the community on whether the community wants to advance Aave V3.

The snapshot voting page has been created here: Snapshot‌

https://snapshot.org/#/aave.eth/proposal/0x5580f69336265539402ccce5a05a29910a66c69c3b084267957d484a8e3a4681 

If the community votes in favor, the audit of the Aave Protocol V3 codebase conducted by OpenZeppelin, Trail Of Bits, Peckshield, and ABDK will be completed at or around the end of November. In addition, some reviewers may apply to the DAO for additional review of the code before release.

If the community votes for the deployment of Aave Protocol V3, the community will perform an additional set of Snapshot votes to determine the following:

  • Network deployment: Given the proliferation of efficient networks including L2, the community can vote on which networks to release V3 in the initial stage. After V3 is released, it can be deployed on up to three networks, so this deployment snapshot will be a “ranking” vote.
  • V3 code licensing: Given that the Aave ecosystem is highly decentralized and decentralized, Aave Governance will determine which type of license (if any) is applicable to the Aave protocol V3 code. As far as we know, this is the first time in the DeFi field!
  • V3 Vulnerability Bounty Program: The community will determine the size, duration, and scope of the vulnerability bounty program, and who (for example, RiskDAO-see the proposal here) will manage the program.
  • Retroactive funding: The community can also decide whether to provide retroactive funding to those who contributed to the creation of V3, and how much funding to provide.

If the community votes to deploy V3, another ARC will provide additional details related to each additional vote mentioned above.

Once these votes have determined the community’s decision and completed the current audit, the deployment of the community’s vote can begin.

The function of V3 makes it possible to perform a fully protected release for the first time, which means that a supply cap will be imposed on each asset at the time of release to ensure the safe and healthy release of the V3 market.

in conclusion

The ARC focuses on the new iteration of the Aave protocol and its main functions. As mentioned above, the community will determine all aspects of the release plan, including the V3 release network, Aave V3 license, and bug bounty program.

We can’t wait to see what the community discusses and decide on this exciting new technological development!

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/a-look-at-the-new-features-of-aave-v3-cross-chain-asset-flow-has-become-a-highlight/
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