April 9th News DeFi lending platform Aave has now grown into a decentralized financial giant (formerly known as the peer-to-peer lending platform ETHLend), and its total lock-up (TVL) in the DeFi field has now exceeded 22 billion Dollar. In March this year, the Aave protocol officially launched the upgraded V3 version, which introduced a series of new features, hoping to lower the entry barrier, improve the user experience, and push DeFi to the mainstream market.
The Aave protocol is a decentralized, non-custodial liquidity protocol where users can participate as lenders, borrowers, or liquidity providers. Among them, lenders provide liquidity to the market and can earn interest on the assets they provide. At the same time, borrowers can borrow by over-collateralization, or they can perform flash loans without over-collateralization. In the V3 version, users can improve their income level and borrowing ability by providing their assets to Aave.
Although Aave operates in a multi-chain environment like Avalanche, Polygon, etc., the main activity is still on Ethereum. But for a long time, Ethereum has been crowded and gas costs have been increasing, which has caused a lot of trouble to Aave. The purpose of launching Aave V3 this time is to solve these problems. The team will improve the following key areas through this upgrade: optimize Layer-2, improve capital efficiency, improve protocol security, become more decentralized, and improve the overall user experience.
In fact, protocols like Aave built on Layer-2 are very popular and promising. However, a core problem is that the main transaction fees generated on Layer-2 come from calldata. Calldata is an independent data location that contains function parameters. It can also be regarded as an unmodifiable and non-persistent area where function parameters are stored. It functions like memory. To minimize costs, Aave V3 uses different Layer-2 contracts on Arbitrum and Optimism for compressing the information passed to the “pool”.
Capital efficiency generally refers to maximizing returns with the least amount of invested capital. I believe this is every investor’s dream. In fact, Aave has been working hard in this regard. The main goal of Aave V3 launched this time is to create more benefits for liquidity providers.
As mentioned at the beginning of the article, Aave’s total lock-up volume has now reached nearly $22 billion, most of which are idle, generating income for liquidity providers only through lending activities. Although this method of income is safe and stable, Aave is not content with the status quo, but continues to make improvements, allowing users to reuse idle funds without increasing repayment issues and redistributing assets to other DeFi dapps , reducing the reliance on asset bridging, thereby reducing overall smart contract risk.
Aave introduces an isolation mode inspired by MakerDAO’s Exposure Management. In this model, Aave governance members vote on which assets should be listed as segregated assets. Those borrowers who offer segregated assets as collateral will no longer be able to add other assets to their collateral, and will only be able to borrow those stablecoins that have a debt ceiling.
Multi-chain portal function
With the portal function, assets within Aave V3 can easily flow between different chains. In addition, the upgraded Aave V3 can mint “aTokens” on the target chain, destroy them on the source chain, maintain the consistency of accounting between different chains, and then provide the underlying assets to the target in a rollover manner Aave on the chain finally flows into the pool after passing through the chain bridge.
Chain bridges are a necessary function in cross-chain protocols, but they also come with certain risks. This year, hundreds of millions of dollars have been stolen from the entire chain. Two of the most high-profile cases in 2022 are the large token thefts of crypto platform Wormhole and blockchain startup Ronin. As a weak link in the transaction process, the emergence of chain bridges did once expose cryptocurrencies to greater risks.
After Aave introduced the governance chain bridge this time, all decisions will be made around users. In addition, the portal function enables instant minting on the target chain while destroying “aTokens” on the source chain.
High Efficiency Mode (eMode)
Efficient Mode (eMode) unlocks the borrower’s higher borrowing power, extracting the highest borrowing power from its collateral when offered in relation to the price of the asset being borrowed, especially when both belong to the same class of underlying assets. Such as dollar-backed stablecoins pegged to the dollar.
The most exciting feature of Aave V3 is the upcoming Efficiency Mode, which unlocks higher borrowing power. This feature will allow users to take out loans with extremely high loan-to-value ratios, as long as they put similar assets (such as stablecoins) as collateral.
Compared with the previous version, the parameters and functions of Aave V3 are more refined. What’s more, governance voters on Aave can now set borrowing and supply caps for assets, thus controlling how much each asset is borrowed and supplied. Additionally, Aave governance can reduce the borrowing power of any asset to 0% without affecting existing borrowers.
Not only that, but with the introduction of Aave governance, Aave V3 allows “entities” to directly update the risk parameters of the protocol without having to vote on governance for each change. These “entities” can be DAOs or automated agencies (like Gauntlet) that automatically respond when unexpected events occur.
The advantages of Layer-2 network high throughput, scalability and low cost have attracted many assets, and today most of Aave’s assets on Ethereum have been transferred to Layer-2. And in order to solve some problems in the Layer-2 network, V3 also introduced the advanced Price Oracle Sentinel function to handle the final downtime of the orderer, and also introduced the liquidation grace period, in certain cases Lending is prohibited.
Finally, in order to better complete a series of innovative risk management upgrades, the liquidation mechanism in Aave V3 has also been improved, allowing full liquidation of positions close to bankruptcy, whereas previously only half of the positions could be available at any time. be liquidated.
Multiple Rewards and Claims
In Aave V2, Aave governance activates liquidity mining rewards through community proposals, and rewards are ultimately settled in stkAave tokens despite the different rates for each asset. Aave V3 now offers users multiple reward options to leverage their protocol tokens to provide additional incentive rewards. Additionally, V3 allows users to claim rewards to another account and claim multiple types of asset rewards in one transaction, saving Aave users time and money.
For those who are new to decentralized finance, after reading this article, they may not understand what Aave V3 is. But don’t worry, you just need to know one thing: the upgraded Aave V3 improves overall efficiency, security, and ease of use, and in most cases, ordinary Aave users will get better service without worrying about V3’s details. In short, in the new version, users will be able to get higher revenue, higher security, and a better user experience.
And for those who are more detail-oriented, Aave V3 won’t let them down either, as some of the new features in this version are really good, especially when it comes to Aave’s use of its own aToken to handle cross-chain bridging assets.
Since 2022, the entire crypto market has shown a downward trend, and the DeFi track has not improved. But this does not mean that the DeFi field has lost its enthusiasm for innovation. On the contrary, the DeFi field has been undergoing continuous technological innovation, especially various old-fashioned projects have been innovatively upgraded, and Aave is no exception. It can be said that Aave’s strong attack this time has allowed us to see the bright future of DeFi again.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/popular-science-post-how-is-aave-v3-better-than-v2/
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