Top DeFi protocol Aave is currently passing a governance vote for the implementation of V3. According to a recent article, updating the V3 protocol is necessary to keep up with the continued growth of the DeFi ecosystem.
“After these two years of substantial growth, this Aave Request for Comments (ARC) to Aave governance seeks community approval for a new iteration of the Aave protocol: Introducing Aave V3.
The vote is still live on Snapshot, with the current result showing almost 100% of the votes in favor of supporting the V3 proposal.
As a certain implementation shoo-in, what should the community expect in terms of improvements?
What does V3 involve?
Aave V3’s proposal highlights the growing importance of cross-chain compatibility and the orientation to Ethereum 2 layers as well. The developers also mention increasing capital efficiency and improving user experience through better security.
“The design of V3 is poised to create the next-generation DeFi Layer 0 protocol that can dramatically improve the user experience while delivering increased capital efficiency, greater decentralization, and further enhanced security. “
Perhaps the most important update is ‘Portal’, which allows users to move their provided liquidity across different blockchains. This feature uses interest bearing tokens Aave or aTokens for short.
The liquidity provided by the user can be transferred across different networks by burning tokens on the source network while hitting them on the destination network. The portal is the network interconnect that supports this functionality.
“Portal will be able to link solutions such as Connext, Hop Protocol, Anyswap, xPollinate and others that tap into the liquidity of Aave Protocol to facilitate interactions between chains. “
Aave Governance can grant any cross-chain protocol access to ports after receiving a proposal to do so.
The expected result is greater capital efficiency, as users will be able to move assets based on where demand, and hence returns, are greatest.
Aave strives to be the best DeFi lending platform
With $ 14 billion stranded in Aave, it follows Maker, who has $ 18 billion stranded in terms of a senior lending protocol.
In an effort to beat Maker, Aave is also looking to address risk management in the new V3 protocol. That implies:
– Supply and borrowing caps to minimize endless strike or manipulation of price oracles and liquidity pool insolvency.
– Granular borrowing power control to alter collateral factors for future borrowers without affecting existing borrowers’ positions or triggering liquidations.
– Risk administrators with the addition of an authorization list that only allows approved entities to modify risk settings without governance votes.
– Price oracle sentinel to incorporate a grace period for liquidations, which also disables borrowing under certain circumstances.
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