@Emilio - is it possible to implement a function on V2 that allows borrowers to swap held debt positions (or a percentage there of) between stable coins? Do you think maybe this will have the effect of creating more stable/consistent rates across all stable coins? If so, this could be more appealing for V1 borrowers to migrate sooner
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If you force me out of V1 by not letting me borrow stable $ i will simply leave AAVE .
Stable rate loans are currently lower on V1 because the V1 lending rate oracle isnāt as efficiently maintained as the one of V2. itās not a situation that is sustainable long term, and action need to be taken. Either disabling the V1 stable borrow rates, or migrating V1 to the V2 stable rate oracle, which will anyway increase the stable borrow rates. If you look at the percentages, right now too much of the outstanding debt is being borrowed at stable, which isnāt an ideal situation for liquidity providers.
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AAVE does not really benefit from asset segregation across two versions ā¦ strictly speaking pricing should be better if everyone was using V2.
I suppose some people are still using V1 because they have outstanding positions that they are not really touching due to gas costs. Probably when they eventually close their loans, then they might leave V1 and migrate to V2 because it has better features or more assets. To accelerate this migration, it might be interesting to incentivise this by refunding the gas spent whilst migrating from V1 ā V2 in the form of claimable AAVE worth the ETH spent, or by airdropping the ETH spent directly to them? (This could be done for a 1-month period to incentivise people to move ānowā as opposed to anytime).
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I think at this point some form of incentive is needed. The community is discussing around a liquidity mining initiative, that would accelerate the migration process while also boost growth. @Julien here is the thread for reference Proposal: Introduce Liquidity Incentives for Aave v2
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yes, it is possible. It can be built on top of v2 using flashloans
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Proposal has been submitted:
https://app.aave.com/governance/6-QmXwFPhN3ABDzBuEhPTzeXzuQdGkHfWtEZn348LQWxuFFZ
I also created an ARC to collect signals regarding a possible refunding strategy for V1 borrowers:
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Ugh, while this may be beneficial for Aave holders, this is not a user friendly experience. The issue of user tax consequences was brought up and recognized on this thread and nothing has been done to address this as far as I can tell.
Itās true that lenders still have the option of staying in V1 and current fixed rate loans will stay in force, but if stablecoin liquidity flees to V2, which it will with the created conditions, then an extreme high borrowing pressure on the stablecoin reserves will occur and rates will effectively be variable. So effectively the option isnāt there.
So now users are being forced to either liquidate positions theyāve created from borrowings since depositing (realizing short term gains taxable as income) to pay back their debt, migrate which is likely a taxable event for anyone that got involved in defi summer, or suffer a much higher Interest rate than expected until their holdings reach long term tax treatment.
The proposed solution did not properly address the tax treatment concerns raised earlier this year. I understand that everyone is excited to concentrate the liquidity into 1 version, but reducing reasonable optionality doesnāt help the protocolās users.
When this is implemented and costs me a ton of money in either interest or taxes I could have successfully deferred to long term gains, I am probably going to pass on using V2. V3 may be around the corner and forcing another migration under a year from implementing would wreck my tax situation again. I doubt Iām the only user thinking this way.
Edit:
I think the best way to move forward would be to not enforce the forced swap to variable rates in times of high demand. This is going to absolutely wreck some users that donāt pay close attention to what is happening on the protocol and leave a bad impression on those users. I would propose leaving the stable rates in place for a year from V2 launch which gives everyone that never had an option to use V2 the chance to reach long term tax status on their collateral making migration tolerable.
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Thanks for your feedback, thatās very much needed.
Regarding this:
I think the best way to move forward would be to not enforce the forced swap to variable rates in times of high demand. This is going to absolutely wreck some users that donāt pay close attention to what is happening on the protocol and leave a bad impression on those users. I would propose leaving the stable rates in place for a year from V2 launch which gives everyone that never had an option to use V2 the chance to reach long term tax status on their collateral making migration tolerable.
Please keep in mind that the rebalancing mechanism is already in place, with the difference that you get rebalanced to the highest possible stable rate (which currently would be 66%) and you can rebalance down as soon as the demand lowers. Although LPs havenāt been using this feature much yet, you can be pretty sure they will start to, and the net effect will be the same. Note that this mechanism was implemented from day one of the Aave protocol, and on purpose - to avoid having LPs being overexposed to long term, low income stable rate loans. So whether or not this proposal passes, if you have a long term, low stable rate position i recommend you keep an eye on it to avoid being rebalanced without knowing it. I know everyone enjoys low borrow rates but when market demand is high, you canāt expect those rates to last forever.
So now users are being forced to either liquidate positions theyāve created from borrowings since depositing (realizing short term gains taxable as income) to pay back their debt, migrate which is likely a taxable event for anyone that got involved in defi summer, or suffer a much higher Interest rate than expected until their holdings reach long term tax treatment.
The proposed solution did not properly address the tax treatment concerns raised earlier this year. I understand that everyone is excited to concentrate the liquidity into 1 version, but reducing reasonable optionality doesnāt help the protocolās users.
The tokenization and its potential consequences is of course an important topic and the community is very much putting effort on finding a proper solution, but itās not something that can be solved short term and unfortunately not for users that already deposited and obtained aTokens in exchange.
There are some ideas in place but my guess it will take some time to find a solution that works for everybody. In the meantime though, the experience needs to be great for both the sides of the userbase - lenders and borrowers.
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To add further details on stable rate borrowing and the rebalancing mechanism, please check our faqs:
https://docs.aave.com/faq/borrowing
And also take a look at the medium post i wrote some time ago
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Been using V2 for couple months now and love it, no problems. Agreed that the migration should be completed soonest so that efforts may be focused on looking forward.
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Thanks, Emilio. I understand that stable rates converting to variable was always a possibility, but it seems like the conditions from this AIP will make that a certainty. That is the concern, I guess we can hope that an automated yield aggregator will still keep enough funds in V1 to keep rates stable, but that doesnāt seem likely either.
The stable borrowing rate on V1 is now disabled
A few things to note on V1:
-
Variable borrowing rates & deposit rates have shot up
e.g. $TUSD - borrow = 4.59% to 96.15% | deposit = 3.29% to 88.61% -
Historical rate graph does not reflect this change - looks like itās been stuck on 4.59%, not recording any data since April 1st
Borrow rates are now comparatively lower on V2 (for variable only)
If you have a stable coin debt position on V1 (variable rate) , Iād recommend migrating right now while gas price is low
Why? The stable rates for stablecoins are still several times higher than the rates I have on v1.
Iām sorry, I know that v2 has great benefits, and features, it looks great! However, the incentives to move people away from their existing lower stable rate positions are not all that enticing. Even if you increase the likelihood of my stable rate changing to a variable rate temporarily on v1 through these latest/upcoming changes (yes, I know, using EXISTING mechanisms)ā¦the fact of the matter is: I still prefer having a stable rate vs having to migrate to a variable and then hope I can eventually transition to an acceptable stable rate. Thereās no way around it: thatās NOT good service and thatās not an unreasonable viewpoint. You want to compete against CeFi and TradFi? THAT certainly would never happen to a āstableā rate (I know it can organically change, but the terms of the loan itself changing due to a system upgrade ARE NOT THE SAME THING).
And guess what? Transitioning and having stable rates in the 20-30s% isnāt going to incentivize me to abandon my positions. If thereās a mechanism in place to not only refund, but do something regarding salvaging or doing SOMETHING about our current stable interest rates when we migrate over: THEN thatās enticing. THAT will encourage existing big money to migrate. You may not like that assessment, but Iām just being honest. Saying that āoh well, these rates could always temporarily go variableā and āthings happen in the marketā and āyou canāt enjoy low rates foreverā isnāt good enough. The market didnāt change. THE PROTOCOL DID.
So, if you want to get hundreds of millions to billions of dollars to have a quicker migration, much of which consists of larger positions: youāre going to have to address or compensate/offset the difference in stable rates. Youāre going to have to suggest something other than saying ājust migrate and good luck with/deal with the current higher rates on v2, sorryā. THATāS poor customer service. I apologize if I sound combatant, but I feel like a portion of the userbaseās concerns keep getting ignored because theyāre not as engaged here, and Iām just being honest to help out with this process. If āthe elephant in the roomā isnāt addressed: then donāt be surprised when there are longterm consequences to future liquidity. Namely, people remembering an awful customer experience, and simply going to another protocol.
Sorry for the rant, but I sincerely hope the insights help to understand whatās going on with some of the borrowers/existing positions in v1.
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True - not much incentive to migrate for stable coin debt positions on a stable rate that is lower on V1
I didnāt take this into account - that the stable rate stays in place for those already on it
my statement then only really applies to V1 stable coin debt positions on a variable rate - this was also what I was on, so I only noticed from that perspective - edited my original statement - cheers 
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No problem Shane, then that makes sense.
However, in my post: I also wanted to address some of the other posts that I was seeing in this thread, and also the viewpoints/postings that I was seeing from some Admin/Mods during my time in the community.
While I am fairly new here in governance, Iām certainly not new on the protocol, and just feel motivated at this point to give my perspectiveā¦ especially while weāre still a bit early in this migration process to hopefully improve the overall experience. I believe how this portion of the migration is handled will cascade into the remaining steps and impact the ease of getting larger money to flow into v2 in a manner that gives borrowers a good ācustomer experienceā.
After all, my comments are motivated by my desire to continue using Aave, and continue having a good opinion of the protocol. That being said, I still want the protocol to do right by users like myself on v1.
I usually take a passive approach on Aave and there are definitely others out there that do the same, with even larger positions. But, the longer we stay passive, then the worse-off it appears that we will be.
I look forward to seeing how this develops further and hope that I will still continue to use the protocol for years and years to come. After all, Iām certain there will be future migrations/protocol upgrades for Aave (focusing on Aave here, not the past with LENDā¦itās practically a different ābrandā in my eyes, so this is a fresher slate). So, it is crucial to get this done right the first time with Aave and get best practices for future migrations defined during this migration.
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I usually keep thoughts to myself but I must agree. This migration has been far less than ideal. From a professional customer service standpoint itās very poorly thought out.
I will continue to use the protocol but I do hope this discussion will help future migrations happen quicker and without penalty or loss of service for users.
Thanks for speaking up.
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Hey so I have 3 positions open on AAVE all with fixed rates and I didnāt intend to pay them back until the end of the year. Will I be able to keep the position open through this process? I donāt want to be forced out and liquidated and lose my deposited coins
It seems like everybody gives stable rates for granted forever. They are not. There is an explicit mechanism, documented in multiple places through the documentation, the app and the FAQ that explains how it works. Fixed rates without maturity date are economically impossible to sustain. The rebalance mechanism was introduced since day 1 of the aave protocol to ensure that depositors arent locked in APYs that are too low for the market conditions while borrowers benefit of way too competitive stable rates. Sorry to say this frankly but this is the exact situation in which most V1 stable rate borrowers are right now. If you didnāt plan for a potential rebalance over a long period of time (like one year) then thatās really not a fault of the migration tool or the protocol itself.
@Bbboris the protocol changed as accepted consensus of the Aave community. You are comparing a decentralized protocol with centralized services, where service agreements change way more disruptively (i have been there) and wayy less transparently.
Note also that the vote changed, as you correctly highlighted, only the behavior of a system (rebalance) that was already in place from day 1. The change didnāt make the rebalance more or less probable (that simply depends on how long the liquidity will stay in V1). It only changed the behavior, that in my opinion is also better for borrowers (the old mechanism would rebalance to the HIGHEST stable rate, and you would need to wait until the situation normalizes to rebalance down - while the variable rate adapts immediately).