Introducing Aave V3

Governance
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@Emilio wow! This is truly exciting news.

A bunch of new developments, but most of all - a continuation to build and better Aave.

I was particularly intrigued by the Portal to:

This feature reminds me alot of this ask https://governance.aave.com/t/proposal-implement-cross-chain-bridging-function/5727. And is a testimony that Aave is listening to its users.

Aggregating a bridging function is a great way to guide new users to the Aave protocol and retain existing one’s with product stickiness.

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This image is a great representation of the scope of this project. It allows for movement in-between popular Layer 1s, exploding Layer 2’s, and even Zk rollups - hats off, Aave.

Second - eMode. This is a great development for a range of users, different sizes and expertises.

For larger users - it is an opportunity to become more capital efficient and employ flash loans. For smaller ones, it encourages more borrowing and use of stable assets.

I enjoyed seeing developments for Governance as well. This is something we as a company,
Flipside are invested and interested in.

Giving Aave Governance more power creates greater participation and shows your commitment to the values and decisions of a DAO. With these new features, I hope to see more participation and proposals.

In terms of your auditors - how do you chose this list? It seems as previous auditors such as CertiK, SigmaPrime, and Consensys Diligence have been omitted from this list. Was the team unhappy with their performance or reputation - or is this decision cost based?

We are excited for the next stage of Aave - and support this wholeheartedly. We remain committed to improving protocols such as Aave one proposal at a time.

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If Portal will “allow users to move their own assets seamlessly from deployments of V3 over different networks” why not build that capability into the protocol and merge the liquidity across all Aave instances into one liquidity pool? That seems like the biggest scope possible for this tool, and something all protocols should aspire to eventually do. It need not bridge every single deposit, but rather only move coins in batches to equalize ultilisation rates between networks. Since utilisation rates are well below 100%, there should be enough slack in the system to make these transfers infrequent. This should equalise lending and borrow rates across all networks, which would be a massive win for DeFi.

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this can be built on top. The feature has been implemented in the most minimalistic way possible for this reason - it opens up to many possibilities for builders to create, rather than locking in a specific implementation.

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Super excited for the release of the technical white paper! I would be very interested to see our Portal works on a technical level. The risk mitigation features are also incredibly interesting. For example for a token like stETH, it may make sense to wait and list directly onto V3 and limit its use as a collateral asset to ETH on top of this once one-to-one redemption is enabled for stETH you can have a very high collateral factor because prices should track together. Regardless excited to see this come together!

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Regarding the efficiency mode, would it allow borrowing 95% ETH against stETH collateral or only stETH against ETH collateral? It‘s not clear to me from the chart alone.

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Nice to have you here @Hasu

As long as both stETH and ETH have been granted borrowing power in normal mode (ie their LTV is not 0) they automatically gain the eMode boost when added to the category. Therefore if both have borrowing power, you will be able to use them both as collateral with 95% ltv

Of course this is just an example - the actual eMode parameters are configurable by the Aave governance, and depending on the underlying network and oracle speed, the ltv in eMode might be higher or lower

For example i feel like 95% ltv would be a bit risky for the protocol on ethereum L1, but likely fine on Arbitrum or zkSync with faster oracles and cheaper transaction costs

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So will governance be able to change the fees such that they can accrue to users/token holders? Where/who do the fees go to now?

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This is generally very exciting. I love Aave and will love even more being able to flow assets between markets on different networks, and curious to see more details about decentralizing the addition of new assets.

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fees collected go in the Aave collector contracts, under control of the Aave governance (therefore Aave holders).
Currently holding 31M+ in various tokens (mostly stablecoins)

Here are the addresses
Avalanche

V2 ethereum

V1 ethereum

Polygon

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19

@Emilio This sounds amazing! A few questions:

  1. Isolation mode - multiple assets: it seems like the user will need to choose for this whole account what mode he’s using. What happens in the case of multiple isolated assets?
  • a. Will the user be able to borrow only against one of these?
  • b. If it is possible to borrow against multiple, and each asset’s borrow is isolated, wouldn’t it be possible to group the usual (less-risky) assets into their own isolation category and allow borrowing against them as well?

  1. Isolation mode - sub-accounts : if the user has to choose only one isolation asset (or no isolation) for this whole account, would a feature like sub-accounts (XORing last bits of address with sub-account ID, and only changing msg.sender validation) be possible to implement to prevent the overhead of manually managing multiple accounts for different “isolated” borrows?

  2. Portal - moving borrows as well: it seems that only the supplied assets can be bridged, are there thoughts about making it possible to move the borrowed assets along with the supplied ones? Perhaps creating an NFT with the whole position to be moved, and bridging that (so that lends and borrows can be minted and burned atomically on each side)?

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what is the process for making it on the permitlist?

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Fantastic, great work and congrats to @Emilio and the whole Aave DAO and team!

In idle.finance, this cross-chain feature will definitely improve our yield optimization across Ethereum & Polygon within the same integration – this would replace stand-alone strategies and provide a better UX for our end users.

As we did for the migration from v1 to v2, Aave v3 can be smoothly integrated into our protocol, removing any effort for our integrators.

We are thrilled to see it live and start the implementation throughout our DAO governance process, making v3 a solid downstream lender for our Best-Yield product :fire:

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Amazing work from the Aave team, a lot of great developments and the Portal is a game changer.
Similar to @artdgn’s point No 3, I would be curious to understand how it works on the borrowing side. Is it possible to move both collateral and debt positions at the same time across chains?
Would it be possible to have a loan living on one chain and move the collateral to another chain without triggering liquidation (i.e. all your assets and debts are aggregated across chains and you can have cross chain liquidation)?

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Wonderful write-up and summation of the new iteration, great work @Emilio.

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Well done @Emilio - I’m excited to see V3 happen :)

Some things that come to mind I’d love to see devs build on top of V3

The ability to:

  • swap borrowed asset positions = e.g. borrow USDT - USDT borrow interest rate spikes - swap a percentage of borrowed USDT position for USDC

  • combine multiple wallet address borrowing/lending power = e.g. combine & manage multiple wallets from the one Aave dashboard

  • reallocate collateral + borrow/lend position to another wallet = e.g. you start your first Aave experience using Metamask - your assets & portfolio grow with the bull market - it would now be a great time to migrate to a hardware wallet - imagine you could do that without having to first pay off/withdraw all your assets - you just move it all to the hardware wallet in one go

  • allocate collateral borrow power, covering all blockchains = e.g. deposit WETH to Aave Protocol (market non-specified) - you can now borrow from any market

  • automate reward deposits = e.g. the ability to chose if your WAVAX rewards accumulate and you claim, or they automatically swap to AVAX & deposit as collateral, or they pay off your debt position (Alchemix style)

  • retain governance voting power with AAVE deposited as collateral

  • redirect a portion of rewards to a pool for funding Aave devs

  • redirect a portion of rewards to a pool for charities

  • tokenise debt positions = debt position as NFT

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Isn’t this the same thing that Instadapp does where you can migrate your positions from mainnet to Polygon? Since it is just transferring the aTokens, Aave will have complete control over those contract addresses on both sides. If governance is the one who has to approve the new bridges for use, then they’ll get access to use the bridge contracts to mint those aTokens. At least this is how I can envision it.

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@Emilio Wow, I’m impressed with all these features!

No idea if you know the network Nahmii (https://www.nahmii.io) - after being for 4 years on the mainnet, they just launched their second version which is pretty impressive. The new version focusses an instant finality, predictable fees and scalability, a combination that others networks are missing (imho).

Any idea if you would be able to include this as a bridging network as well?

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Oh shit this all sounds amazing!

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Gauntlet is highly supportive of AAVE V3 and commends the AAVE core team for their continued innovation and leadership in the DeFi liquidity protocol space. We would like to highlight our thoughts below:

  • Portal / L2 features
    • Lending protocols provide value by facilitating connecting borrowers and lenders. As DeFi on Layer 2 continues to grow, ensuring that these different chains are able to work well together will allow AAVE to maximize usage across emerging chains. This will reduce liquidity fragmentation and in turn strengthen network effects for AAVE.
  • High Efficiency Mode (eMode)
    • Much of the risk posed to the AAVE protocol is determined by how quickly the value of a borrow position can change against the value of the collateral backing it. Right now, the amount of an asset a user can borrow per dollar of collateral is determined solely by the collateral type, without regard to the type of asset being borrowed. This means that a user’s maximum LTV is determined by the lowest common denominator asset on the protocol. Allowing certain pairs of assets whose prices are less likely to diverge is a great way to improve capital efficiency in the protocol with minimal added risk.
    • At the same time, we would need to watch out that this doesn’t just lead to an outsized increase in recursive farming if stable pools continue to be incentivized as they currently are.
  • Isolation Mode / New Risk Parameters
    • AAVE has always been at the forefront of listing new assets (for example, being one of the first protocols to list YFI). Isolation mode provides a way for AAVE to continue safely expanding to new assets while their volatility and liquidity are still improving.
    • The new risk parameters will also allow the protocol to grow more quickly and improve capital efficiency by allowing more levers for protocol contributors to manage risk and stakeholder incentives.
  • Risk Admins
    • AAVE V2’s current governance framework makes it such that recommendation implementations are delayed for roughly a week after the initial ARC is posted. On V3, permitted entities would be able to alter certain risk parameters without requiring a governance vote. This change is much needed, as a faster path for identifying and implementing parameter updates would allow AAVE to be more reactive to market conditions.
  • As with any change to the protocol, the implementation details will be important. For instance, building liquid and secure cross-chain bridges can be very difficult, so we’re looking forward to learning more about how the AAVE core team plans to address these challenges.

In short, we believe V3 will drive growth and strengthen risk management. We look forward to engaging in next steps.

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looking forward to the new features