[TEMP CHECK] Aave V3 Deployment on Aptos Mainnet

[TEMP CHECK] Aave V3 Deployment on Aptos Mainnet

Author: @AptosFoundation

Date: 2024-07-01


Summary:

This Temperature Check seeks community input on deploying Aave V3 on Aptos to expand Aave’s presence and tap into Aptos’ growing DeFi ecosystem and user base.

Background:

The Aave Protocol has been EVM-native for over 6 years, ensuring widespread cross compatibility, a robust developer ecosystem, and significant network effects over the years both in terms of user base and liquidity. However, it also brings limitations, especially considering the existence of many non-EVM blockchains that offer different advantages such as lower transaction fees, higher throughput, and more advanced consensus mechanisms. In addition to purely technical advantages, many non-EVM blockchains can allow the Aave community to expand to an entirely new ecosystem, previously inaccessible user groups, and introduce new product possibilities.

Aptos is a blockchain designed for building scalable and secure dApps. Developed by former leaders of Meta’s Diem blockchain project, it aims to address some of the limitations in existing blockchain systems such as throughput, scalability, and security. With a TVL of approximately $350m and growing rapidly, Aptos is the 17th largest chain by TVL (source: DeFiLlama). Its robust infrastructure offers high transaction throughput, low, predictable fees, and advanced security through the Move programming language, that make Aptos an ideal platform for DeFi applications. The chain has a diverse array of DeFi offerings, including prominent projects like Thala, Aries Markets, Amnis Finance, Econia, alongside primarily EVM-native projects such as Sushiswap and Pancake Swap. Aptos Labs Founders Mo Shaikh and Avery Ching have leveraged their extensive experience at Meta to propel Aptos towards becoming a leader in scalable and secure blockchain solutions. Moreover, Aptos has established high-profile partnerships with industry giants like Google Cloud, Microsoft, SK Telecom and many more others, further enhancing its technological capabilities and broadening its influence.

Advantages of Aptos

Aptos offers several significant advantages that make it an ideal platform for high-demand applications. With its ability to handle over 30,000 transactions per second (TPS), it excels in supporting DeFi, real-time financial services, gaming, AI and other use cases. The platform’s agile governance allows for rapid upgrades and swift implementation of new features. Additionally, Aptos ensures low and predictable fees through a stable fee model, and its use of the Move programming language enhances security with formal verification and resource-oriented programming. Built-in security features and automated auditing tools streamline the security process, while advanced state management techniques optimize data storage and access. Furthermore, Aptos simplifies integration with other blockchains through built-in interoperability, creating a cohesive and efficient ecosystem for developers and users alike.

Motivation:

Deploying Aave V3 on Aptos represents a groundbreaking expansion as it marks Aave’s first deployment on a non-EVM blockchain. This strategic move is significant as it opens up new technological frontiers, diversifies Aave’s ecosystem, and underscores its commitment to innovation.

By leveraging Aptos’ innovative technology and developer community, Aave can address diverse financial needs, attract new users, and drive greater innovation in the DeFi sector. This deployment aligns with the Aave community’s strategic goal to explore new technological possibilities and tap into a wider pool of talent and resources.

Key benefits of deploying Aave V3 on Aptos include:

  1. First Non-EVM Deployment:
  • This deployment is a significant milestone as Aave’s first move beyond EVM-compatible blockchains. It positions Aave to explore and integrate with new blockchain ecosystems, enhancing its resilience and broadening its reach.
  1. Early Mover Advantage and Strong Brand:
  • Aave is a leading brand in the DeFi space, with a strong reputation and market share. By deploying on Aptos, Aave captures early mover advantages on a high-performance blockchain, similar to its strategic expansions to Polygon and other L2s. This can attract both seasoned DeFi users and new participants exploring Aptos.
  1. Aptos’ Strategic Position:
  • The Aptos team, with their background from Meta’s Diem project, has strong connections and expertise in finance, social and gaming sectors. Integrating Aave into Aptos complements these areas by adding a mature financial layer, essential for a complete blockchain ecosystem.
  1. High Transaction Throughput:
  • Aptos supports up to 30,000 transactions per second (TPS), crucial for DeFi protocols like Aave that handle a high volume of transactions, including loans, repayments, and interest accruals. This high throughput can significantly enhance user experience and enable new use cases that require high-frequency transactions.
  1. Enhanced Security with Move Language:
  • Aave v3 introduces sophisticated risk management tools and improved security protocols. The Move programming language used by Aptos has inherent security advantages, such as preventing reentrancy attacks. This alignment can lead to a more secure DeFi lending environment, leveraging Move’s safety features and formal verification.
  1. Transaction Cost Efficiency:
  • Aave v3 focuses on gas efficiency, critical for reducing transaction costs. Aptos’ efficient processing capabilities further complement this by potentially lowering transaction fees even more. This makes Aave more accessible and attractive to a broader range of users, from retail participants to institutional players.
  1. Modular and Flexible Architecture:
  • Aave v3’s modular and flexible architecture facilitates easier upgrades and expansions. Aptos supports upgradable smart contracts and a flexible account model, enhancing this aspect. This allows for seamless implementation of updates and improvements without significant disruptions or migrations.
  1. Economic Benefits for the Aave DAO:
  • Market Share Growth: Access to new markets and user bases, specifically in APAC and Korea where Aptos has a strong presence.
  • Revenue Growth: New markets and user bases can significantly increase transaction volumes and generate additional revenue streams.
  • Incentives: Aptos Foundation has committed to provide up to 2M APT in liquidity mining incentives and rewards depending on performance in order to attract users and liquidity providers, increase adoption and boost the ecosystem’s growth. Aptos Foundation will work closely with Chaos Labs on determining the appropriate level of incentives relative to caps set.

The Move implementation on-going development code of Aave Protocol V3 can be found here.

The Aptos team is currently working with Aave Labs, Zellic, SpearBit and later in time with Certora and OtterSec on security reviews and improvements to the codebase to achieve high security standards. Aptos is sponsoring the audits.

ChainLink Integration:

We plan to integrate with ChainLink’s Price Feeds as the oracle provider for the market (currently in development), and with the recently announced Cross-Chain Interoperability Protocol (CCIP) to enhance the functionality and security of Aave on Aptos.

Asset and parameter settings would be discussed during ARFC.

Disclaimer:

This proposal published by the Aptos Foundation is intended for community feedback and does not represent a final decision. The deployment of Aave V3 on Aptos is subject to successful completion of all technical reviews, audits, and governance approvals. Aave Labs has built substantial expertise in the Move programming language and is prepared to proceed with the deployment pending community approval and further development steps. Aave Labs has been engaged as a technical contributor to implement the code version of the Aave Protocol into the Move programming language. Any actions taken based on this proposal should consider the inherent risks associated with blockchain deployments, including but not limited to technical, operational, and market risks. The information provided in this proposal is for informational purposes only and should not be construed as financial, legal, or technical advice.

Next Steps:

  1. If consensus is reached on this [TEMP CHECK], escalate this proposal to the Snapshot stage.
  2. If the Snapshot outcome is YAE, this proposal will be escalated to ARFC stage
  3. Publication of a standard ARFC, collect community & service providers feedback before escalating proposal to ARFC snapshot stage
  4. If the ARFC snapshot outcome is YAE, publish an AIP vote for final confirmation and enforcement of the proposal
17 Likes

We would like to thank Aptos for coming forth with this proposal.

Over the past 12 months, Aave Labs has conducted extensive research into the Aptos ecosystem, the technical infrastructure, and the Move programming language. Aptos and Move offer new and exciting use cases that were not previously possible with the EVM. By capitalizing on Aptos’s advanced infrastructure and growing ecosystem, Aave on Aptos is an opportunity to pioneer this first-ever non-EVM deployment of Aave V3.

We are in full support of this proposal and excited about the potential it holds for both Aave and Aptos communities.

13 Likes

Excited to see Aave to expand to non-EVM networks and continue to push into new frontiers.

The Aptos team is stellar and it’s great to see they have collaborated closely with key service providers to bring this forward.

Supportive of this proposal and hope to see Aave expand to other non-EVMs in the not so distant future

5 Likes

This is a new era opening doors to non-evm liquidity and deployments. Very excited for Aptos x Aave. Supporting this proposal.

4 Likes

Quite a big step for Aave towards the non-EVM sphere. But this step is needed in order to be and stay the no. 1 protocol in the future.
Happy to see Aptos supporting this deployment with 2m APT and that @ChaosLabs is onboarded.

Is there any rough timeline that you can share with us regarding the deployment?

Edit: How are all governance related contracts involved in this? Specifically talking about a.DI, governance v3, and everything else that is connected to that.
Will we still only have to vote once and it will be transported to Aptos chain, same like it is now?

3 Likes

We’re thrilled about this proposal to deploy Aave V3 on Aptos. This marks Aave and Chainlink’s first venture onto a Move-based blockchain and we’ve already started the integration work for the first Move deployment of Chainlink Data Feeds and CCIP.

It’s been great to work with both the Aave and Aptos communities. At launch, Aave will have access to the highly secure and reliable services that have supported the Aave protocol for years. We fully support this proposal and look forward to growing together in this new ecosystem as we’ve done for many years.

3 Likes

Certora supports the proposal and sees this as a big opportunity for the DAO.
Although this step is far from trivial, we see this as a great opportunity to expand beyond the familiar realms and bring the great innovation and stability that is Aave to new markets.

As mentioned by @AptosFoundation, we’re eager and ready to join forces with Aave Labs, Aptos and the rest of the service providers to get the DAO the best product possible!

2 Likes

The deployment of Aave V3 to Aptos is a big win for both ecosystems. First, it gives Aave users a better experience while presenting more opportunities for developers building on Aptos. Ded Hedz wholeheartedly supports this proposal.

2 Likes

Chaos Labs is excited about this proposal and the prospect of the first non-EVM Aave deployment. This significant milestone unlocks a world of new opportunities for the Aave DAO. From our experience with the Aptos team, we are confident that the Aave DAO has a true partner in execution, and we’re enthusiastic about the potential of this new deployment.

We look forward to working closely with the Aptos team and supporting the Aave community by integrating Aptos into our systems, providing analysis and recommendations for a safe launch, and fostering its continued growth!

2 Likes

While Aave has established dominance on EVM-compatible chains, Aave lacks deployments on any non-EVM compatible chains. With the emergence of non-EVM chains and their growth of DEFI activity and Total value locked, we believe an expansion to non-EVM chains is important and necessary for Aave to remain dominant.

Figure 1: Non EVM Total Value locked growth
Figure 1: Non EVM Total Value locked growth

Aptos has experienced rapid growth in both TVL and on-chain activity, as evidenced in Figure 2 & 3. The on-chain TVL has surged from $119.9 million to $545 million YTD, showing impressive strength relative to other projects based on TVL growth.

Figure 2: Total Value Locked Growth (Native token denominated)
Figure 2: Total Value Locked Growth (Native token denominated)

Figure 3: Total Value Locked Growth (USD denominated)
Figure 3: Total Value Locked Growth (USD denominated)

Moreover, Aptos’ secure architecture due to their Move language and its high TPS capabilities make the chain resilient and reliable for DeFi activities, reinforcing its suitability for Aave’s expansion.

Aptos Landscape:

In the current Aptos lending landscape, Aries Market, Echelon Market, and Aptin Finance are the three major platforms dominating the Total Value Locked (TVL) and lending activities. Lending dominance on Aptos is strong and continues to increase, with 55% of the chain’s TVL being attributed to lending platforms.

Figure 4: Total Value Locked Growth Grouped by Sector
Figure 4: Total Value Locked Growth Grouped by Sector

The TVL breakdown for the protocols:

  • Aries Market: $268M TVL
  • Echelon Market: $72M TVL
  • Aptin Finance: $23M TVL

The distribution of supplied assets across these platforms is shown in Figure 5, highlighting the prominence of stablecoins in lending activities and large stAPT and APT markets.

Figure 5: Market Size for Various Assets
Figure 5: Market Size for Various Assets

Further analysis of user behavior on Aptos lending platforms indicates that stablecoin markets, such as zUSDC and zUSDT, have higher APYs compared to market averages (14.4% for zUSDC and 13.8% for zUSDT).

Figure 6: Lending Platform APY comparison
Figure 6: Lending Platform APY comparison

Figure 7: Scatter Chart of Supply markets by Asset type
Figure 7: Scatter Chart of Supply markets by Asset type

However, unlike other lending platforms that often have large market sizes driven by users farming incentives but lack actual utilization of supplied assets by borrowers, Aptos lending platforms demonstrate healthy utilization. The top pairs on these platforms achieve near-optimal utilization rates, reflecting a more balanced and effective lending environment.

Screenshot 2024-07-03 at 14.07.32
Figure 8: Asset Utilization of Assets on Lending markets

What stands out is the low utilization of stAPT, suggesting that the asset is being primarily utilized for leveraged looping strategies. Additionally, the willingness of borrowers to borrow stablecoins at high APRs indicates they might be engaging in looping strategies as well.

While high incentive APRs encourage people to supply assets, they also facilitate two distinct types of looping strategies:

  1. Staked Aptos Looping: Given that the borrow cost of APT is less than the reward rate of stAPT, it is profitable to loop stAPT against APT. Currently, stAPT yields 9.2%, whereas APT borrow costs are below 1%.
  2. Stablecoin Looping: When the supply APR exceeds the borrow APR due to additional incentives, it becomes profitable to loop stablecoins to maximize yields.

These strategies are unique as they offer a new growth factor for lending platforms. In addition to facilitating traditional lending behaviour, they provide a new revenue source for these platforms. Ultimately, these strategies create positive feedback loops within the lending platform:

  • Farmers: Earn higher yields due to looping strategies, allowing them to leverage the stAPT or USDC yield that they earn.
  • Depositors: The demand for APT or stablecoins from borrowers needed for these strategies enables Lenders to earn higher yields from supplying their assets.
  • Lending Platforms: Earn revenue through the reserve factor, benefiting significantly as they receive a percentage of interest paid by borrowers.

By enabling these strategies, lending platforms can enhance their growth, attract more users, and improve overall profitability.

To highlight the popularity of these strategies: The total supply of stablecoins on Aptos lending platforms is $181M, compared to a total stablecoin supply of $117M on Aptos. Staked APT looping also shows significant potential due to the high native yield of liquid staked APT (9.24% on stAPT). Therefore, we expect Aave to benefit from these looping strategies on Aptos.

Since Aptos is a relatively new ecosystem, lending platforms are offering large incentives to attract capital and enable these strategies. Given the substantial APT commitment from the Aptos Foundation, Aave is predicted to have the largest incentives compared to its competitors. We predict that this is likely to lead to an influx of capital, with funds flowing into pools until APRs stabilize relative to competitors. We also believe the 2 million in APT incentives are substantial enough to attract capital inflows from other chains due to the high stablecoin APRs. Once liquidity is attracted, it is expected to remain sticky due to Aave’s established position as a market leader.

Figure 9: Predicted Incentive Spend
Figure 9: Annualized Incentive Spend

We believe that a non-EVM deployment presents a significant opportunity, and Aptos is the right chain for Aave to deploy on. Aptos not only has the infrastructure required to enable safe and efficient lending but also has a rapidly growing on-chain landscape that is well-suited for DeFi. The incentive structure provided by the Aptos Foundation will allow Aave to attract substantial liquidity and capture significant market share and revenue.

Additionally, comments from the Aptos Foundation and AaveLabs indicate that significant effort has already been put into core processes like contracts, audits, and Chainlink price feeds. Needless to say, we are extremely excited for this deployment and the proposal has our support.

2 Likes

Very supportive of this initiative. As an early supporter of both Aave and Aptos, believe Aave would benefit from expanding to and gaining market share in Aptos which is primed for DeFi to thrive considering the benefits of Move as a more robust programming language.

1 Like

I’m in favor of and excited about this proposal to deploy Aave V3 on Aptos.

The Aptos ecosystem is maturing with >$500 million in TVL and various DeFi solutions, and Aave’s integration will undoubtedly elevate it to the next level. It’s great to see Aave expanding to tap into new users from diverse ecosystems.

This strategic shift, marking Aave’s first non-EVM blockchain integration, leverages Aptos’ advanced and faster infrastructure, particularly through the Move programming language. I’m eager to see how this will improve the user experience and security.

Additionally, I’m curious about the process of “translating” Aave from Solidity to Move, could you share some insights into this process

1 Like

The support of the governance related infrastructure and timelines will depend on the launch strategy that is discussed with relevant service providers and maintainers of the infrastructure that will take place after this Temp Check.

5 Likes