The third version of the decentralized lending and borrowing protocol Aave has been launched on the Ethereum blockchain, improving DeFi capital efficiency and user risk mitigation
Aave platform offers lending and borrowing services without an intermediary. Users who participate as suppliers provide liquidity to the market themselves while earning a passive income. In their turn, borrowers receive loans in an over-collateralised (perpetually) or under-collateralised (one-block liquidity) mode.
The latest upgrade of the platform will improve capital efficiency (in high-efficiency eMode), allowing users to get the most out of their collateral. The change will affect the processes of staking or borrowing correlated assets like stablecoins and liquid staking derivates (LSDs).
Initially, the eMode couldn’t be applied to all digital assets available on the platform. Pre-approved assets include wBTC, wETH, wstETH, USDC, DAI, LINK and AAVE.
Besides, the network users can now stake larger amounts of selected assets to get rewards. Moreover, Aave claims V3 will come along with significantly reduced gas fees. Ethereum is known for its transaction “gas” costs that may get pretty high. With the new update, the fees are supposed to decline by 20%-25%.
Yet another aspect of the latest DeFi platform version is the focus on risk management, which is important for Aave users amidst the extreme volatility of the crypto market caused by a few black swan events last year. Thus, V3 features isolation mode, which permits borrowing of a newly listed, risky asset only up to a particular debt ceiling.
Before going live, the proposal execution was simulated in the test environment. Additionally, V3 got tested on the Aave interface using forks. Aave Companies have also reviewed the proposal code.
The change is welcomed by other Ethereum DeFi players. Many of them turn to Aave for liquidity, as it is by far the largest lender in the DeFi space, with $3.8 billion in total value locked (TVL) across the Ethereum ecosystem.