Decentralized money market Aave, has now rolled out version 2, with new features, making the protocol more flexible and efficient. DeFi protocol, Aave has grown at record speed with a market size of over 1 billion dollars. Enabling users to lend and borrow a diverse range of cryptocurrencies and bringing the likes of flash loans and atokens as a way to unlock capital and provide permissionless savings accounts.
As of December 3rd 2020, the Genesis team has now introduced new features in Aave Protocol V2, to unlock even more value in DeFi and make the overall experience more seamless.
Aave V2 What’s New?
Below is a list of features that are new to Aave version 2. However, these won’t all be beneficial to the average users lending and borrowing, and instead, some of these do require developers to build on top.
Yield & Collateral Swap
Previously, assets used as collateral were tied up, however in v2 they can be traded freely. Meaning that users can trade their deposited assets, across all currencies supported in the Aave Protocol, even when they are being used as collateral. This “collateral swapping” can be particularly helpful when trying to avoid liquidations. Because If the price of your collateral starts to fall, you can simply trade it for a stablecoin so you don’t have to worry about price fluctuations and potential liquidation.
Repayment with Collateral
Previously, when a user wanted to use part of their collateral to repay a loan, they’d have to withdraw the collateral, use it to buy the borrowed asset, and then finally repay the debt and unlock the deposited collateral. This process required at least 4 transactions across, which was neither time nor cost-efficient, However, users can now close their loan by paying with their collateral directly in a single transaction. This is all powered by flash loans, the Ethereum innovation in which a borrower opens and closes a loan within one Ethereum block.
Stable & Variable Rate Borrowing
Users borrowing within Aave can have both a stable borrow position and a variable borrow position at the same time, giving borrowers more options and flexibility for their loan position, and borrowers are still able to switch between the variable and stable rate at any time.
Aave has stated that Aave v2 brings gas optimIsations lowering the cost of transactions up to 50% in some cases. Plus they have also implemented native GasToken Support, to further help users reduce their transaction costs.
Flash Loans & Liquidations
Flash Loans have continued to inspire ideas to make new features possible in Aave V2. They are a great way for everyone to have access to liquidity and take advantage of the financial tools that DeFi offers. With Aave V2, liquidators can utilise Flash Loans to flash borrow the capital from the Aave Protocol itself in order to execute a liquidation.
Batch Flash Loans
Batch Flash loans have now been introduced making Flash Loans even more powerful. Previously, borrowers could only borrow one currency at a time. However Batch Flash Loans let developers execute a Flash Loan with multiple assets inside the same transaction.
Connect to Aave V2
For those of you who use the likes of Argent, Zapper, or Zerion you can access Aave V2 directly. All from inside the wallet or platform, a full list can be found below;
One thing to be aware of is that deposits or liquidity you have in Aave’s V1 do not yet show on the dashboard of V2. But don’t worry, you won’t have to withdraw and re-deposit into V2 as this will be automated.
Recently AIP-3 was passed to make the migration from V1 to V2 more seamless. By using a Flash Loan powered migration tool, users will be able to make the transition without having to close their V1 loan positions. This migration tool will be introduced later, so if you have V1 positions, no need to close them.
Security & Audits
Aave states that security is a top priority and formal verification has been completed by Certora. For those wanting to take a look, you can read the report here.
Aave V2 has been audited by MixBytes, CertiK, ConsenSys Diligence, and PeckShield. This also includes an additional audit in Chinese, making it the first company in the industry to do this.
If you´re new to Aave, and want to get get started, click here to check out my beginner´s guide. Where you´ll learn how to earn interest and borrow on the platform.
Aave is a DeFi lending protocol that enables users to lend and borrow a diverse range of cryptocurrencies. This may sound similar (in terms of lending and borrowing) to the likes of Compound Finance. However where Aave differs from some other lending platforms is that it offers more diverse assets, both stable and variable interest rates for lending, plus flash loans.
Who are Aave?
Aave was originally launched as ETHLend, a lending platform that was founded in 2017 and then rebranded to Aave in September 2018. The name itself is Finnish and translates to “ghost” in English. And the ghost represents Aave’s focus of creating a transparent and open infrastructure for decentralized finance.
Aave supports a diverse range of assets that you can lend or borrow on the platform. And the list of assets currently include;
Flash Loans are an advanced concept aimed at developers. Therefore you must have a good understanding of Ethereum, programming, and smart contracts to take advantage of them.
Flash loans require zero collateral to use and Aave charges 0.30% fee on these. Instead of guaranteeing repayment with collateral, Flash Loans simply rely on the timing of the loan’s repayment. As long as the loan is used and paid back in full within the same block it was issued, it is approved. However, if the loan is not paid back within the same block, the entire transaction fails.
The AAVE token, was migrated from the token formerly known as LEND. These ERC20 tokens are used to allow users to participate on the Aave protocol governance and can also be staked within the protocol’s Safety Module. In the event of a shortfall in the DeFi protocol, staked tokens would be used as collateral as a last resort.
In July 2020, Aave unveiled plans to hold a token swap. This means that the 1.3 billion AAVE tokens in circulation would be swapped for the newly minted AAVE cryptocurrency at a ratio of 1:100, creating a total supply of 16 million AAVE.
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The first Aave Improvement Proposal has ended, with overwhelming votes in favour of the token migration from LEND to AAVE. This migration is the first step in the Aavenomics. Migrating from the LEND to AAVE tokens allows users to participate on the Aave Protocol Governance and stake within the protocol Safety Module. Similar to the likes of Compound and more recently Uniswap.
The ratio of the tokens work out to be 100 LEND to 1 AAVE, so if you migrate 100 LEND you will get 1 AAVE token.
The process to migrate from LEND to AAVE is quite similar to a deposit. need to approve and then upgrade your tokens and I’ll take your though that in a moment.
If you have LEND in exchanges or other places, these exchanges will be announcing themselves if they will handle the migration from their side. Binance has announced their support for the new AAVE token and have also stated that their users can use their token swap functionality on their site to swap from LEND to AAVE.
However, if you have LEND on an exchange that won’t be allowing it to migrate, then you will have to withdraw to whatever wallet you’re using to connect to Aave Protocol and migrate from there.
How to Migrate LEND to AAVE Tokens
The process to migrate from LEND to AAVE is quite similar to a deposit where you’ll need to approve (to allow the migration contract to move your LEND tokens to migrate them to AAVE), before upgrading your tokens. Plus, you’ll also need some Ethereum to pay for the gas fees.
Once you’ve connected your wallet (containing the LEND tokens) to the Aave site, you simply need to head across to Migration Portal from the left of the screen. Then Approve, pay a gas fee. Then Upgrade your tokens, and pay another gas fee!
How to Stake AAVE Tokens
Once you have your new Aave tokens you can now stake them. Staking consists of depositing your AAVE tokens within the protocol Safety Module. The purpose of staking is to act as a mitigation tool in case of a shortfall event. As an incentive for this service Safety Module stakers will receive Safety Incentives.
The initial rewards are 400 AAVE/day and will be distributed among the stakers. Stakers will also receive a percentage of protocol fees, but that will come later if the governance votes on it.
Now there are some risks to staking too… In the case of a shortfall event, the Safety Module uses up to 30% of the assets locked to cover the deficit. This protocol protection won’t be active on the initial launch and they will inform users when the slashing is activated.
To stake your tokens head across to “Staking” on the left-hand side of the screen. Select the amount. Then approve, pay a gas fee. Then stake and pay another gas fee! When that’s confirmed, your tokens will be staked in the Safety Module.
Your staked AAVE tokens will then appear on the right-hand side of the screen. It will show you the amount you’ve staked. The amount that’s claimable and the AAVE per week and per month.
How to Unstake
If you want to Unstake you’ll need to do this after the cool-down period has been activated. This cool-down period is currently set to 10 days. So to unstake you first need to pay for a transaction to activate the cool-down period. And then pay for another transaction to unstake after this period is complete.
Aave Token Migration and Staking Tutorial
Aave released V2 of their protocol on December 3rd 2020. Bringing with it new features, making the protocol more flexible and efficient. For more information and to take a look at the platform click this link for my tutorial.