Aave’s V4 Protocol Upgrade: Revolutionizing DeFi Lending

Aave Labs, the company behind the decentralized finance (DeFi) lending protocol Aave, has proposed upgrading and advancing its protocol over the next five years.

On May 1, the DeFi lending platform introduced a governance proposal to gather community feedback on upgrading the protocol to its next-generation version 4.

However, the proposal encompasses significant upgrades and expansions to the Aave Network, including a cross-chain liquidity layer, non-Ethereum Virtual Machine (EVM) layer-1 deployments, and a new visual identity.

Aave V4 will be constructed on a completely new architecture, featuring a Unified Liquidity Layer to integrate better features such as isolation pools, risk modules, and its native stablecoin GHO.

The proposed features are interest rates that can adjust automatically based on market conditions, utilizing Chainlink data oracles.

Additionally, Liquidity Premiums are suggested to adjust borrowing costs according to collateral risk profiles, vaults, and smart accounts for simplified user management of positions.

Proposed Unified Liquidity Layer infrastructure for liquidity providing. Source: Aave

The proposal delves into Aave’s algorithmic stablecoin, GHO, launched in July 2023. With a market capitalization of $49 million, GHO remains small compared to competitors like Tether USDT and USD Coin.

Enhancing DeFi: GHO Proposal Update

Moreover, suggestions regarding GHO include enhancing the liquidation engine with features like variable liquidation bonuses and “soft” liquidations and improving integration to allow interest-earning options.

An emergency redemption mechanism for GHO debugging scenarios is also part of the proposed major upgrade.

Currently, the proposal is in the “temperature check” phase, gauging community sentiment before advancing to an on-chain vote.

The proposal outlines a development timeline from research completion in Q2 2024 to a full V4 release by mid-2025.

Ave Labs wants a grant. They need 15 million GHO and 25,000 stkAAVE, about $17 million. This money is for the first year of a three-year plan.

DefiLlama says Aave is the third-biggest DeFi protocol. It currently holds approximately $10 billion in locked assets.

As I’m talking, the native Aave token is trading at $82.35. Last week, it lost 9%, and right now, it’s down 87.6% from its highest point ever, which was $660 three years back.

Related Reading | Michael Saylor Advocates Bitcoin Unmatched Value Preservation Amidst Market Turbulence

The author’s views are for reference only and shall not constitute any investment advice. Please ensure you fully understand and assess the products and associated risks before purchasing.

Comments (No)

Leave a Reply