It’s the moment we’ve all been waiting for… V2 of the Aave Protocol on mainnet!

The Aave Protocol V1 launched at the beginning of this year, with the goal of unlocking value in DeFi and improving the user experience. The protocol quickly grew to over $1B market size in less than 6 months, record growth for the DeFi space! V1 brought to market innovations like Flash Loans and aTokens as new ways to unlock previously locked capital in DeFi and provide a permissionless savings account.

The Aave Protocol took major steps toward becoming more decentralised with the handover of the Admin Keys to the community. The Aave ethos is that finance should be as you like it, and with a working governance and “Aavenomics”, the future of the protocol is in your hands.

This week the Aave Protocol hit another major milestone, with $1B in Flash Loans volume! Due to the 0.09% fee for Flash Loans, this has created an additional $906K going to reward depositors since the launch of V1.

Today, the Genesis Team is happy to introduce some Aavesome new features to unlock more value in DeFi and make the overall experience more seamless.

The Genesis Team is excited about this glow up, and your feedback throughout the V1 phase has been the inspiration for these updates. For more details on V2, feel free to read the Whitepaper.

What’s new with V2?

Yield & Collateral swap

In DeFi, assets that were being used as collateral were tied up, but now with V2 they are free to be traded. Users can trade their deposited assets, across all currencies supported in the Aave Protocol, even when they are being used as collateral. Collateral swapping can be a useful tool to avoid liquidations. If the price of your collateral starts to fall, for example, you can simply trade it for a stablecoin so you don’t have to worry about price fluctuations and potential liquidation. This feature also allows you to swap your assets to get the best yields on the market, essentially creating the first market for collateral and yield trading in DeFi.

Flash Loans Upgraded

Flash Loans were the first undercollateralised loan option to shake up the DeFi space, resulting in the creation of many innovative tools and “money legos”. Flash Loans continued to inspire ideas to make new features possible in Aave V2.

Repayment with collateral

Before V2, if a user wanted to use part of their collateral to repay a loan, they had to first withdraw the collateral, use it to buy the borrowed asset, and then finally repay the debt and unlock the deposited collateral. This requires at least 4 transactions across multiple protocols, costing time and money and making for an overall not-so-seamless experience. This new feature allows users to close their loan positions by paying directly with their collateral in just 1 transaction — smooth and simple.

Flash liquidations

Previously, a liquidator needed to have capital in their own wallet or source it from somewhere else in order to liquidate a position and get that liquidation bonus. Flash Loans are a great equaliser that make it possible for everyone to have access to liquidity so they can take advantage of the financial tools 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

Flash Loans are getting more powerful. With V1, Flash-borrowers could only borrow one currency at a time. Batch Flash Loans let developers execute a Flash Loan with multiple assets inside the same tx. This means a Flash-borrower can access virtually all the Protocol liquidity.

Debt Tokenization

In V2, debt positions are tokenized, so borrowers will receive tokens that represent their debt. This debt tokenisation enables native Credit Delegation within the Aave Protocol and allows borrowers to manage their debt position from cold wallets.

Native Credit Delegation

Undercollateralised loans in DeFi have been an increasingly popular way to open up access to liquidity without needing existing capital, and Native Credit Delegation will expand on this with V2.

Credit Delegation was introduced back in July, and then the first Credit Delegation on Aave Protocol to DeversiFi happened over the summer, using OpenLaw to conclude the loan agreement. Credit Delegation received a lot of hype, and now Aave V2 makes it native! Credit Delegation is designed so that a borrower could be an institution, business, NGO, cryptocurrency exchange (like DeversiFi), and more, opening up DeFi as a source of liquidity to the rest of the financial world. CD enables delegators to earn extra yield on top of the yield they already earn from the protocol and borrowers to access an uncollateralized loan.

The next step will be to add Credit Delegation to the UI, but for now if you’re a developer, you can follow this tutorial and try it out for yourself.

Gas Optimisations

Anyone using Ethereum recently has probably noticed some network congestion and high gas prices for transactions. To help mitigate these costs, Aave V2 introduces gas optimisations, lowering the cost of protocol transactions up to 50% in some cases!

Stable & Variable Rate Borrowing

DeFi is all about giving you more options so you can get what you want from finance. With Aave V2, borrowers can have both a stable borrow position and a variable borrow position at the same time, with the same underlying asset, from the same wallet. This gives 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.

Decentralised Access to V2

In the spirit of decentralisation, you can access Aave V2 directly from:

• Argent
• Zapper
• Zerion
• imToken
• DeFi Saver

You should decide what your finances look like, and that includes having access to Aave’s financial tools and services directly from your favourite wallets and platforms.

Migration of Liquidity to V2

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

Security is the top priority at Aave. Formal verification was completed by Certora, and you can read the full report here.

Aave V2 has been audited by MixBytes; CertiK; ConsenSys Diligence; and PeckShield, which includes an additional audit report in Chinese. Aave is the first company in the industry to do this, thus appealing to the growing Chinese market. A 5th audit by Sigma Prime is coming soon, and that will also be available publicly.

In addition to the smart contract audits, Aave is working with Gauntlet to test the financial infrastructure of the protocol: resilience to attacks by bad actors as well as incentives for honest participants. A Market Risk Assessment Report will present the market and liquidity risks of Aave’s assets as well as their performance under extreme scenarios with optimised parameter suggestions. Further analysis will assess the Ethereum congestion risk and how to make Aave more resilient.

Reserve Factor and Parameters Changes

The DeFi space has witnessed incredible growth and battle testing leading to a risk reduction across the Aave Market. Furthermore, the Aave ecosystem is mature with an involved and educated community. V2 pushes some of Aave’s current borrowing limits with an optimisation of the risk parameters:

• Increased collateral capacity for USDC, BAT, LINK, UNI, WBTC and WETH
• Cheaper stablecoin borrowing rates below optimal utilisation

V2 also introduces a Reserve Factor to finance the long term sustainability of the DAO. The Reserve Factor allocates a share of the protocol’s income to the ecosystem reserve. This reserve is used to sustain the DAO and pay contributors. One of the key expenses of the DAO is to reward Safety Module Stakers who cover the risk of deficit. As such, the Reserve Factor is also a risk premium and so it is calibrated based on the overall risk of the asset.

Thank you for being part of the journey

Aave has partnered up with Coingecko for an epic contest:

• 5000 candies gets you an Aave Ultraswag pack with 1 backpack, 1 t-shirt, 1 beanie and a special NFT “Aave-Chan” (10 units)!
• 1500 candies gets you a special edition Aave-Chan NFT (490 units)

Additionally, to celebrate the launch of V2, the first 100 addresses to use V2 and deposit at least $100 worth of assets for at least 10 days will receive an extra-special “pioneers” NFT in partnership with POAP!

The Genesis Team can’t wait to hear what you think about V2! Feel free to join the Aave Discord server, follow Aave on twitter, and join the governance forum to learn about and discuss future protocol updates.

The Aave Protocol V2 was originally published in Aave Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

During this year DeFi has grown from a few hundreds of millions to a few billions in locked value (TVL). Locking value into DeFi allows activities such as lending, borrowing and trading across DeFi.

When Aave Protocol was launched during January this year, the thesis was to figure out ways to unlock locked value in DeFi and improve capital movements within the ecosystem. Thus followed Flash Loans, aTokens and recently Credit Delegation, unlocking capital from smart contracts.

What is Credit Delegation?

Credit Delegation is a simple transaction where an Aave Protocol depositor delegates a credit line to someone they trust. You can also delegate a credit line to another smart contract that executes predefined functions, removing that trust.

For example, Karen deposits USDC into Aave Protocol to earn interest. Since Karen only uses Aave Protocol to earn and not to borrow, she does not need to exercise her credit line. Instead, Karen delegates her credit line to Chad to earn additional interest. Once the credit line is delegated, Chad can draw the funds from a dedicated Credit Delegation Vault, a simple debt wrapper built on top of Aave Protocol. To ensure a smooth ride, Karen and Chad use OpenLaw to sign an agreement for the terms.

DeversiFi First to Draw Credit Line via Credit Delegation

Aave is glad to announce that DeversiFi, a decentralized exchange, was the first one to experiment with Credit Delegation by drawing a credit line from a Credit Delegation Vault! 🔥

Karen and DeversiFi first used OpenLaw to conclude the loan agreement. Here is a link to the OpenLaw agreement template used for this Credit Delegation. Feel free to use it, copy it, improve etc.

The interesting legal engineering in the agreement is the direct references to the Credit Delegation Proxy functions such as deployVault().

The cool thing about OpenLaw is that it allows the tying of legal agreements with executable Ethereum code. After signing the agreements, the Credit Delegation Vault proxy deployVault() function was called directly from OpenLaw via MetaMask.

Here is the Vault used for Credit Delegation to DeversiFi. After the deployment the following steps were:

1. Credit Delegator sets the borrowing limitations
2. Credit Delegator deposits aTokens which are used as a collateral in Aave Protocol
3. DeversiFi executed the Borrow! 👻

Anyone with aTokens in their wallet can delegate their credit by deploying a Credit Delegation Vault with a Credit Delegation Proxy. The code is experimental but audited by PeckShield.

To learn more about Credit Delegation functionality, check out these docs! For user interaction feel free to use https://yborrow.finance/

Credit Delegation might be a way to source liquidity from Aave Protocol across DeFi and into traditional finance without demanding borrower side collateral. Stay tuned 🙌

Special thanks to the Aave Fam, DeversiFi team, PeckShield and Andre Cronje for making this happen! ❤️

First Credit Delegation on Aave Protocol to DeversiFi is Here 🔥 was originally published in Aave Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

The moment we’ve all been waiting for is finally here, another milestone on the journey towards a more decentralized governance for the Aave Protocol. We are excited to introduce our tokenomics upgrade proposal: The Aavenomics.

Below, you will find our Flash Paper, a synthesis of the Aavenomics Proposal. If you want to read the unabridged in-depth version of the Aavenomics, you can find it here.

We can’t wait to hear your feedback, so please engage in the Governance Forum here.

Keep up with Aave on twitter or join our discussion on Discord.