We feel a brotherly affinity for Aave. Just like us, they’re a defi platform built around Ethereum, offering community-based finance, community-powered governance and high yields for those who wish to stake their coins.
So it’s great to see that Aave V3 has just gone live. The new version facilitates greater yield, multi-chain functionality and, best of all for us, specific features for lending on layer 2 and avoiding whopping gas fees on the main Ethereum blockchain.
A quick primer on Aave (for those who haven’t used it)
Aave is, essentially, a decentralised crypto version of a bank. So, of course, it’s better.
Just like a regular bank, Aave allows people to borrow tokens or lend them at interest. Only the entire system is controlled by smart contracts, removing the need for a middleman.
These smart contracts are used to create a series of liquidity pools – pools of tokens that are filled up by lenders. Once the pool is open, borrowers take their desired assets directly from it, and lenders deposit their funds directly into it (DeversiFi has developed its own liquidity pools although ours are for trading, not lending).
For borrowers, the system is free from the biases and barriers that confront millions of people in the old fiat world. If you can provide the necessary collateral to borrow money, you qualify, regardless of your age, nationality, ethnic background or socio-economic group.
For lenders, the yields are seriously chunky: way more than you’d typically get by lending your fiat assets. But, more than that, there is the chance to power the whole system. Liquidity pools are funded by the community, and there’s a huge variety of pools you can lend into. If you have a new token you want to lend (say a token that’s just been launched), your proposal will be put to a vote.
This is another cool feature of Aave, and another parallel with DeversiFi. The entire community has a vote on its future; by staking Aave’s own governance tokens, you get the chance to vote on key decisions and even submit your own proposals.
Where Aave V3 goes further
Here’s an overview of why we’re wowed by the new version.
Multi-chain functionality. As you’ll know if you’ve read our previous posts, we’re massive fans of multi-chain connectivity. Aave is clearly on the same page; their new version is deployed on six separate chains, including Arbitrum and Polygon, and four of the chains are new.
More yield opportunities. A huge amount of liquidity in Aave’s smart contracts is currently sitting idle, locked in the smart contracts. Aave has introduced new ways to put this capital to work, thereby providing new opportunities for lenders.
Greater controls. The governance rights have been expanded, allowing the community to create borrow and supply caps – in others, control how much of each asset can be borrowed at any one time. This is great for managing liquidity and availability for borrowers.
Layer 2 functionality. This is the best part of all for us. Aave’s new ‘sentinel’ feature is specifically designed to prevent downtime when validating transactions on layer 2, which means gas-free transactions can go through even faster. Aave will also be deployed on layer 1 (the main Ethereum blockchain) and even here, users will enjoy a 25% reduction in gas costs.
You can find loads more about V3 by reading Aave’s own introductory blog post here.
More than trading
As we’ve said before, we want crypto and DeFi to be about more than trading. It should offer a space for those who want steady passive income, as well as those who thrive on the ups and downs of active trades and swaps.
Aave is creating a haven for this group — those who want to lend the coins and tokens gathering dust in their wallets and create a new, community-driven trading mechanism which provides ever-increasing rewards as it grows.
Lending and borrowing should be open to everyone, and the two groups should be able to connect with one another. When you think about it, there’s no need for a middleman at all, provided the system is transparent and trustworthy (or, better still, trustless).
We like to think DeversiFi is realising this vision, and it’s great to see other projects doing the same. So, to the guys at Aave, we salute you… looking forward to version 4 already!