DeFi Leader, Aave, Rolls Out V2; Adding ‘Collateral Swaps’ to Reduce Loan Liquidations
Aave, a decentralized lending platform, launches Version 2 (Aave v2), bringing along a slew of new features to build more efficient decentralized lending solutions. While the added features all bring better efficiency to the platform, the new collateral swap feature is the poster boy for the Aave v2 launch on Thursday.
👻It's the moment we've all been waiting for… Aave V2 is live on mainnet! 🍾🎊
Head over to https://t.co/gzkAogjUOS to try it out
Check out the Aavesome new features, security & audit details, and more in the latest blog post: https://t.co/N1oXXH4X5u
— Aave (@AaveAave) December 3, 2020
Furthermore, the launch coincides with the recent rise in Aave flash loans – reaching $1 billion – and rise to the fourth spot in rankings of the largest DeFi projects in total value locked (TVL) – recording $1.5 billion in TVL (10% of the total DeFi market cap).
The collateral swap feature
As mentioned, the new collateral swap is the most exciting feature in the new upgraded version. If a user wants to borrow across the DeFi ecosystem, users place their crypto as collateral, locking them up until they are repaid. For example, a user can put ETH as collateral against Maker’s DAI stablecoin to use it. However, they wish. However, this forces the user into a long position on ETH since they are locked for a set period.
If the price of ETH tanks, the user will be readily liquidated, as witnessed during the March mega-crash. The new collateral swap feature allows the borrower to swap their collateral for another token efficiently while using low gas costs. In the case that if the ETH price is collapsing, users can switch it for wBTC, AAVE, LINK, or even a stablecoin to protect them from volatile crypto price movements and potentially liquidations. Stani Kulechov, Founder of Aave, wrote in a blog post,
“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.”
The collateral swap on Aave v2 is supported by a new flash loan, a new feature on the upgrade, allowing users to open and close a loan within one block. The new feature aims to quicken the process and reduce the fees when repaying loans giving users a 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.”
Native credit delegation introduced
Aave v2 encompasses a host of features, including credit delegation aiming to revolutionize the decentralized lending industry. According to Stani’s post, the credit delegation feature will “open up access to liquidity without [the user] needing existing capital.” Introduced back in July, the CD feature remained a hugely centralized feature on version 1, managed by the Aave development team.
The upgrade introduces a more decentralized power to users who wish to delegate their collateral to another account. In a statement to Coindesk, Kulechov called on developers to build systems atop the Aave v2 and solutions to boost credit delegation across the platform.
Other features added on Aave v2 include batch flash loans, flash liquidations, gas optimization, and stable & variable rate borrowing, allowing users to switch conditions on their loans at any given time, switching from regular and irregular rates.
The Aave community also recently passed the AIP-3 proposal that makes a move from v1 to v2 seamless. The statement reads,
“By using a Flash Loan powered migration tool, users will be able to make the transition without having to close their V1 loan positions.”
The migration will be launched later in the month.