Aave launching Version 3 on Ethereum

thedefiant.ioJanuary 25, 2023

Aave, the largest decentralized lending protocol, is expected to launch Aave V3 on Friday on the Ethereum network. Ethereum did not have Aave V3 yet while V3 has been running on various blockchains like Arbitrum, Optimism and Avalanche. The Aave token holders must approve the vote before Wednesday, but according to the founder Kuchelov, it is expected to pass.

The Aave-Ethereum lending pool is by far the largest one, with more than $5.5B in total value secured. As customers take advantage of its enhancements in capital efficiency and risk mitigation, Kuchelov anticipates that all of the liquidity on Aave's current Ethereum lending pools will eventually migrate to V3.

The release, dubbed V3, has existed on other blockchains for almost a year. With more than $5.5B in total value locked, Aave’s lending pool on Ethereum is by far its largest. Kuchelov expects all of the liquidity on Aave’s existing Ethereum lending pools to move to V3 over time, as users take advantage of its improvements in capital efficiency and risk mitigation.

Most loans in the area of decentralized lending are over-collateralized, meaning the value of the security used to secure the loan is more than the value of the cryptocurrency being lent. This safeguards the borrower from incurring a loss should the value of the collateral decline, a real risk in the erratic world of digital assets.

When borrowing assets connected with their collateral, such as pairs of stablecoins or Ether and its liquid staking counterparts, an "efficiency mode" in V3 will provide a superior loan-to-value ratio. Version 3 will also enable Aave to launch their stablecoin GHO as well as cross-chain portals in partnership with Chainlinks CCIP launch in the future.