Lending is an integral part of finance and AAVE is leading this space ever since it launched in 2017 as ETHLend. Starting with the Ethereum blockchain, AAVE is known to reward lenders who provide liquidity to the platform and subsequently issue crypto loans to the borrowers as part of its lending protocol.
The project gained popularity after it introduced Flash loans and aTokens as part of its product offerings. With a supply cap of just 16 million AAVE tokens, the demand is expected to surge anytime soon. Considering the increased volume, AAVE introduced AAVE version 2.
Launched on Dec 03, 2020, AAVE V2 is an upgrade to the AAVE V1 protocol. It brings some noteworthy improvements in the AAVE protocol. Before we jump into V2, take a moment to review AAVE crypto protocol. Presenting the list of AAVE V2 upgrades –
AAVE V2 Protocol Upgrades:
- Yield and Collateral Swap
- Debt Tokenization
- Repayment with Collateral
- Batch Flash Loans
- aTokens EIP2162 Support
AAVE V2 focuses on Gas inefficiency, upgrading aTokens, code simplification
AAVE Yield and Collateral Swap:
In DeFi, the deposited assets are barred from trading but in V2 they can be traded across all currencies supported by AAVE protocol. For the borrowers, if the price of locked collateral starts to fall, it can now be swapped with other supported cryptocurrencies, particularly stablecoin to avoid liquidation. This is one of the solid features of V2. As always AAVE uses Chainlink crypto oracle to fetch the real-time data, off-chain.
AAVE Debt Tokenization:
Now the borrowers will receive Debt Tokens (against the borrowed amount) which represent their debt. It will allow borrowers to manage their debt positions from the cold wallet. This will put an end to internal accounting within the contract.
In V2, borrowers can hold multiple loans combining variable and multiple stable rate positions. Moreover, users can keep their collateral in the cold wallet and delegate their credit to the hot wallet to borrow.
AAVE Repayment with Collateral:
This new feature allows borrowers to close their loan position by paying directly with collateral in a single transaction without the need of converting the collateral into the underlying asset and then go ahead with settlement.
AAVE Batch Flash Loans:
It’s in the name, batch flash loans let developers implement and execute a Flash loan with multiple assets inside the same transaction. In V1, Flash loans can not be used within AAVE. AAVE V2 enables Flash Loans in combination with many other functionalities of the protocol listed below –
- Change the exposure from one collateral to another without the need of closing the debt positions.
- Repay loan with collateral.
- Creation of margin positions.
- Change the debt exposure from one asset to other.
aTokens EIP2612 Support:
aTokens will get the support of EIP2612 function that will ease off gas fees and payments in the underlying ERC20 token. There’s no interest rate redirection in the base aToken implementation.
AAVE V2 Architecture:
Here’s a high level architecture of AAVE V2 straight from the Whitepaper –
AAVE V1 Architecture –
Meanwhile AAVE V3 is here –
The Aave V3 retroactive funding ARC is live https://t.co/CoFwwJdoCb— Aave (@AaveAave) August 10, 2022
This completes my post on AAVE V2 protocol. In the next post, I will talk about Polkadot Parachain and Metapreme. If you’re a fan of blockchain technology then please do share this post on your social handles and educate everyone around you. Do remember to subscribe to my YouTube channel for more informative content, released every week.
Cryptocurrency is a highly volatile market. All the information shared in the post is for knowledge purpose only. By no means, it’s financial or investment advice. Readers are responsible for their own investment decisions and should only invest in cryptocurrency after proper research.
Paras is a blockchain writer & video creator at Katoch Tubes. In his free time, he loves watching space exploration documentaries & Hollywood movies.