It’s here! We are excited to announce that Aave Protocol V3 has been deployed on Ethereum Mainnet, Aave’s first and largest market. V3 is the most significant upgrade to the Aave Protocol to date, and is the result of the Aave community’s relentless pursuit of security, capital efficiency and risk management.
V3 was first deployed in March 2022 across six networks, including Polygon, Avalanche, Arbitrum, and Optimism. Having been tested on these networks, this week Aave Governance voted to deploy V3 on Ethereum Mainnet.
Aave V2 launched in December 2020, building on its predecessor V1. The exponential growth of the DeFi ecosystem led the Aave team to focus on Aave V3, introducing important new risk mitigation features and improved capital efficiency. In just over 2 years since V3 launched, the Aave Protocol has ~$6.5B TVL (Total Value Locked as of January 27th, 2023) across Aave Protocol V2 and V3 markets.
V3 was designed with a flexible architecture for increased composability, and made it possible to build a variety of innovative features on top of the protocol such as new risk management tools that provide additional security and stability. Examples include Supply and Borrow Caps and Risk and Listing Admins. Aave V3 also improves capital efficiency and decentralized liquidity while lowering gas fees 25 percent.
Also known as “E-Mode”, users have access to higher borrowing power when the collateral they provide is correlated with the asset they are depositing and now borrowing, allowing users to extract the most out of their collateral and improved capital efficiency
E-Mode is possible when supplied and borrowed assets are correlated in volatility, particularly when both assets are within the same category, for example stablecoins pegged to USD. Let’s look an example:
If a user supplies staked ETH (stETH) and would like to borrow ETH, as they are the same asset, the volatility is linked. In Aave V2, the user will now have a borrowing ratio of 82.5%. Whereas in V3, the user has access to E-Mode, allowing the user to have an increased borrowing power of up to 97% as the assets are linked.
Assets listed in this mode are segregated from main asset liquidity. Assets can be supplied as collateral and used only to borrow stablecoins, unlocking listings for less liquid assets without impacting the main market. Liquidity risks can be siloed as Isolation Mode allows for more assets to be listed on Aave as collateral while maintaining the security of the protocol.
Borrowers supplying an isolated asset as collateral cannot supply other assets as collateral (though they can still supply to capture yield). Borrowers using an isolated collateral can only borrow stablecoins that have been permitted by the Aave Governance to be borrowable in isolation mode, up to a specified debt ceiling.
Gas costs of all the functions are reduced by around 25% across the board! The upgrade to the protocol comes with great logic improvements making the code more readable, modular and optimized. In addition, it adds a new simplified version of the flashLoan function, that allows the user to flashloan a single asset with minimized gas costs. This optimization ultimately benefits users, allowing for lower-cost interactions with the Aave Protocol.
We are incredibly excited to see users of the Aave Protocol take advantage of these exciting new features through V3 on Ethereum Mainnet!
If you would like to move your assets from Aave V2 to Aave V3, you can now use the V3 migration tool!
The migration tool assists and guides you to migrate your positions from V2 to V3 in a single transaction on the V2 dashboard.
All you need to do is:
Select the supply and borrow prepositions you would like to migrate
Click ‘Preview tx and migrate’
Sign approval for each position*
Submit migration transaction
If you have open positions, the migration tool will inform you of your new Health Factor on both V2 and V3. Please be mindful of this new Health Factor to mitigate liquidation risks.
Complex operations on the Ethereum blockchain can be costly. If you have lots of assets borrowed and deposited into V2 on Mainnet, you can migrate them in several batches. However, it is recommended to migrate no more than 5 assets in a single migration transaction.
You are not required to migrate your V2 assets if you do not wish to. The V2 contracts are always running and will remain accessible in the future.
The migration tool uses a combination of credit delegation and flashloans to migrate positions. The tool takes users supplied assets, borrowed positions, amounts and debt types from Aave V2. Using flashloans and credit delegation, the debt is repaid on V2, and the same positions and amounts are borrowed on behalf of the user on V3, leaving the user debt on V3.
If you would like to see the technical implementation, you can find the migration tool contract here.
Deployed Migration Contract Addresses
The Aave V3 code – public and available on GitHub – was audited by leading security firms to ensure that any vulnerabilities discovered were immediately resolved, and any risks mitigated. Audits were conducted Sigma Prime, Trail of Bits, Open Zeppelin, ABDK, and PeckShield, in addition to undergoing formal verification by Certora. Reports can be found here.
👻 Aave Governance! Anyone can get involved and contribute to the protocol's future through the Aave Governance forum. The Aave Governance community includes a variety of contributors ranging from academic institutions to risk experts and users of the Aave Protocol. You can also find the proposal to implement V3 that was voted in favor by the Aave Governance here.
🙏 Need funding? Check out the Aave Grants DAO for funding for your next project here.
“V3 has been deployed and tested on DeFi’s fastest growing networks, and we are excited for it to finally be available on Ethereum Mainnet, Aave’s first and largest market. The most exciting aspect of V3 is its flexible design, which enables a variety of new risk mitigation features, and its improved capital efficiency and decentralized liquidity – all while reducing gas costs. The Aave Protocol continues to be at the forefront of DeFi innovation.” - Stani Kulechov, Founder and CEO of Aave Companies