News Sentiment: Positive
Aave DAO voted to activate AAVE v3 on the Ethereum blockchain. It is a significant moment for the decentralized finance (DeFi) community seeking to profit from v3’s emphasis on risk management and capital efficiency.
All participating AAVE token holders voted to activate Aave v3 on Ethereum. According to Aave’s Twitter account, v3 is the “biggest important improvement to the Aave Protocol” since it began in January 2017.
Aave v3 on Ethereum will be released with support for seven assets
Aave v3 on Ethereum will be released with support for seven assets: wrapped bitcoin, wrapped ether, wrapped staked ether, USDC, DAI, link, and Aave. Earlier this month, the Aave DAO voted in support of Chaos Labs’ risk-off strategy for the initial deployment of Aave v3 on Ethereum.
Aave v3 on Ethereum will only have one eMode enabled
Aave v3 on Ethereum will only have one eMode enabled. Aave’s eMode function maximizes capital efficiency for collateral and loaned assets with high price correlation. The initial deployment will only support eMode for ether-correlated assets. The eMode for Aave v3 on Ethereum will only support wrapped ether and wrapped staked ether.
Isolation mode, another essential feature of Aave v3 that allows borrowing of a newly listed, risky asset up to a certain debt level, will not be activated for all assets when Aave v3 publishes on Ethereum.
Furthermore, while v3 interest rate models differ slightly from v2, with the main difference being stablecoin rates, Bored Ghost Developing Labs, the author of the proposal that has led the engineering effort behind Aave v3, stated that initial interest rate models on v3 “will follow those present on v2 Ethereum assets and other existing instances of v3.”
Aave v3 enhances the DeFi protocol’s multi-chain strategy
The release of Aave v3 on Ethereum enhances the DeFi protocol’s multi-chain strategy. The third version of Aave’s loan app announced the project’s desire to distribute its protocol over numerous networks. Aave v3 is already available on six chains: Avalanche, Optimism, Polygon, Fantom, Harmony, and Arbitrum.
According to TVL, Aave v2 on Ethereum is the largest DeFi lender. According to DeFiLlama, the protocol has control over $3.5 billion in assets. DAO chose to deploy v3 from scratch and not shut down the v2. As a result, customers can upgrade their version from v2 to v3. BGD Labs has been developing a tool to help in the migration process.
Kethfinex, a pseudonymous representative for Lido, a prominent protocol in Ethereum DeFi that connects into Aave, stated that v3 will strengthen the lending and borrowing markets for Lido’s staked ETH – one example of how v3 might affect the larger market.