Aave versions comparison

Aave has one of the highest TVL on the Ethereum's network with it’s core value is to enable users to lend, borrow, and profit from stable or variable interest rates in a decentralized space.

This post will cover the specific technicalities and upgrades of each version of Aave that became available over time.

Aave v1

Two assets were supported when it debuted in January 2020, ETH and LEND. Later on came AAVE token. While the first news about Aave we received when the test net launched earlier in October 2019.

Aave Version 1 allowed users to lend their token assets to earn interest or to borrow assets by using their own tokens as collateral.

Borrowers had the flexibility to choose between stable or variable interest rates. Loans had to be over-collateralized and if it got to the point of falling below a certain threshold, their assets could be liquidated to repay the loan.

Aave v1 popularized the concept of flash loans which allow users to borrow assets without providing collateral as long as the borrowed amount is returned within the same transaction.

What also set Aave apart from most other protocols is that borrowers could not only follow the traditional route of over-collateralized loans but also engage in unsecured borrowing. To do so, borrowers who already had a lot of collateral but didn’t want to borrow against it could instead “delegate” their credit line to a trusted third party.

When the time came and the release of Aave v2 was official, a migration tool was also added so that all users can upgrade full positions from Aave v1 to Aave v2. It was actually executed through Flash Loans with a single transaction (take liquidity from Aave v2 - use it to pay back your loans in v1 - migrate your v1 collateral to v2 - open up equivalent positions in v2 - bring back the liquidity to v2).

It was expected that V1 will slowly fade in favour of V2.

Aave v2

With v1 governance, only the Aave Genesis Team could submit Aave Improvement Proposals (AIPs). (a quick reminder - AIPs are on-chain governance proposals that require some technical knowledge and automatically execute once the votes are in and validated)

Now in Aave v2, which came out in 2020, in less than a year later from the original debut, any community actor that meets the requirements can create an AIP to add a new token to the protocol, update risk parameters, etc. The participation of the community is one of the bigger changes when this upgrade came out. Aave team wanted the protocol to be even more in the hands of the community.

When talking about additional features that made their debut with v2:

  • Code complexity reduced

  • Gas footprint - reduced by 15-20%

  • Debt now represented by tokens instead of internal accounting within the contracts

  • Governance, yield & collateral swaps

  • Repay with collateral

  • Flash loans allowed to be used with other features of Aave

  • Credit delegation

  • Stable and variable borrowing

The extremely fast growth in market size for V2 was shown in plain numbers - in just over a week it reached over $98M.

Aave v3

"Every time Tesla launches a new car, the batteries are better. Every time we launch a new protocol, it's more efficient," Kulechov said.

And that statement is backed up, considering the latest update with the most substantial improvement to the defi platform up to date.

With it’s (current) TVL of $4.118b Aave remains one of the biggest protocols up to date.

Aave v3 boosted the platform's appeal by adding new features in addition to improvements overall. These include the inclusion of risk management tools, greater decentralised liquidity, and increased capital efficiency.

For the features, we were introduced to:

  • Isolation mode - allows Aave Governance to list new assets as isolated assets, which have a specific debt ceiling.

  • Improved functionality - you can move your assets seamlessly between all Aave V3 markets over different networks, allowing you to move your funds from a wallet by simply signing an approval message instead of approving a transaction on the network to avoid gas fees

  • Gas price reduction - for all the relevant functions costs have been reduced by around 20-25% across the board

  • Code optimisation

  • Simplified and flexible flash loan function

  • High efficient eMode - feature that maximizes capital efficiency when collateral and borrowed assets have correlated prices, providing higher leverage rates for more efficient lending

The progress and improvement of Aave versions correlate with it’s longevity and success as one of the biggest and prominent DeFi protocols.

Last updated