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.

Why V3?

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.

High Efficiency Mode

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.

Isolation Mode

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 Optimization

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.

For more details on Aave V3 features, please read the Technical Paper or Developer Documentation. The list of Aave Ethereum V3 addresses can be found here.

We are incredibly excited to see users of the Aave Protocol take advantage of these exciting new features through V3 on Ethereum Mainnet!

V3 Migration Tool

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:

1. Select the supply and borrow prepositions you would like to migrate

2. Click ‘Preview tx and migrate’

3. Sign approval for each position*

4. 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.

• Each supply position requires approval to the migration contract to transfer aTokens, and each borrow position requires approval of credit delegation for the migration contract to execute the borrow on your behalf in V3. Both approvals can be performed via signed message or an approval transaction.

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

Polygon: 0x3db487975aB1728DB5787b798866c2021B24ec52

Avalanche: 0xf50a080aC535e531EC33cC05b227E910De2fb1fA

Mainnet: 0xB748952c7BC638F31775245964707Bcc5DDFabFC

Audits

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.

Get Involved 🤝

👻 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.

🔨 Ready to build? For all builders, teams, and developers ready to build on the Aave Protocol, you can access the Developer Documentation and protocol code on GitHub.

“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

It's here! Say “gm” to the most powerful version of the Aave protocol to date: V3.

Now live, Aave V3 builds upon the foundational elements of the Aave Protocol (e.g., aTokens, instant liquidity, stable rate, etc.) with groundbreaking new features that span from increased capital efficiency to enhanced decentralization.

Dive into V3 now: https://aave.com

These innovative technologies result from the Aave community’s continued dedication to pushing forward not only the Aave ecosystem, but also the entire DeFi ecosystem at large.

“Aave V3 is poised to accelerate the growth of DeFi with its fully revamped user experience,” said Sandeep Nailwal, Co-Founder of Polygon. “This is a huge milestone for one of the most popular liquidity protocols in DeFi and furthers our mission to bring DeFi to the next hundreds of millions of people.”

This is a pivotal milestone for the Aave Protocol and community, and this celebratory post will dive into key new features, the ecosystem, the redesigned app, governance, and more. 🎉

V3 Features 🚀 🔒

The release of V3 makes the Aave Protocol one of the most advanced, secure, and efficient DeFi protocols across the ecosystem. With the introduction of key new features, Aave V3 provides greater capital efficiencies, increased security, and cross-chain functionality, while facilitating increased decentralization across the protocol and throughout the ecosystem.

Powerful new features include:

Portals 🌀 - A highly anticipated feature, Portals offer only “permit listed” bridge protocols, voted upon by Aave governance, which facilitate cross-chain transactions, allowing assets to seamlessly flow between Aave V3 markets over different networks.

High Efficiency Mode ⬆️ - Also known as “E-Mode,” users have access to higher borrowing power within the same asset category, allowing borrowers to extract the most out of their collateral.

Isolation Mode 🔗 - Newly listed assets "isolated" by Aave governance can only be used as collateral up to a specific debt ceiling. Within Isolation mode, users can only borrow assets of a particular type (e.g., stablecoins, ETH/wETH) and cannot simultaneously use other assets as collateral, limiting exposure and risks to the protocol from newly listed assets.

But wait... there’s more!

L2-Specific Features 🛣: Designs specific to Layer 2 networks to improve user experience and reliability. The Aave Oracle network continues to be powered by Chainlink.

Community Contribution 🕺: Facilitates and incentivizes community usage through a modular, well-organized codebase.

Gas Optimization⛽️: Gas costs of all the functions are reduced by around 20-25% across the board!

Risk Management Improvements 🔐: Provides additional protection for the protocol through various risk caps and other tools.

To learn more about the new features, read the original Governance proposal here or pour a cup of tea and dive into the technical paper for an in-depth explanation.

Aave Ecosystem ✨

With the community greenlighting V3 deployments across Polygon, Fantom, Avalanche, Arbitrum, Optimism, and Harmony, the Aave Protocol continues to grow its exceptional reach, even enabling cross-chain governance voting!

Users will be able to access Aave V3 via countless new wallet integrations and access points on Instadapp, Debank, 1Inch, Paraswap, Zapper, DeFisaver, Zerion, and more.

“The launch of Aave V3 has introduced new access points for DeFi users, and we are excited to be a part of the initial cohort of new integrations going live today,” said Samyak Jain, Co-Founder & CTO of Instadapp. “Aave is one of the most popular protocols underpinning the DeFi ecosystem and has grown to the top protocol on Instadapp by TVL.”

Note: Ethereum Mainnet deployment will be determined by the community based on the maturity of the currently deployed markets. More on this soon!

Redesigned Aave App 🤖

Along with the launch of V3, there is also a fully redesigned and refreshed Aave app deployed to IPFS where users will be able to access simplified transaction flows, enjoy faster load times, and gain enhanced visibility into their holdings via Aave’s revamped dashboard: https://app.aave.com

What to expect in the V3 compatible app:

• 📊 An improved dashboard so it's easy to keep track of your transactions.

• 👀 Simplified transaction flows so there are less steps to engage in transactions.

• 📱 Enhanced mobile experience with new page layouts.

• ↔️ New and easy-to-use navigation patterns.

• ⚡️ Improved app loading speeds.

• 🧮 New libraries and integration patterns for developers to easily get started forking and building on the Aave interface.

• ✨ Fresh colors, typography system, and components to make visual patterns more disciplined and consistent.

Have feedback on the design and app? Feel free to reach out on https://discord.gg/aave under #feedback if you have ideas to share.

Note: The previous version of the app is still accessible via https://classic.aave.com

Audits 🔍

The Aave V3 code – public and available on GitHub here – was audited by leading security firms in two phases to ensure that any vulnerabilities discovered were immediately resolved, and any risks mitigated. Aave's V3 code has been audited by Sigma Prime, Trail of Bits, Open Zeppelin, ABDK, and PeckShield, in addition to undergoing formal verification by Certora. Reports can be found here.

Since the release of the test net no significant findings have been reported.

Code License

Because Aave Governance is responsible for the growth and development of the Aave ecosystem, it was in the community’s hands to decide the copyright licensing scheme applied to the V3 code. The community voted with a Snapshot to release the code under the business license.

And last but not least...

Get Involved 🤝

👻 Aave Governance! Anyone can get involved and contribute to the protocol's future with the Aave governance forum here and by voting on up-and-coming proposals here. Aave governance further supports voting delegation and proposition, and has various academic institutions involved in the community. 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.

📝 Ready to read? For a deep technical dive into V3, check out the documentation or review the technical paper.

🔨 Ready to build? For all builders, teams, and developers ready to build on the Aave protocol, you can access the protocol and periphery code on GitHub here.

🚀 Launch a network. Aave is cross-chain agnostic, and for teams who wish to deploy an Aave instance on a new network, you can find out the process here.

"Aave V3 is the result of continuous iteration resulting from community involvement and ecosystem growth," said Stani Kulechov, founder and CEO of Aave Companies. “V3 brings new and existing Aave community members to participate in the Aave DAO, which will continue to shape the future of DeFi."

Header illustration by Noah Farrar

👻👻👻

Recently, Aave Governance voted in favor of a proposal to implement V3 of the Aave Protocol, which brings updates and new features to the Aave smart contracts. Today, Aave V3 has been deployed across seven testnets and is available to try here! 🥳

Aave V3 is the result of continuous iteration, community feedback, and ecosystem growth. V3 builds upon the strong foundational elements of the Aave Protocol (e.g., aTokens, instant liquidity, stable rate borrowing, etc.) while introducing exciting improvements such as increased security and further enhanced decentralization.

The latest features, such as Portal, create new use cases and opportunities for innovation from the community. Now is the time for builders, developers, teams, and community members to start testing V3, and integrating and further expanding the Aave ecosystem!  👻

Let’s dive into what this major milestone brings:

V3 Features

The release of V3 will make the Aave Protocol one of the most advanced, secure, and efficient DeFi protocols across the ecosystem. V3 offers greater capital efficiencies, increased security, and cross-chain functionality, while facilitating increased decentralization across the protocol and throughout the ecosystem. Some of these new features include:

High Efficiency Mode ⬆️: Allows borrowers to extract the highest borrowing power out of their collateral;

Isolation Mode  🔗:  Limits exposure and risks to the protocol from newly listed assets by only permitting borrowing up to a specific amount;

Risk Management Improvements 🔐: Provides additional protection for the protocol through various risk caps and other tools;

L2-Specific Features 🛣: Designs specific to Layer 2 networks to improve user experience and reliability;

Portal 🌀: Allows assets to seamlessly flow between Aave V3 markets over different networks (note that this feature will only be available on the main network deployment);

Community Contribution 🕺: Facilitates and incentivizes community usage through a modular, well-organized codebase;

Gas Optimization⛽️: Gas costs of all the functions are reduced by around 20-25% across the board!

The V3 technical paper is available here, while you can find a full explanation of V3 and its features here.

How to Test Aave V3👷

V3 of the Aave Protocol is now ready for you to build the next generation of DeFi applications! You can start testing – and integrating – Aave V3 on the following testnets: Ethereum Rinkeby, Fantom Testnet, Harmony Testnet, Arbitrum Rinkeby, Polygon Mumbai, Optimism Kovan, and Avalanche Fuji. You can get tokens to test from the faucet here.

From the Dashboard page scroll down to the bottom of supply section and click Faucet, then simply select the token of your choice and submit the transaction. Make sure to have the native network token before using the faucet.

You can learn more about testing Aave from our FAQ.

Audits 🔍

The Aave V3 code – public and available on GitHub here – was audited by leading security firms in two phases to ensure that any vulnerabilities discovered were immediately resolved, and any risks mitigated. In the first round of audit, some issues were identified, and work was done to address each of these issues reported and to resolve all vulnerabilities. The audit reports can be found in the repository under the audits folder here.

Formal Verification – January 2022

• Certora

Round 2 – December 2021

• Sigma Prime

Round 1 – October 2021

• Trail of Bits

• Open Zeppelin

• ABDK

• PeckShield

Bug Bounty 🪲

Any developers that discover vulnerabilities within the code are encouraged to report them to ensure the continued security of the protocol. Subject to community evaluation, a public bug bounty program will run over the next 30 days which will reward developers for identifying critical bugs.

Keep an eye on the governance forum for further discussion on this topic.

Code License

Because Aave Governance is responsible for the growth and development of the Aave ecosystem, it was in the community’s hands to decide the copyright licensing scheme applied to the V3 code. The community voted with a Snapshot to release the code under the business license.

Ecosystem & Integrators

📝 Ready to read? For a deep technical dive into V3, check out the documentation or review the technical paper.

🔨 Ready to build? For those looking to build on V3 and expand the Aave ecosystem, you can access the code on GitHub here.

🙏 Need funding? Check out the Aave Grants DAO for funding for your next project here.

👏 Ready to integrate? For those looking to integrate  into the Aave protocol, you can access the code on GitHub here.

What’s Next?

Feedback from the community is extremely valuable. Try V3 and join the discussion on Discord and voice your opinion on the governance forum!

Stay tuned for updates on wen mainnet and more by following @AaveAave on Twitter.

👻 👻 👻

Since its launch in January 2020, the Aave Protocol—an open source, decentralized, non-custodial liquidity protocol—has experienced exponential growth with peak liquidity reaching over USD 30 billion, and total active users totaling nearly one million.

As demand for decentralized finance (“DeFi”) has grown, so too has the interest from traditional financial institutions. Several fintechs, hedge funds, family offices, and asset managers have expressed interest in using a version of the Aave Protocol that meets their internal requirements.

Additionally, financial institutions ranging from bulge bracket investment banks, endowments, mutual funds, pension funds and even central banks have reached out to learn how the Aave Protocol and, more broadly, how DeFi works.

Aave Arc provides an isolated Aave market and a sandbox environment for institutions to experience the power of DeFi: transparency, decentralized governance, rapid innovation, automated smart contract-based execution, liquidity, and programmability.

Why and how is explained below:

KYC and Decentralization

Traditional financial institutions and fintech platforms can make DeFi accessible to billions of fiat-native users who have not yet dabbled with crypto wallets for a variety of reasons (e.g., complexity, access, etc.).

For permissioning, Aave Arc introduces the notion of “whitelisters” that provide KYC, AML, and Onboarding services to users of the permissioned Aave market. You can learn further details about whitelisters in the Arc Whitepaper here.

Aave Arc is designed to continue the decentralization ethos central to DeFi and, thus, is governed by Aave Governance in the same way as Aave V2.

Aave Arc whitelisters play a guardian role in the Aave Arc market—I.e., they can collectively (via multisig) veto certain proposals from the Aave Governance only if such proposals limit the ability of whitelisters  to meet compliance obligations.  This is key to ensuring the sustainability of Arc, while also maintaining a “check” on Aave Arc whitelisters who are appointed or removed by governance.

Fireblocks

Today we are excited to announce that Fireblocks LLC, a registered money services business (MSB) in the United States with money transmission licenses in several states, has submitted an Aave Improvement Proposal (AIP) to become the first whitelister on Aave Arc (the Fireblocks AIP). Fireblocks is known for its leading institutional MPC wallet product that already supports several DeFi protocols, including Aave V2. Fireblocks has processed $1.4TN in crypto transactions to date.

If this AIP is approved by Aave Governance, Aave Arc will be the first permissioned deployment of the Aave Protocol. Participants in Aave Arc will be able to supply cryptoassets to earn yield, or borrow assets against their supplied collateral. Aave Arc will have the same features as the secure, reliable, and battle-tested permissionless Aave market.

The initial assets available for positions on Aave Arc will be Ethereum, USDC, Bitcoin, and AAVE. Aave Governance will be able to add new assets through the standard proposal process.

Read more here:

https://app.aave.com/#/governance/48-QmR1wBgVnieDz3GUoxs6XEK8VgG65zdZtXWy48GP9opzvE

Access

Subject to governance approval of the Fireblocks AIP, market participants will be able to onboard onto Aave Arc via Fireblocks LLC and use Aave Arc in the same way as they use Aave V2.

It is anticipated that in the future other regulated entities will submit governance proposals to be approved as whitelisters for Aave Arc, which will facilitate market participants’ choice of onboarding onto Aave Arc via one or more whitelister.

Conclusion

Aave Arc is creating the bridge for traditional financial institutions to interact with DeFi and offer new products and services to their own customers. If you are interested in participating in the Arc Market, you can register your interest here:

The Aave Protocol is an open source and non-custodial liquidity protocol for earning yield on supplied cryptoassets and borrowing cryptographic assets against that collateral. 

To stay up to date check out our past musings here or follow us on Twitter! 

👻👻👻