Aave V4 Preview: Is Blockchain the Inevitable Destination of Old DeFi?

BeginnerMay 22, 2024
Aave V4’s preview outlines its upcoming updates, including unifying the liquidity layer to reduce liquidity dispersion, introducing a fully automatic interest rate adjustment mechanism, a liquidity premium mechanism to dynamically adjust borrowing rates, and launching smart account and treasury functions to improve user experience. , dynamic risk parameter configuration, excess debt protection mechanism, native integration with GHO stablecoin, and the planning of Aave Network. These updates aim to improve capital efficiency, risk management and user experience. At the same time, the proposal of Aave Network seems to have some stubbornness of old DeFi projects, and questions remain about its necessity and specific implementation plans.
Aave V4 Preview: Is Blockchain the Inevitable Destination of Old DeFi?

Regarding Aave v4, in summary, many problems should have been corrected long ago, and some plans seem to be the stubbornness of old DeFi. Should every big protocol have a clockwork chain? (1-8)

1. Unify the liquidity layer

  • All fund supply and lending are centrally managed so that liquidity is not scattered across different modules.

  • Allows the protocol to easily add or remove functional modules in the future without the need to migrate liquidity, providing convenience for long-term expansion.

The biggest advantage is that you don’t have to switch back and forth between Aave V2/V3/V4 tabs, and you don’t need to manually migrate funds from V2 to V3 like you did when you upgraded to V3.

2. Fuzzy control interest rate function

Aave V4 proposes fully automatic interest rates with the ability to adjust the slope of the interest rate curve. The current setting is controlled by governance mechanisms, which not only increases the governance burden but also reduces capital efficiency. Fuzzy interest rates are designed to actively control the turning point of the interest rate curve so that it can be dynamically adjusted according to market conditions. The base interest rate will rise or fall based on market demand to optimize interest rates for suppliers and borrowers.

This point should have been optimized long ago. The cumbersome interest rate model and lengthy governance process have made Aave miserable. Before$CRV In the case of malicious short selling, Fraxlend was already far ahead with its algorithmic control of interest rates. When the short utilization rate of funds was too high, it gave priority to repaying Fraxlend’s loans with a healthier interest rate model.

3. Liquidity premium mechanism

V4 introduces the concept of “liquidity premium” and dynamically adjusts borrowing interest rates based on the risk status of mortgage assets (such as degree of centralization, market risk, etc.). In the face of higher-risk collateral, borrowing costs are relatively higher, and conversely, lower risks help reduce borrowing costs.

This is a better risk management feature. Many altcoins still have lending needs on the chain, and risk grading is a desirable strategy.

4. Launch of Smart Account and Vault

Significantly improve the user experience, allowing users to manage multiple positions using a single wallet. Smart Accounts are designed to solve one of V3’s major user experience issues: the need to use multiple wallets to manage positions when borrowing using e-mode or segregated assets.

After the introduction of smart accounts, users can create multiple sub-accounts with one wallet, greatly simplifying protocol interaction. Smart accounts can also realize the “treasury” function that is highly requested by users. Users can borrow assets as collateral in smart accounts, and the collateral is locked but will not enter the liquidity pool, reducing risk spillovers.

This is also a very nice and long overdue upgrade to the experience.

5. Dynamic risk parameter configuration

Supports the creation of independent risk configurations for individual assets to reduce liquidation risks. Introduce an automated asset removal mechanism to simplify the governance process.

  • The risk parameter adjustment of V3 (especially the liquidation threshold) affects all users. Lowering the threshold may trigger unnecessary liquidation and high governance costs.

  • V4 introduces the dynamic configuration function. New loans use new configurations, and existing users still use the original configurations.

  • An automated asset delisting mechanism is launched. After the governance layer triggers it, the system gradually lowers the liquidation threshold of the asset until it returns to zero. The effect is equivalent to the fact that the asset can no longer complete the lending business, which is equivalent to manual delisting but simplifies the governance process.

6. Introduce an excess debt protection mechanism to prevent the spread of bad debts.

One drawback of the shared liquidity model is that asset accumulation and excess debt are contagious. V4 introduces a new mechanism to track insolvent positions and automatically calculate the accumulated excess debt. When the excess debt exceeds the established threshold, the relevant assets automatically lose their borrowing ability to prevent the spread of bad debts.

7. Provide native integration with GHO stablecoin

Support native minting of GHO in the liquidity layer.

  • Introducing GHO “soft liquidation” AMM, modeled after crvUSD.

  • Introduce GHO emergency redemption mechanism to deal with extreme anchoring situations.

  • Depositors are allowed to choose to obtain interest in the form of GHO, and the agreement converts the interest into GHO’s collateral to enhance the stability of GHO.

8. Aave Network

Aave plans to launch a new network layer that will serve as the core hub for the GHO stablecoin and the Aave lending protocol.

  • Pay fees using GHO.

  • Using Aave V4 as the hub.

  • $GHOST Serves as the primary staking asset for decentralized validators/orderers.

  • The network’s interface and interaction with Ethereum is controlled by the community through Aave Governance V3.

  • Extensive use of account abstraction

  • Inherit network security from Ethereum.

Aave Labs stated that it will continue to pay attention to the development of first- and second-layer networks and select the most appropriate technical solutions for the Aave community.

Regarding Aave Network, it is full of the stubborn smell of the old DeFi. Judging from the currently released information and status, this seems to be a decision that even the team itself has not thought about. Should it be L1 or L2? How to do it? Is it really necessary? I have questions about these issues.

In fact, the only thing that is relatively clear is that Aave will always have to fight a tough battle in the stablecoin market in the future, and all plans are creating scenarios for GHO.

Due to the lack of innovation in this round of application layer, it seems that it is really a bull market for infrastructure. Every project is embarrassed to raise funds without a layer. With a “layer”, the valuation will go up all of a sudden, and DeFi When the protocol becomes bigger, it is still very far away whether it is really necessary to build a chain. From my point of view, Ethereum seems to be the financial center on that chain. It is not that it is impossible to leave here, but for Some projects that are not overly dependent on performance seem to make themselves “look more useful” and leave Ethereum to build their own chain. There is no more improvement for the users of the product. On the contrary, it may reduce security in the early stage.

Disclaimer:

  1. This article is reproduced from [panewslab], original title “Aave V4 Preview: Is Blockchain the Inevitable Destination of Old DeFi?”, the copyright belongs to the original author [Chen Mo cmDeFi], if you have any objection to the reprint, please contact Gate Learn Team, the team will handle it as soon as possible according to relevant procedures.

  2. The views and opinions expressed in this article represent only the author’s personal views and do not constitute any investment advice.

  3. Other language versions of the article are translated by the Gate Learn team. Without referencing Gate.io, copying, distributing, or plagiarizing the translated articles is prohibited.

1. Unify the liquidity layer

2. Fuzzy control interest rate function

3. Liquidity premium mechanism

4. Launch of Smart Account and Vault

5. Dynamic risk parameter configuration

6. Introduce an excess debt protection mechanism to prevent the spread of bad debts.

7. Provide native integration with GHO stablecoin

8. Aave Network

Aave V4 Preview: Is Blockchain the Inevitable Destination of Old DeFi?

BeginnerMay 22, 2024
Aave V4’s preview outlines its upcoming updates, including unifying the liquidity layer to reduce liquidity dispersion, introducing a fully automatic interest rate adjustment mechanism, a liquidity premium mechanism to dynamically adjust borrowing rates, and launching smart account and treasury functions to improve user experience. , dynamic risk parameter configuration, excess debt protection mechanism, native integration with GHO stablecoin, and the planning of Aave Network. These updates aim to improve capital efficiency, risk management and user experience. At the same time, the proposal of Aave Network seems to have some stubbornness of old DeFi projects, and questions remain about its necessity and specific implementation plans.
Aave V4 Preview: Is Blockchain the Inevitable Destination of Old DeFi?

1. Unify the liquidity layer

2. Fuzzy control interest rate function

3. Liquidity premium mechanism

4. Launch of Smart Account and Vault

5. Dynamic risk parameter configuration

6. Introduce an excess debt protection mechanism to prevent the spread of bad debts.

7. Provide native integration with GHO stablecoin

8. Aave Network

Regarding Aave v4, in summary, many problems should have been corrected long ago, and some plans seem to be the stubbornness of old DeFi. Should every big protocol have a clockwork chain? (1-8)

1. Unify the liquidity layer

  • All fund supply and lending are centrally managed so that liquidity is not scattered across different modules.

  • Allows the protocol to easily add or remove functional modules in the future without the need to migrate liquidity, providing convenience for long-term expansion.

The biggest advantage is that you don’t have to switch back and forth between Aave V2/V3/V4 tabs, and you don’t need to manually migrate funds from V2 to V3 like you did when you upgraded to V3.

2. Fuzzy control interest rate function

Aave V4 proposes fully automatic interest rates with the ability to adjust the slope of the interest rate curve. The current setting is controlled by governance mechanisms, which not only increases the governance burden but also reduces capital efficiency. Fuzzy interest rates are designed to actively control the turning point of the interest rate curve so that it can be dynamically adjusted according to market conditions. The base interest rate will rise or fall based on market demand to optimize interest rates for suppliers and borrowers.

This point should have been optimized long ago. The cumbersome interest rate model and lengthy governance process have made Aave miserable. Before$CRV In the case of malicious short selling, Fraxlend was already far ahead with its algorithmic control of interest rates. When the short utilization rate of funds was too high, it gave priority to repaying Fraxlend’s loans with a healthier interest rate model.

3. Liquidity premium mechanism

V4 introduces the concept of “liquidity premium” and dynamically adjusts borrowing interest rates based on the risk status of mortgage assets (such as degree of centralization, market risk, etc.). In the face of higher-risk collateral, borrowing costs are relatively higher, and conversely, lower risks help reduce borrowing costs.

This is a better risk management feature. Many altcoins still have lending needs on the chain, and risk grading is a desirable strategy.

4. Launch of Smart Account and Vault

Significantly improve the user experience, allowing users to manage multiple positions using a single wallet. Smart Accounts are designed to solve one of V3’s major user experience issues: the need to use multiple wallets to manage positions when borrowing using e-mode or segregated assets.

After the introduction of smart accounts, users can create multiple sub-accounts with one wallet, greatly simplifying protocol interaction. Smart accounts can also realize the “treasury” function that is highly requested by users. Users can borrow assets as collateral in smart accounts, and the collateral is locked but will not enter the liquidity pool, reducing risk spillovers.

This is also a very nice and long overdue upgrade to the experience.

5. Dynamic risk parameter configuration

Supports the creation of independent risk configurations for individual assets to reduce liquidation risks. Introduce an automated asset removal mechanism to simplify the governance process.

  • The risk parameter adjustment of V3 (especially the liquidation threshold) affects all users. Lowering the threshold may trigger unnecessary liquidation and high governance costs.

  • V4 introduces the dynamic configuration function. New loans use new configurations, and existing users still use the original configurations.

  • An automated asset delisting mechanism is launched. After the governance layer triggers it, the system gradually lowers the liquidation threshold of the asset until it returns to zero. The effect is equivalent to the fact that the asset can no longer complete the lending business, which is equivalent to manual delisting but simplifies the governance process.

6. Introduce an excess debt protection mechanism to prevent the spread of bad debts.

One drawback of the shared liquidity model is that asset accumulation and excess debt are contagious. V4 introduces a new mechanism to track insolvent positions and automatically calculate the accumulated excess debt. When the excess debt exceeds the established threshold, the relevant assets automatically lose their borrowing ability to prevent the spread of bad debts.

7. Provide native integration with GHO stablecoin

Support native minting of GHO in the liquidity layer.

  • Introducing GHO “soft liquidation” AMM, modeled after crvUSD.

  • Introduce GHO emergency redemption mechanism to deal with extreme anchoring situations.

  • Depositors are allowed to choose to obtain interest in the form of GHO, and the agreement converts the interest into GHO’s collateral to enhance the stability of GHO.

8. Aave Network

Aave plans to launch a new network layer that will serve as the core hub for the GHO stablecoin and the Aave lending protocol.

  • Pay fees using GHO.

  • Using Aave V4 as the hub.

  • $GHOST Serves as the primary staking asset for decentralized validators/orderers.

  • The network’s interface and interaction with Ethereum is controlled by the community through Aave Governance V3.

  • Extensive use of account abstraction

  • Inherit network security from Ethereum.

Aave Labs stated that it will continue to pay attention to the development of first- and second-layer networks and select the most appropriate technical solutions for the Aave community.

Regarding Aave Network, it is full of the stubborn smell of the old DeFi. Judging from the currently released information and status, this seems to be a decision that even the team itself has not thought about. Should it be L1 or L2? How to do it? Is it really necessary? I have questions about these issues.

In fact, the only thing that is relatively clear is that Aave will always have to fight a tough battle in the stablecoin market in the future, and all plans are creating scenarios for GHO.

Due to the lack of innovation in this round of application layer, it seems that it is really a bull market for infrastructure. Every project is embarrassed to raise funds without a layer. With a “layer”, the valuation will go up all of a sudden, and DeFi When the protocol becomes bigger, it is still very far away whether it is really necessary to build a chain. From my point of view, Ethereum seems to be the financial center on that chain. It is not that it is impossible to leave here, but for Some projects that are not overly dependent on performance seem to make themselves “look more useful” and leave Ethereum to build their own chain. There is no more improvement for the users of the product. On the contrary, it may reduce security in the early stage.

Disclaimer:

  1. This article is reproduced from [panewslab], original title “Aave V4 Preview: Is Blockchain the Inevitable Destination of Old DeFi?”, the copyright belongs to the original author [Chen Mo cmDeFi], if you have any objection to the reprint, please contact Gate Learn Team, the team will handle it as soon as possible according to relevant procedures.

  2. The views and opinions expressed in this article represent only the author’s personal views and do not constitute any investment advice.

  3. Other language versions of the article are translated by the Gate Learn team. Without referencing Gate.io, copying, distributing, or plagiarizing the translated articles is prohibited.

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