Aave V2 is coming, and the myth of a hundredfold in the new round of competition? (www.blockcast.cc)

2020 is a year of turbulence in the global economy. Affected by the epidemic, many governments have begun to implement quantitative easing policies, banks have cut interest rates, and legal currencies have devalued. In this case, more and more people are focusing on the blockchain field. DeFi has become the fastest concept of the blockchain this year in attracting money. In just a few months, the total lock-up volume of DeFi has increased from 1 billion US dollars. It surged to a maximum of $11.7 billion.

Today’s protagonist-lending giant Aave, the price of token LEND has soared one hundred times, the market value has gone up all the way, and the amount of locked positions is far ahead. It has been recognized by both supervision and the market. Aave is undoubtedly the leader and beneficiary of this wave of DeFi boom.

According to data from DeFi Pulse, the Aave protocol lock-up volume has increased from the initial more than US$310,000 to the current over US$1.4 billion, an increase of 4300%.

As the volume continues to expand, in order to further promote borderless finance, the Aave team proposed a new version of the Aave V2 initiative. Currently, Aave V2 has entered the testing phase. Under the impact of Uniswap’s issuance, Aave’s lock-up volume ranking fell to No. 4. Will the upcoming Aave V2 help Aave regain some advantages?

Review Aave V1

Aave is an open source decentralized lending protocol that guarantees the fairness of collateral prices through the Chainlink oracle, and provides users with savings and lending services. When the user deposits, he will get a token that is linked 1:1 with the asset value as a proof of deposit. Interest will start to be calculated immediately upon deposit, and the number of tokens held by the depositor has increased steadily. Deposit users can also lend 25%-100% of other assets on the platform depending on the aToken.

According to Debank data, the current total lock-up volume of the Aave agreement is US$1.39 billion. The current price of its governance token LEND is US$0.5042, with a total market value of over US$633 million and a 24-hour trading volume of US$1.74 million, which is equivalent to 4999 ETH.

Two more innovative points, Aave launched two lending methods, Flash Loan and Credit Delegation, to lower the threshold for lending, enhance the liquidity of the agreement, and improve credit efficiency.

Lightning loan is a risk-free loan method designed for users with technical knowledge and investment experience. Users can obtain loans from the Aave fund pool without collateral, but the liquidity needs to be returned before the transaction is closed. If it is not paid off, all operations in the transaction will be cancelled. Credit entrustment allows users to make unsecured point-to-point loans. Depositors can entrust their credit line to a party they trust if they do not borrow. The credit loan treaty shows on the digital contract platform OpenLaw that if someone defaults on a loan, the defaulter will face serious legal consequences.

The dual-track interest rate system, that is, the parallel fixed interest rate and floating interest rate, is Aave’s innovative setting to adapt to the changing DeFi market. For stability and high interest rates, users usually choose a fixed interest rate. However, when the market fluctuates sharply or market expectations are lowered, users will choose floating interest rates to reduce borrowing costs. When the floating interest rate is more than 20% lower than the fixed interest rate, the loan will be automatically reduced to make up the difference.

In addition to the Aave market, Aave also integrates the Uniswap market. Uniswap liquidity holders can store Uniswap tokens in the Aave protocol and use them as collateral to participate in transactions.

Aave V2 highlights

Token migration and governance innovation

In Aave V2, the Aave agreement will be migrated at a conversion ratio of 100 LEND:1 AAVE. The total supply of AAVE will be 16 million tokens. 13 million AAVE tokens will be exchanged by LEND token holders, and the remaining 3 million AAVE tokens will be allocated to AAVE Ecosystem Reserve. AAVE will become the governance token of the protocol, so AAVE holders can vote on the update of the governance smart contract. AAVE holders can also put AAVE in the security module to ensure the security of the protocol while also obtaining security rewards.

Tokenization of physical assets

Aave is cooperating with the Ethereum real estate project RealT. Holders of RealT tokens can use the Aave protocol to deposit collateral to obtain loans. Regardless of the value of the collateral, when users use RealT tokens again, the initial value will have a greater fluidity. In addition to gaining more liquidity, since the volatility of real estate is far less than that of the encrypted market, RealT’s market stability also reduces Aave’s default risk. The cooperation will continue and develop in the V2 version.

Aave V2 faces challenges

Although the Aave team is constantly improving the agreement, security issues have always been Aave’s unavoidable risks. On March 12th of this year, the lending platform Maker protocol had a bug because it could not cope with the sudden drop of Ethereum, and all user data disappeared for a while.

Aave founder Stani Kulechov said in an interview with Reuters that the self-adjustment of the DeFi protocol code is the basis for the normal operation of the program. However, both code bugs and hacking attacks often occur, and we cannot predict when there will be problems with smart contracts.

Like potential security risks, how to balance internal and external supervision is also a difficult problem for the Aave team. This summer, the Aave entity company was authorized by the British Financial Conduct Authority (FCC) as an electronic money agency. This authorization allows Aave to facilitate payments and currency conversion, and provide electronic money accounts for consumers and businesses. At the same time, some users in the community questioned whether Aave can maintain the decentralized “initial intention” after the regulatory authorities participate, and whether there is a risk of interference and manipulation in the trading behavior of platform users.

Today, Aave V2 is running on the testnet and will be officially launched soon. Whether the new version can help Aave return to the top of the DeFi list is not yet known, but it is certain that Aave V2 will bring new fluctuations to the current stable DeFi field.