Aave Labs, the company responsible for the decentralized finance (DeFi) lending protocol Aave, has presented a proposal for upgrading its protocol as part of its five-year roadmap. The aim is to gather community feedback on the next-generation version 4 of the protocol. The proposal includes significant upgrades and expansions to the Aave Network, as well as a fresh new visual identity. Aave V4 will be built on a completely new architecture and will feature a Unified Liquidity Layer, allowing for better integration of features like isolation pools, risk modules, and the native stablecoin GHO. The proposed features also include interest rates that can automatically adjust based on market conditions, using Chainlink data oracles. Liquidity Premiums to adjust borrowing costs based on collateral risk profiles and vaults, as well as smart accounts for simplified user management of positions, were also suggested.
Part of the proposal focuses on Aave’s algorithmic stablecoin GHO, which was launched in July 2023. However, it currently has a market capitalization of only $49 million compared to its competitors such as Tether (USDT) and USD Coin (USDC). The proposal suggests improvements to the liquidation engine and better integration of GHO, including options to earn interest. An emergency redemption mechanism for GHO depegging scenarios is also proposed.
The proposal is currently in the “temperature check” phase to gauge community sentiment before moving towards an on-chain vote. The development timeline outlines research completion in Q2 2024 and a full V4 release by mid-2025.
Aave Labs is requesting a grant of 15 million GHO and 25,000 stkAAVE, worth around $17 million combined, for the first year of the three-year plan.
Aave is currently the third largest DeFi protocol with a total value locked of around $10 billion. The native Aave (AAVE) token is trading at $82.35, having lost 9% over the past week and remaining down 87.6% from its all-time high of $660 three years ago.
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