Aave’s Next Chapter: V4 Protocol Proposal Outlines Ambitious Roadmap

Aave Labs, the team behind the DeFi lending platform Aave, has proposed a significant upgrade to its protocol, marking two years since the introduction of V3. 

Aave V4 Proposal

On May 1, Aave introduced a governance proposal to solicit community feedback on the planned upgrades. The proposal aims to evolve the protocol over a five-year plan, with the latest version, V4, at its forefront. The proposed version will feature a brand-new architecture designed for efficiency and modularity. Aave aims to minimize disruptions for third-party integrators while enhancing the protocol’s capabilities.

Cross-Chain Liquidity Layer

The proposal includes the expansion of the Aave Network, which will serve as a cross-chain liquidity layer. The concept was already introduced in Aave V3 and will be further expanded to make room for liquidity provisioning to facilitate the enhancement of borrowing features without migrating liquidity or changing the liquidation module. 

Furthermore, it would also be responsible for managing supply/draw caps, interest rates, assets, and incentives. 

Other Technical Upgrades For V4 

Aave also plans to extend its support to non-EVM (Ethereum Virtual Machine) Layer 1 deployments, broadening accessibility for users across various blockchain platforms.

Alongside technical upgrades, Aave intends to refresh its visual identity, aligning it with the evolving protocol.

Stablecoin GHO Enhancements

The proposal focuses on enhancing Aave’s algorithmic stablecoin, GHO. Suggestions include implementing variable liquidation bonuses and “soft” liquidations to enhance stability during market fluctuations. Aave plans to improve GHO integration within the protocol, providing users with options to earn interest on their holdings.

In anticipation of depegging scenarios, an emergency redemption mechanism has also been proposed to maintain stability.

Other Proposed Features

In V4, Aave plans to introduce ‘Smart Accounts’ to streamline the user experience. These accounts aim to address a major issue with V3 by eliminating the need for separate wallets to manage positions when borrowing. Users can create multiple smart accounts within a single wallet, simplifying interactions with the protocol.

A new dynamic configuration mechanism will also be introduced per asset, allowing users to remain hooked to the configuration they borrowed with, even if a new configuration is implemented.

Aave Labs is also collaborating with Chainlink to fully automate risk management using on-chain feeds. These feeds will evaluate asset risk and dynamically adjust risk parameters through control theory or artificial intelligence.

Development Timeline and Funding

The proposal outlines a development timeline stretching from Q2 2024 for research completion to a full V4 release by mid-2025. Aave Labs is requesting a grant of 15 million GHO and 25,000 stkAAVE, valued at approximately $17 million, for the first year of the three-year plan.

Currently, the proposal is in the “Temperature Check” phase, where the community sentiment will be assessed before moving on to an on-chain vote. 

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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