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December 27, 2023

Discover AAVE's Ecosystem and drive DeFi forward.

It is evident that DeFi has seen greater advancement and development. The DeFi world, which has become a hot topic for digital banking, is seeing the emergence of numerous protocols to deliver financial services. The lending protocol issue is also fascinating to follow and has taken an interesting turn when discussing finances.


Introducing AAVE, an interesting lending protocol that has now evolved into AAVE V3, and revealing how the ecosystem beyond lending is growing.
Summary of the conversation between Stani Kulechov, CEO & Co-founder of AAVE, and Melody He, Partner & Co-founder of The Spartan Group at REDeFiNE TOMORROW 2023 on the topic “AAVE’s Ecosystem: Powering the Future of Decentralized Finance”
What is AAVE V3 and how is it different from previous versions?
Before moving on to understand AAVE V3, we would like to take you to get to know the AAVE Protocol first.
The AAVE Protocol is a protocol for users to perform decentralized liquidity operations by opening up loans, as well as allowing users to become loan service providers themselves.

AAVE V3 is a new version that was developed and released for use in the first quarter of 2022. What is special this time is expanding the version to a broader variety of markets than before. AAVE Protocol is based on the Ethereum blockchain and has new markets like Polygon, Avalanche and Layer 2s like Optimism, Metis and Arbitum.
Kulechov explained, “AAVE V3 is an expansion into new markets, not just an update from the original version. We want to explore our protocol in smaller markets besides Ethereum and believe this market to be more secure.”
AAVE V3 has the following interesting features:

  • High Efficiency Mode (eMode) : A feature that improves the efficiency of collateral assets by calculating the relationship between the borrower’s collateral assets and the tokens the borrower wishes to borrow.
  • Isolation Mode : A feature that will help in managing and hedging new assets or tokens that have been recently added to the protocol to prevent and limit risks.
Kulechov said that the AAVE Protocol can be expanded into various markets because it is flexible. Meanwhile, those using V2 can migrate to V3. However, V2 currently has 5.2 billion active users, while V3 has 1.4 billion active users.
Kulechov explained why some users still choose not to migrate to V3, saying that in V2, there are some features that are important to existing users, but in V3, we have added security. For example, the Risk Admin tool will have representatives to manage user risk. With DAO (Decentralized Autonomous Organizations) on V3, there will be contributors in various fields to develop protocols and create tools to support users on AAVE Protocol, such as Satora, which is a security contributor that has Gaunlet and Chaos Labs design risk parameter tools, etc.

GHO Stablecoin complements AAVE Protocol
GHO is the AAVE Protocol stablecoin created to support the AAVE ecosystem. Kulechov described GHO as a facilitator. Users can bring their collateral assets to mint GHO, and those collateral assets will also earn interest on the loan deposited on AAVE Protocol in the form of a larger GHO loan amount.

Under the vision of increasing the number of users in the DeFi world, Kulechov views GHO as another Innovation Curve of AAVE that increases the efficiency of various protocols and tools. GHO Stablecoin is also a variable that solves multiple finance problems. Recently, AAVE has started to allow GHO use on the Ethereum Mainnet.

Additionally, Melody He mentioned stablecoin as an innovation that will promote the world economy. The world is experiencing inflation, including dollar shortages in many countries, and some countries still have problems with their financial infrastructure. As a result, alternative currencies like stablecoin will help raise the level of the economy and solve the problems associated with it. Across all countries, adoption and acceptance are lacking.

Kulechov added this opinion: Our transactions, both in our daily lives and on the internet, still lack absolute transparency. However, in the DeFi world, we can create a society and economic environment we can actually use with transparency. It will be transparent to the point of dealing with various counterparties simultaneously. There are also no transaction fees.

Get to know Lens Protocol, social media on Web3
The AAVE Protocol is not only about developing a lending protocol. But there is also a separate protocol design like Lens Protocol that is a space for users to create social media, design work, become a creator and create a society in the form that interests them. Lens Protocol will allow users to design their own Social Graph (unlike Web2, such as Facebook and Twitter, which intervene and manage users’ Social Graph; for example, when we click “Like” on a food page, Facebook will suggest the food page. This is how we manage the social graph for users. Users will not be able to access and understand their social graph, so platform owners can block accounts with users on the platform immediately). 

But for Lens Protocol, users will be able to create content, create a digital identity and manage the social graph themselves because it is a decentralized management model. In addition to creating content, users can also monetize their own content in their own communities. In addition, users will be able to collect and use social graph data as credit to continue using the AAVE Protocol.

It can be seen that the AAVE Protocol has not stopped developing just as a lending protocol but has also opened up space for social media and designed a stablecoin to drive its own ecosystem. Kulechov sincerely hopes that these “innovations” will help create greater engagement and more people interested in participating in the DeFi world.

Watch the Session at Youtube : AAVE’s Ecosystem: Powering the Future of Decentralized Finance
This article summarizes the virtual conference held in May 2023.

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