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Aave introduces V4 protocol with major upgrades



Aave has launched its V4 protocol, featuring significant upgrades to enhance user experience and security, marking a major step forward in DeFi.

Aave Labs released a proposal for the latest version of its protocol, detailing changes that include updates to its stablecoin, GHO.

Aave Labs, the firm behind the Aave decentralized finance (DeFi) lending protocol, outlined a proposal for upgrading and evolving its protocol as part of a five-year plan.

The DeFi lending platform presented a governance proposal on May 1 to gather community feedback on upgrading the protocol to its next-generation version 4.

According to the team, the proposal contains “major upgrades and expansions” to the Aave Network, including a cross-chain liquidity layer, non-Ethereum Virtual Machine (EVM) layer-1 implementations, and a “fresh new visual identity.”

Aave V4 will feature a “completely new architecture” and incorporate a “Unified Liquidity Layer,” allowing for smoother integration of components such as isolation pools, risk modules, and its native stablecoin GHO.

The proposal suggests interest rates that dynamically adjust in real-time based on market conditions, utilizing data oracles from Chainlink.

The proposal also includes Liquidity Premiums to vary borrowing costs according to collateral risk profiles and vaults and smart accounts to simplify user management of positions.

A portion of the proposal addresses Aave’s algorithmic stablecoin GHO, launched in July 2023, which is much smaller compared to its rivals like Tether and USD Coin, with a market capitalization of just $50 million.

Suggestions related to GHO focus on enhancements to the liquidation engine, including variable liquidation bonuses and “soft” liquidations, as well as improved integration of GHO with features like earning interest.

The major upgrade proposal also includes an emergency redemption mechanism to address situations where GHO loses its peg.

The proposal is currently in the “temperature check” phase, allowing the community to express their opinions before it moves to an on-chain vote.

The timeline extends from the completion of research in Q2, 2024, to a complete V4 release by mid-2025.

Aave Labs requests a grant with a budget of 15 million GHO and 25,000 stkAAVE, valued at about $17 million, to implement the first year of the three-year plan.

According to DefiLlama, Aave ranks as the third-largest DeFi protocol, with a total value locked of approximately $10 billion.

As at the time of writing, the native Aave token traded at $82.35, having fallen 9% over the past week. It’s still down 87.6% from its all-time high of $660 reached three years ago.

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