Aave Labs, the company responsible for the decentralized finance (DeFi) lending protocol Aave, has presented a proposal for an upgrade and advancement of its protocol as part of a five-year roadmap.
On May 1, the DeFi lending platform introduced a governance proposal to gather feedback from the community regarding the upgrade to the next-generation version 4 of the protocol.
The proposal also includes significant improvements and expansions to the Aave Network, a cross-chain liquidity layer, non-Ethereum Virtual Machine (EVM) layer-1 deployments, and a complete visual redesign, according to the team.
Aave V4 will be constructed on an entirely new architecture and will feature a “Unified Liquidity Layer” that will enable seamless integration of features such as isolation pools, risk modules, and its native stablecoin GHO.
Among the proposed features are interest rates that can automatically adjust based on market conditions using Chainlink data oracles. Liquidity Premiums are also suggested to adjust borrowing costs based on collateral risk profiles, and vaults and smart accounts are proposed to simplify user management of positions.
A significant portion of the proposal focuses on Aave’s algorithmic stablecoin GHO, which was launched in July 2023 but currently has a market capitalization of only $49 million compared to competitors like Tether (USDT) and USD Coin (USDC).
Suggestions for GHO include improvements to the liquidation engine, better integration options to earn interest, and an emergency redemption mechanism for depegging scenarios.
The proposal is currently in the “temperature check” phase, which serves as an indication of community sentiment before proceeding to an on-chain vote.
The development timeline outlined in the proposal spans from research completion in Q2, 2024, to a full V4 release by mid-2025.
Aave Labs is seeking a grant with a budget of 15 million GHO and 25,000 stkAAVE, which combined are worth approximately $17 million, to execute 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, according to DefiLlama. As of the time of writing, its native Aave (AAVE) token is trading at $82.35, experiencing a 9% loss over the past week and remaining 87.6% below its all-time high of $660 three years ago.
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