Users can now trade assets while they are locked up as decentralized finance collateral.
The decentralized finance niche of crypto has boomed in 2020, paying users interest on locked funds (collateral) in exchange for loans. DeFi protocol Aave recently unveiled its second version, V2, adding further potential to the sector.
“In DeFi, assets that were being used as collateral were tied up, but now with V2 they are free to be traded,” Aave founder Stani Kulechov says a blog post on Thursday. “Users can trade their deposited assets, across all currencies supported in the Aave Protocol, even when they are being used as collateral.”
Various fad DeFi protocols and their related assets have surged in popularity throughout 2020. One project’s asset, YFI, even rocketed from less than $1,000 up past $38,000 this summer. Much of the activity in the DeFi space revolves around locking up crypto assets as collateral on platforms, earning interest while receiving loaned assets in return, which are then reallocated.
Allowing the trading of locked assets also adds methods for liquidation protection, the post details. Additionally, Aave’s version two also touts multiple other advancements, including improvements on flash loans and the use of collateral for reconciling loans, which essentially removes steps and transactions from the equation. Previously, a borrower without external capital needed several cycles of withdrawing, exchanging and partially extinguishing debt to close their position.
Other updates in V2 include flash liquidations, batch flash loans, debt tokenization, native credit delegation, gas optimization and borrowing-rate variations. As Aave transitions to its second version, the team has constructed parameters allowing users to maintain loans during the move.
“Recently AIP-3 was passed to make the migration from V1 to V2 more seamless,” Aave’s post details. “By using a Flash Loan powered migration tool, users will be able to make the transition without having to close their V1 loan positions,” the write-up adds. “This migration tool will be introduced later, so if you have V1 positions, no need to close them.”
As if those updates were not enough, the protocol also added other protection measures for the overall operation. “V2 also introduces a Reserve Factor to finance the long term sustainability of the DAO,” the post mentions.
DeFi moves incredibly fast, as seen by the number of rapid developments, matched with the river of money that has rapidly joined the sector.