Should Aave V3 be released?

In 2019, the first version of the Aave protocol smart contracts (the “Aave Protocol”) were deployed to the Ethereum mainnet. V1 of the Aave Protocol provided a way for users to provide and obtain liquidity autonomously, and to earn yield on any liquidity provided to the protocol.

In December 2020, a second version of the Aave Protocol was deployed, which brought new features to liquidity provision and liquidity access in the DeFi ecosystem. V2 of the Aave Protocol featured, among other things, credit delegation, the ability for users to choose between stable and variable interest rates on any borrow transaction and certain gas optimizations and improvements.

Around the same time, Aave Governance gained administration and maintenance over V1 and V2 of the Aave Protocol, and were tasked with the continued growth of the ecosystem around the Aave Protocol (the “Aave Ecosystem”).

The Aave Ecosystem has grown organically over the past two years, supporting successful, safe and risk conscious operation of the Aave Protocol. The community has supported the Aave Protocol’s expansion from the Ethereum mainnet to the Polygon and Avalanche networks as well.

After these two years of substantial growth, this snapshot proposal to the Aave Governance seeks community approval for a new iteration of the Aave Protocol: Introducing Aave V3. 👻 🎉

The features associated with Aave V3 represent a significant technological advancement from DeFi liquidity protocols as we know them today.

Aave V3 introduces the following features (among others):

• Portal: allows assets to seamlessly flow between Aave V3 markets over different networks;

• High Efficiency Mode: allows borrowers to extract the highest borrowing power out of their collateral;

• Isolation Mode: limits exposure and risks to the protocol from newly listed assets by only permitting borrowing up to a specific debt ceiling;

• Risk Management Improvements: provides additional protection for the protocol through various risk caps and other tools;

• L2-Specific Features: designs specific to Layer 2 networks to improve user experience and reliability;

• Community Contribution: facilitates and incentivizes community usage through a modular, well organized codebase.

These features make V3 the most robust and efficient DeFi liquidity protocol ever designed.

In the event that the community votes affirmatively, the Aave Protocol V3 codebase audits being conducted by OpenZeppelin, Trail Of Bits, Peckshield, ABDK and Certora will be completed in or around the end of November. In addition, certain auditors may apply to the DAO to conduct additional audits of the code upon release before deployment.

If the community votes positively for deployment of V3 of the Aave Protocol, there will be a set of additional Snapshot votes for the community to determine the following:

• Deployment Networks:  Given the proliferation of efficient networks, including L2s, the community can vote on which networks V3 will be released initially. V3 will be able to be deployed on a maximum of three networks upon release, so the Snapshot will be a “ranking” vote.

• The V3 code licensing: In light of the fact that the Aave Ecosystem is highly diffuse and decentralized, Aave Governance will decide what type of license, if any, will apply to the Aave Protocol V3 code. As far as we are aware, this is a first for the DeFi space!

• The V3 Bug Bounty program: The community will decide on size, duration and scope of the Bug Bounty program, as well as who (e.g., the RiskDAO, etc. – see proposal here [insert RiskDAO governane proposal]) will administer the program.

• Retroactive funding: The community will also be able to decide whether to provide retroactive funding to those who contributed to the creation of V3, and how much funding to provide.

If the community votes to deploy V3, another ARC will provide additional details relating to each of the additional votes described above.

Once these votes determine the community decisions and the current audits are finalized, the deployments voted upon by the community can begin.

Link to the Governance Forum ARC: https://governance.aave.com/t/introducing-aave-v3/6035