By
Mayowa Adebajo
May 17th, 2024
With all the upgrades that the proposal suggests, a notable part focused on growing the protocol’s algorithmic stablecoin GHO.
Decentralized finance (DeFi) lending protocol Aave Labs has recently shared what it says is its roadmap for the next five years. According to the firm’s proposal, it seeks to upgrade its protocol to the next-generation version 4 but would love to get community feedback on the proposed venture. However, Aave also noted that the V4 upgrade is only a part of a grander plan for the Aave 2030 grant proposal.
Aave V4: The Proposal
Aave Labs’ proposal, which aims at the complete overhaul of the protocol, will include “major upgrades and expansions” to the Aave Network, says the team. These changes will see the network add a cross-chain liquidity layer, deploy non-Ethereum Virtual Machine (EVM) layer-1, while also putting on a “fresh new visual identity”.
The team also noted that the Aave V4 upgrade would be featured on an entirely new architecture from the one featured on the previous three versions. However, for a more seamless integration of features such as its native stablecoin GHO, isolation pools, and RWA modules, the upgrade will also add a “Unified Liquidity Layer”.
Another part of the proposal mentions an automated interest rate feature that can adjust based on market conditions. In line with this, Aave says it is actively working with Chainlink to “define a clear set of data feeds”. Then the team also suggested Liquidity Premiums that factors in a borrowers collateral composition and adjusts their borrowing costs in kind.
Hopes for GHO
With all the upgrades that the proposal suggests, a notable part focused on growing the protocol’s algorithmic stablecoin GHO. Since launching in July 2023, the GHO stablecoin has found it really hard competing with the likes of Tether (USDT) and USD Coin (USDC). At least, so does its relatively low market capitalization of $49 million suggest.
To this end, the Aave V4 upgrade proposal floated the idea of improving the liquidation engine, such as variable liquidation bonuses and “soft” liquidations. It also hints at adding options to earn interest to boost GHO.
Furthermore, the big upgrade proposes a quick redemption mechanism in the event that GHO depegs. Although the proposal is still new, gathering feedback is expected to be completed by the second quarter of 2024. That will then be followed by an on-chain vote. All things being equal, the team expects to roll out the full Aave V4 by mid-2025.
Aave remains the third largest DeFi protocol with a total value locked (TVL) of around $10 billion, per DefiLlama’s data.