# DeFiDay - Stani Kulechov presenting the Aave Protocol V3

- Speakers: [Stani Kulechov](https://streameth.org/speakers/stani-kulechov)
- Channel: [CryptoCanal](https://streameth.org/cryptocanal)
- Date: 2022-10-07
- Duration: 17:19
- Watch: https://streameth.org/watch/yt-ZrpOGnsCX-w
- YouTube: https://www.youtube.com/watch?v=ZrpOGnsCX-w

## Description

On April 25th 2022 we hosted DeFi Day during Devconnect in Amsterdam. Enjoy this keynote by Stani Kulechov, presenting the Aave Protocol V3. 

Stani Kulechov https://twitter.com/StaniKulechov 
Aave https://aave.com/

Join our TG community https://t.me/CryptoCanalCommunity

We would like to thank our partners and sponsors that made this event possible. 🌷

Ethereum Foundation https://ethereum.org/en/
Balancer https://balancer.fi/
Oasis https://oasis.app/
Perpetual Protocol https://perp.com/
Lido https://lido.fi/
Figment: https://www.figment.io/
Uniswap: https://uniswap.org/

## Transcript

foreign [Music] I uh I barely made myself here so I I I kind of understand um who was in rava yesterday cool and who wants back um yeah today's uh things that we're going to discuss about is is the um of a protocol version three so um at other we have been building decentralized Finance for the past uh five and a half years and uh every single kind of like iteration has been um I would say like optimization of uh Capital efficiency and and risk management and now that the the web3 space and and um D5 as well has become kind of like more uh cross chain I want to introduce a bit more and go into details of the features uh that kind of like empower the the cross chain functionality uh that we have in uh in our web uh in in the V3 uh protocol um yeah and uh maybe I'll give some more Alpha on the next round of it um so yeah so main topics for me today uh Capital efficiency risk and security um and also uh how we improved decentralization um in in the V3 and also um just showing a bit of like a new experience layer that we created on on the application user interfa interface level so one of the um I would say novel features in the the version 3 of the the other protocol um and I don't know how many of you know Arvest so might be new for decent Plus Finance but essentially it's a it's a protocol and protocol is a set of rules that are running on on Smart contracts where essentially Adobe you can deposit cryptographic assets and and earn yield on these assets and then of course you can use these as a collateral to borrow let's say stable points to finance some other goal might be a finance opportunity or might be just a DJ yield Farm in in another Network and this is where uh actually the the the portal feature that we uh enabled uh becomes very valuable because today if you want to go from one network to another let's say from from ethereum to to polygon or Avalanche or into layer twos um optimism arbitrim essentially you need to bridge your liquidity one way or another and it's uh it's a good function I mean it's a good feature if it's built very well and it allows you to to actually go into networks where maybe there is low transaction cost or a new community the issue with many of these Bridges is that you have quite long time periods that you have to wait when you port your assets and in the other version 3 what we actually did is we created this kind of like a portal actually we call it portals uh where you where you have each port and a port can be a bridge and essentially it's an ability to get credit up to certain amount decided by the uh by the other governance um and and typical Port might be a bridge that might get let's say up to 5 or 10 million worth of uh uh bridging um liquidity so essentially what happens is that uh normally when you you Bridge from from one network to another um essentially uh you're gonna have to wait that transaction to be confirmed and and those assets to move what the portal feature helps is that uh these ports they can uh mint and burn a tokens uh in an under collateralized format so essentially uh when what is happening is that you could submit a transaction uh and a tokens are minted uh in the another chain and then withdrawn from the protocol as the underlying asset and send whatever the user wants to send those um assets so essentially it makes the the cross chain liquidity move uh more seamlessly and I think it's kind of like the the the the best way to do the cross chain bridging because essentially most of the liquidity will anyways be in landing protocols uh because that's where the deposit capital is is sitting um and it's it's it's it's the most liquid kind of form of capital and uh of course like it's very risky feature in the sense that if you can you know burn and mint a tokens into certain depth cap there is a framework how you can become a port uh in in the system but the idea is that the other governance decides on on on the amounts and and the the the caps on on how much you can actually get uh this form of a credit line and of course the idea is that then the other safety module could cover in any kind of uh uh incident so the feature is uh deployed uh and and I think in the next couple of months we will see first sports coming in and and this might change a bit the way of how we transact with liquidity uh between networks and essentially it's it's a very good tool for um uh for Bridges but also I think we will see some way more cooler use cases for the portals maybe it's a way for help in terms of like the Mev um Capital opportunities as well so it's a feature that we we still don't know how people will actually uh use it or what they're going to build on top and continuing the topic of capital efficiency um we created this feature called efficiency mode so essentially normally when you supply different kinds of assets as a collateral you can borrow certain borrowing power and in traditional Finance we call it loan to value ratio so for example if you deposit ethereum and borrow stable coins maybe you can borrow up to 60 70 of the collateral value so um sorry I'm still suffering from yesterday so uh what the efficiency mode does it really actually makes Tim things very interesting when you have assets that are similar in terms of the volatility correlation so you could use efficiency mode to deposit stable coins let's say you deposit certain amount of um uh die and and then you borrow a certain amount of uh usdt and then you can basically short sell usdt in a very very high [Music] um borrowing power so you could go up to 98 or even 99 in in terms of uh boring power which is quite significantly different um but it's also I think like the more fascinating use case will be in the future when you have more and more uh liquidity in other stable coins such as Euros uh pounds and so forth so you could do actually very very um High leverage um FX trading as well uh with this particular feature but you could apply the same same principles to to for example borrowing stake stake eat against staked eat and essentially we've seen uh quite big amount of uh deposits in terms of the uh Lido stake teeth I think the reserve is currently in two and a half billion which is quite significant amount and essentially what most of these addresses that are depositing they stake it they're pretty much borrowing the the ethereum Andries taking to to Lido so what I think at some point over time is that uh when we look at the the rates on ethereum in terms of like the deposit rates compared to staking it's quite low at the moment still but over time uh as this Behavior continues and you can get more borrowing power uh with the um uh it's taking as a collateral and with this higher efficiency mode uh we could essentially see the the uh deposit rate of ethereum being very close to actually the staked it yield and currently the version 3 has been deployed over six different Mark networks we call them markets uh the one that hasn't been deployed is the on ethereum because there's going to be a actually smart contract update from version 2 to version 3 and that's going to be a quite a big transaction given there's a lot of billions worth of value in in the smart contract and and we have to basically migrate the whole contract into a new one so that's going to be a very interesting exercise um but yeah that's then when we have the V3 on Main ethereum network uh and you have this High leverage uh kind of like efficiency then we will see the E-Trade going up so essentially it becomes kind of like a um um uh liquid uh staking yield market for for steak to eat you can apply the same uh principles to other uh staking assets such as using stake avex as a collateral and borrowing avax um yeah so that those were the legions features uh then we we moved over to uh more kind of like a risk mitigation uh and and Security based uh features so one of the things we noticed that uh over the years that there is more and more requests uh for assets to get listed into the other protocol and you know everyone wants their asset to be there for some reason uh of course like you it's really like other protocol is very empowering because essentially what it means that if you hold an asset of your community you really don't need to sell that asset and lose the exposure if you need liquidity so it gives it gives gives the users and community members of different governance communities more flexibility so essentially we had a lot of asset listing proposals in the community and the idea of this isolation mode that we implemented is that you could actually list more and more assets into the protocol in a way that they're segregated from the the main assets essentially if you want to list a isolated asset into the protocol uh you can only uh borrow against that asset so you need to enter to this particular mode and you can only borrow stable coins so this should help to scale the listing process and also silos the risk from from the the main assets as well and I think this could be quite interesting use case for uh real world assets listing them in a segregated siled uh fashion as well so uh pretty much you could even add interesting um I would say like staking token staking economics on top of the um segregated listing where the ltvs and and the supply caps will move in a in a um kind of like a liquid way where the more you stake uh into the the this particular asset you know you can increase the the the supply caps in and also the the ltvs uh this is pretty basic uh Supply borrow caps I mean the the protocol version 2 has uh they didn't have them before so it was kind of like a I mean just to give some background we when we build the version version one of the other protocol um we were expecting there to be maybe 15 20 million uh worth of value locked uh you know kind of like mindset and ended up being I think like four or five hundred million uh in total and with the version two we were expecting maybe we'll have like 2 billion worth of value locked at some point then essentially it's uh it went all all over to Big I think like 15 billion so and even more so it's just it's kind of like a um sets you a mindset where you know you have to build these protocols in a scale and and basically that means that uh you have to build always like Risk in mind uh there's a secret collateral requirements so um you know it's it's relatively small features uh basically you can enforce a liquidation sorry you can set a LTV to zero if you if you have a scenario like that without forcing liquidations um and it's just like an emergency feature if something happens to a particular asset um and then we have uh price Oracle Sentinel so essentially we have now support for Layer Two so um the V3 is deployed on on um on arbitrim um on uh on optimism and they have um uh this kind of like a um uh sequencers that are posting transactions and if that sequencing is down uh this price Circle Center basically uh pauses the the liquidations kind of gives a crazy period for that so it's it's a kind of like a valuable feature for for the um layer twos and of course we have risk admins uh this is an interesting uh delegation feature uh so essentially you can delegate the risk management from the protocol from the actual governance into something like uh you could you could delegate it to Gauntlet or to a uh maybe in the future to a risk down or something similar same goes for the interest rate um curve adjustments listing admins is interesting feature so uh also smart contract delegation into you could delegate into a new kind of logic maybe staking based listing that I mentioned before where the the other community members they can stake uh there are there towards different kinds of assets and that increases the risk parameters um yeah and these features are something that we built kind of like as a basis as a foundations into the protocol but essentially uh it's up to the community to build those risk admin listing admin features that I that I actually mentioned there is like a lot of I'm not gonna even go all of this but there's like a lot of interesting improvements mainly gas savings and uh blah blah blah okay so then we have the uh UI um so you know usually have protocol developers you really don't care much of the UI uh but Adobe we always kind of understood that you know to get more users you kind of like need to make things more simpler and essentially we improve the user experience uh quite a lot so um and this is the first time we actually rebuilt an application from scratch completely and I really recommend that to you because it gives sort of perspective to you as a builder um yeah this is just an example you can select different kinds of markets and and um I I guess like there's a few default applications out there where you have support for multiple markets and they look kind of like this so where you have to like select a market and and you know you select Avalanche or you select ethereum or or let's say optimism and and you see the market so the probably next thing for us to do is is basically um figure out how we can consolidate all the markets and and and you know make it easier so you don't need to like jump from one network to another um yeah and and and the uh all the governance proposals I'm very proud of this new application it's very it looks very good yeah but thank you everyone um hope you enjoyed and and uh yeah thank you [Applause] [Music] all right