Users can now exchange assets while they are blocked as decentralised financial collateral.
The decentralised finance niche of crypto-currencies has exploded in 2020, paying users interest on blocked funds (collateral) in exchange for loans. The DeFi Aave protocol recently released its second version, V2, which adds more potential to the sector.
„At DeFi, assets that were used as collateral were tied up, but now with V2 they can be traded freely,“ Aave founder Stani Kulechov said in a blog post on Thursday. „Users can trade their deposited assets, in all currencies supported by the Aave Protocol, even when they are used as collateral.
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Several DeFi fashion protocols and their related assets have gained popularity over the course of 2020. One project asset, YFI, even soared from under USD 1,000 to over USD 38,000 this summer. Much of the activity in the DeFi space revolves around blocking crypto assets as collateral on platforms, earning interest while receiving borrowed assets in return, which are then reallocated.
Allowing trading of blocked assets also adds methods for settlement protection, details the release. In addition, version two of Aave also promotes many other advances, including improvements in flash lending and the use of collateral to reconcile loans, essentially removing steps and transactions from the equation. Previously, a borrower with no external capital needed several cycles of withdrawal, swapping and partial extinction of the debt to close out its position.
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Other updates in V2 include flash settlements, batch flash loans, debt tokenisation, native credit delegation, gas optimisation and debt rate changes. As Aave moves into its second version, the team has built in parameters that allow users to maintain loans during the move.
„Recently, AIP-3 was approved to make the migration from V1 to V2 more fluid,“ details Aave’s publication. „By using a migration tool powered by Flash Loan, users will be able to make the transition without having to close their V1 loan positions,“ the article adds. „This migration tool will be introduced later, so if you have V1 positions, there is no need to close them.
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As if these updates were not enough, the protocol also added other protective measures for the general operation. „V2 also introduces a reserve factor to fund the long-term sustainability of the DAO,“ the publication mentions.
DeFi is moving incredibly fast, as seen by the number of rapid developments, coupled with the river of money that has quickly joined the sector.