đAAVE is getting a big upgrade
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GM friends.
Hereâs what Iâll cover today:
đAll you need to know about AAVE V4
đ Crypto chart of the week
đď¸ The latest DeFi news
đAll you need to know about AAVE V4
Itâs been a pretty rough week for DeFi.
If youâve been active on CT, you probably heard of the Resolv exploit.
The stablecoin protocol was exploited by a hacker who minted 80M unbacked USR and dumped it on DEXs.
Whatâs worse is that this hack affected not only Resolv but also many other dApps, as a lot of money markets supported Resolvâs assets as collateral and incurred bad debt. Fluid, for instance, incurred $23M bad debt.
Fortunately for its users, Fluid announced it will cover this loss.
On the bright side, Aave is gearing up to launch Aave V4, a new iteration of its lending protocol, which is bringing some major improvements to DeFi. In todayâs issue, Iâll cover it as I think itâs a pretty interesting upgrade.
What changes will Aave V4 introduce?
V4 is its biggest upgrade to date and has been under development for a long time.
As a fun fact, Aave V4 has 345 days of cumulative security review. So its team is taking security seriously.
Among the new features that it brings, the ones I find most interesting are:
A Hub and Spoke architecture - On V4, all assets deposited in the protocol on a network will be stored in a Liquidity Hub. The Hub will allocate the assets to multiple lending markets called Spokes, each with its own risk parameters.
This will enable the permissionless creation of lending markets for riskier assets, such as RWAs or Uniswap v3 positions, which wasnât possible on Aave before, as risk will now be better isolated thanks to the Hub and Spoke architecture.
Risk Premiums - Borrowing rates will no longer be the same for all assets, and will instead depend on the quality of the collateral.
Borrowers with high-quality collateral, such as ETH, will receive lower borrowing rates, while borrowers with riskier collateral, such as RWAs, will pay higher rates.
Aave Pro - The Aave V4 launch will include the release of an upgraded interface specifically designed for advanced users (which you can see below)
Reinvestment Module - The Reinvestment Module will ensure that unused liquidity on Aave is put to work by deploying it into low-risk strategies, such as short-term US Treasury Bills
There are also a few other marginal improvements, but I think I've covered all the main changes Aave V4 brings.
How will it benefit users?
Well, first of all, V4 should significantly increase the yield that lenders get on Aave.
Right now, USDC lenders get 2.18% APY on AAVE.
This seems insanely low to me, and it doesnât justify the risk given how many smart contract exploits are happening, even though AAVE can be considered battle-tested.
But thanks to the Reinvestment Module and the Risk Premiums mechanism, I expect stablecoin lendersâ yield to increase significantly.
Just for context, US T-bill rates are currently hovering around 3.7%â3.8%.
By deploying idle liquidity into Treasury Bills (which are considered risk-free, as you would lose money only if the US Government defaulted), via the Reinvestment Module, the lending APYs on AAVE could increase substantially.
The other thing I like about V4 is that it will be able to support a wide range of riskier collateral for borrowing (RWAs, volatile altcoins, Uniswap v3 LP positions, maybe tokenized stocks, etc.) thanks to its new architecture.
This should enable some very interesting yield opportunities.
Overall, I have to say I am pretty excited about AAVE V4.
Aaveâs ARFC proposal to deploy Aave V4 on Ethereum has just passed.
If everything goes well, then V4 should be live on mainnet within the next few weeks.
Together with Reya
Reya and Ethena join forces
Reya, a fast-growing perps DEX backed by Coinbase, just announced a major collaboration with Ethena and a new trading competition.
As part of this partnership, Reyaâs LP Pool, called RLP, is now fully backed by Ethenaâs USDe and sUSDe.
This enables Reya RLP LPs to earn a significantly higher yield as their rewards now come from four sources: Ethenaâs yield, market-making returns, trading, and liquidation fees.
The best part is that RLP can also be used as collateral for trading.
Its team is currently running a trading competition ending this week, with 16M REYA in Rewards.
Hereâs what you should know about it:
The scoring metric is absolute realized PNL, with most rewards being distributed across the top 20 Reya users by absolute realized PnL
To qualify, you just need to hold more than 100 RLP in your margin account, trade at least $10,000 in volume, and compete for top absolute realized PnL
0.20% of the REYA token supply will be given in total to the winners at TGE
By participating, not only can you earn some nice rewards from the competition, but youâre also farming Reya points at the same time.
Learn more about the trading competition here!
Chart of the week
ETH and BTC are outperforming all major TradFi assets since the US attacked Iran
Crypto meme of the weekđ
The latest developments in DeFi
Jupiter launched pre-IPO trading on Solana
Strategy announced plans to raise $42 billion to buy more BTC
AAVE was integrated by Whop to generate yield for Whopâs 21 million users
Sky announced that a new treasury company accumulated ~8.78% of SKYâs total supply
Polymarket introduced trading fees for all markets and teased an airdrop
Silo V3 went live, introducing a dual liquidation system and risk reporting across every market
Grayscale filed for a new Hyperliquid ETF
Kelp DAO introduced KUSD - a yield-bearing stablecoin backed by trade receivables and payment activity
Tori Finance, a new protocol generating up to 15% APY from TradFi market-neutral strategies, was introduced
Chainlink was integrated by Coinbase to bring its exchange data on-chain for the first time
Sui introduced Hashi - a primitive that enables using native BTC as collateral on Sui
Aevo launched Aevo PERPS+, a DeFi primitive that bundles perpetual futures with options into a single product that is easy to use
Resolv was exploited by a hacker who minted 80M of uncollateralized USR
Balancer Labs is shutting down following its exploit last year
Variational sunsetted loss refunds for traders
Backpack launched its token BP and airdrop claiming portal
Thatâs all for this week!
Until next time,
The DeFi Investor
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