DeFi protocol mainstay Aave has recently released its second version – notably adding many new enticing features in an effort to make loaning volatile assets much easier and less risky. What caught the attention of many, though, is the new version’s integration of a collateral swap function powered by the project’s revamped flash-loan system.
As per the Thursday blog post of Aave’s founder, Stani Kulechov, DeFi assets that are utilized as collateral are tied up and made restricted. However, in Aave version 2, the same collateral can now be freely traded, thus providing more options to its users. Kulechov clarified that users may now trade deposited assets across all the currencies the protocol currently supports – collateral or not. This is excellent news towards the industry’s effort to lessen the risks involved in lending and borrowing assets, especially volatile ones.
The blog post further expounds that the collateral swapping feature has the potential to become a handy tool against liquidations. For instance, your collateral’s market price starts to dwindle; you don’t have to feel wary about the potential liquidation and volatile price fluctuations anymore because you can simply trade it now for supported stablecoins.
That being said, there are still some downsides to this new feature as well. This includes increased gas consumption, utilization of several supplementary applications, and potential slippages.
All in all, Aave version 2 aims to provide further protection on its overall operation. On top of the collateral swap feature detailed above, Aave’s second version also notably introduces a Reserve Factor to provide funding for the DAO’s long term sustainability.