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AAVE Protocol Explained
Description of the AAVE protocol
This update aims to provide users with the highest borrowing power out of their collateral. This feature restricts borrowers to borrow only the assets belonging to a specific category or pool, consisting of correlated assets (e.g., stETH, sETH, alETH), generally the assets that are derivatives of the same underlying asset. This helps the user by giving better predictability and providing better health factors with increased collateral factor and a super low 1% liquidation penalty.
AAVE v3 introduces supply and borrow caps allowing governance to better manage risk and to limit exposure to riskier assets. AAVE v3 also introduces a borrowing pause feature, which allows markets to be disabled but not liquidated.
As the blockchain industry is growing day by day, and many chains have come up with new features, it is still difficult if someone wants to shift their supplied assets or aTokens from one chain to another (e.g. Mainnet to Polygon). The AAVE protocol has come up with a new feature to deal with this issue. AAVE Portal creates bridges between the different iterations of the AAVE v3 protocol on different chains, helping users move supplied assets or aTokens from one chain to another.
Isolation Mode makes listing new assets easier for the protocol. When a new token is listed in the Isolation mode, users can only borrow Stablecoins using it as collateral. While doing this, the user’s collateral should only consist of the Isolated token. This will allow the AAVE protocol to more quickly list newer or riskier assets while minimizing the risk to the overall protocol.