The launch of Awe V3 marks a significant step forward in decentralized finance (DeFi), introducing major improvements in capital efficiency, security, and cross-chain functionality. This update is set to strengthen Aave’s position as a leading multi-chain lending protocol.
Aave V3 has officially launched on several networks including Polygon, Arbitrum, Avalanche, Fantom, Harmony, and Optimism. While a mainnet Ethereum deployment date is yet to be confirmed, proposals for expansion to StarkNet and IoTeX have also passed or been introduced. This multi-chain approach allows Aave to offer broader accessibility and flexibility compared to competitors like MakerDAO and Compound, which remain largely Ethereum-focused.
Among the most anticipated features of V3 is its cross-chain liquidity capability, enabling users to deposit on one network and borrow on another. Combined with upgrades in risk management and gas efficiency, Aave V3 is built to support a more interconnected and efficient DeFi ecosystem.
Portal: Cross-Chain Asset Mobility
Aave V3 introduces the Portal feature, which allows users to move supplied liquidity seamlessly between different blockchain networks. By burning aTokens on the source chain and minting them on the target chain, users can effectively transfer liquidity without traditional bridging limitations.
This creates new opportunities for yield arbitrage and multi-chain strategies. For example, a user can supply ETH on Ethereum and borrow on Polygon while repaying on Avalanche. Over time, this is expected to balance liquidity disparities and interest rate variations across networks.
Portal is designed to integrate with cross-chain solutions like Connext, Hop Protocol, and others. Governance will control which protocols can interact with Aave’s cross-chain ports, ensuring security and flexibility.
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eMode: High-Efficiency Borrowing
eMode (Efficiency Mode) allows borrowers to achieve significantly higher loan-to-value (LTV) ratios—up to 98% in some cases—when borrowing assets of the same category as their collateral. This is particularly useful for stablecoin pairs and pegged assets, enabling near-frictionless forex-style trading on-chain.
Each asset is assigned a category (e.g., USD-stable assets, ETH-pegged assets) with customized risk parameters. When users enable eMode and supply collateral within a category, they benefit from improved capital efficiency.
Example:
- eMode Category: Stablecoins
- LTV: 97%
- A user supplying DAI can borrow other stablecoins at 97% LTV instead of the standard rate.
This system supports up to 255 distinct asset categories, offering flexibility as new asset types emerge.
Isolation Mode: Safer Listing of New Assets
Isolation Mode reduces risk when introducing new collateral types to the protocol. New assets can be listed as “isolated,” meaning they can only be used to borrow approved stablecoins up to a predefined debt ceiling.
This allows Aave to onboard exotic or long-tail assets with controlled risk, addressing competition from permissionless lending platforms like Euler and Rari. Once an asset matures and gains trust, governance can vote to remove isolation restrictions.
Key aspects of Isolation Mode:
- Single collateral usage only
- Predefined borrowing caps
- Governance-controlled whitelist of borrowable assets
Users can still earn yield on other supplied assets but cannot use them as collateral while an isolated asset is active.
Enhanced Risk Management
Aave V3 introduces several sophisticated risk controls:
- Supply and Borrow Caps: Governance can set limits on how much of an asset can be supplied or borrowed, reducing exposure to volatile assets and mitigating oracle-based attacks.
- Granular Borrowing Power Control: Adjustments to collateral factors apply only to new loans, protecting existing positions from sudden liquidation.
- Risk Admins: Approved entities can adjust certain risk parameters without a full governance vote, enabling faster response to market conditions.
- Price Oracle Sentinel: Particularly useful in Layer-2 environments, this feature adds a liquidation grace period during sequencer downtime or other network disruptions.
Decentralized Asset Listing
V3 introduces Asset Listing Admins—entities or smart contracts approved by governance to list new assets without requiring a vote for each addition. This streamlines the process while keeping it decentralized and community-guided.
Additional Features
- Gas Reductions: Transactions are 20–25% cheaper due to optimized contract design.
- EIP-2612 Permits: Supports gas-less approvals, improving UX on L2s.
- aToken Repayments: Users can repay loans using aTokens instead of the underlying asset.
- Layer-2 Optimizations: The entire system is built with cross-chain and L2 usability in mind.
- Modular Design: Encourages community reuse and innovation atop the protocol.
Aave V3’s codebase is entirely separate from V2 and will be open-sourced after final audits and testing.
Frequently Asked Questions
What is Aave V3?
Aave V3 is the latest version of the Aave decentralized lending protocol. It introduces cross-chain liquidity, improved capital efficiency, and enhanced risk management features to support a safer and more connected DeFi ecosystem.
Which blockchains support Aave V3?
As of now, Aave V3 is live on Polygon, Arbitrum, Avalanche, Fantom, Harmony, and Optimism. Proposals are underway for StarkNet and IoTeX. Ethereum mainnet support will follow at a later date.
How does cross-chain lending work in Aave V3?
Using the Portal feature, users can burn aTokens on one network and mint them on another. This allows liquidity to move between chains, meaning you can supply on Ethereum and borrow on Polygon, for example.
What is eMode?
eMode allows users to borrow at high LTV ratios when the collateral and borrowed assets are in the same category—such as stablecoins or ETH-pegged assets. This significantly improves capital efficiency.
What are isolated assets?
Isolated assets are new or riskier collateral types that can only be used to borrow specific stablecoins up to a set debt ceiling. This limits protocol risk while still allowing new assets to be listed.
Is Aave V3 compatible with V2?
No, V3 uses a new set of smart contracts and is not backward compatible with V2. However, both versions can operate simultaneously on supported networks.