The Aave Companies are committed to creating open source software that empowers users’ financial, social and cultural independence. For this software, decentralization and — most specifically decentralized governance — will be a core feature; and it is this decentralization that allows community members to contribute to the larger social, cultural and financial ecosystem growing around any software protocol.

With respect to the Aave Protocol, the community has indicated that it would like to see the protocol deployed to networks other than Ethereum, such as Polygon. Because this is a community-based desire and because the Aave Protocol is controlled by the community through Ethereum-based Aave Governance, the community should also be able to use the Aave Governance with any non-Ethereum networks.

Introducing Aave Governance cross-chain bridges — a unique set of tools to enable true cross-chain governance on Ethereum — that the Aave community can consider adopting. An explanation of this new software is below, along with an announcement about the open-sourcing and decentralizing of the Aave user interface, for anybody to contribute and run to access the protocol.

Architecture of the Cross-Chain Bridge

Let’s have a quick dive in the Aave Governance architecture — and how it can be extended to bridge its decisions affecting non-Ethereum based deployment of the protocol.

For any governance proposal, the key components of the Aave Governance architecture are:

• The main governance contract, which allows users to create proposals and allows AAVE holders to vote on those proposals; as well as
• The executor contracts, which implement and execute any proposal approved by AAVE holders through a time-lock (the time period of which varies based upon the particular proposal) and defines the parameters by which each specific proposal is implemented (if approved).

However, when any instance of the protocol is deployed on a network other than Ethereum, the only way in which a decision taken by the Ethereum-based governance can be applied is through a bridge from Ethereum to that network. Specifically, if Aave Governance’s decisions were to be applied to the Polygon instance of the Aave Protocol, then the community would have to put forth and implement cross-chain proposals. This would occur through a Bridge Executor Contract.

The process is the following:

• On the Ethereum side, the system receives the proposal data from the Aave Governance executors on the smart contract initiating the bridging.
• On the recipient chain side, the system receives the already bridged proposal data, forwarded by the Ethereum side.
• Finally, the proposal is executed on the recipient chain after an additional time-lock window.

Going deeper into the technical details, to submit a proposal regarding the Aave Polygon Market, proposers on Ethereum can encode the proposal to interact with the Polygon FxRoot bridge. The bridge will forward the proposal data to the FxChild on the Polygon side that will queue the proposal in the Polygon Bridge Executor, which will allow to finally execute it after an additional time-lock window.

This model is not only limited to Polygon, but can be extended to almost any other chain associated with a bridging engine allowing arbitrary messages communication. It’s possible to see a proof of concept of this applied to a roll-up L2 chain like Arbitrum on the same repository, with the architecture explained in the following diagram.

Prior to Aave Governance receiving full control over the Aave Protocol instance on Polygon via the Bridge Executor, a test proposal has been posted to Aave Governance here, to verify that the Aave Governance approves how the system works as expected between Ethereum Mainnet and Polygon Mainnet. Once this test is successful, then the Aave Governance will be given complete control of the Aave Polygon market.

The codebase for the Cross-chain Bridges, including extensive documentation is available here. This will allow anyone to use the code to build their own cross-chain bridges for any chain that needs decisions from another.

The bridges have been audited by MixBytes, and the report of the audit is available here. The Bug Bounty program applies as well, you can find all the details here.

Open Sourcing the Aave Frontend

In addition, today the codebase of one of the front-end interfaces to the Aave Protocol is being open sourced — that means that the code will be available to anyone and may be distributed and modified (subject to the terms of the license, discussed below).

The specific repositories being open sourced are:

• Aave UI. Main front-end repository, located here.
• UI caching server. Convenience server to optimize interactions with Ethereum nodes’ providers, located here.
• Aave UI kit. Visual component used across the Aave UI, located here.

Open sourcing the front end will allow for additional inroads to the already-decentralized Aave Protocol. Such interfaces will augment the more-than-100 integrations that already provide access to the Aave Protocol, by allowing anyone to build an alternative front-end with a different or enhanced user experience. Open sourcing the code also will allow anyone to contribute and improve the current Aave UI.

A robust, community-driven ecosystem is paramount to the ethos of decentralization at the core of DeFi software development, that is why the Aave UI is open sourced under the 3-Clause BSD License.

Cross-chain governance and open-sourcing the Aave UI was originally published in Aave Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

During the summer of 2020, DeFi matured, developed, and defined its product-market fit. Now, it’s time for the Aave Protocol to enter the scalability phase and bring decentralised finance back into everyone’s hands, even those with 3 figure portfolios.

Focus on Ethereum

Aave was born and raised on Ethereum L1, and the Ethereum community was a huge catalyst for the development of the protocol and growth of the Aave Community. Ethereum and the EVM is the center of gravity for DeFi, and no other network comes close to Ethereum’s network effect. However, on a public blockchain, having a slot on a block is defined by supply and demand.

Block space supply today is scarce and limited, and since the “DeFi Summer” of 2020, demand for using Ethereum and DeFi has never slowed down.

High transaction fees are a feature of a successful public blockchain, as they define actors ready to pay the market price to use the decentralised services.

That being said, DeFi was always intended to create a sustainable and more inclusive alternative to traditional finance. If DeFi is great but only limited to certain high networth users, DeFi will fall short of its mission to be finance for everyone.

Multi-Market Approach, ETH L1 as a Settlement layer

The solution is on the side of scalability layers of Ethereum:

Sidechains, rollups, and zero-knowledge-based solutions are quite complex, but fortunately for us, the role of engineers is to make great technology well implemented and intuitive so that complex stuff becomes invisible to untrained eyes just like the Aave mascot.

The Aave Protocol has a multi-market approach and will implement it to scalability solutions in a “New Frontiers” exploration. One of the main assets of DeFi is the ability to build synergies with other projects, and by having an Aave Market in all the venues that matter, there’s no need for a “winner-takes-all” scalability solution and users can choose the solution they feel comfortable with.

The freedom of choice is earned by a technological victory. In all sidechains that matter, the EVM from Ethereum is the standard of doing smart-contract applications. Replication and deployment of Ethereum L1 code is mostly a seamless process.

The First Wave: Sidechains with Polygon

The first implementation of the exploration of New Frontiers will be with Polygon (formerly known as MATIC). This scalable sidechain of Ethereum allows fast and nearly-free transactions, and Polygon has a nascent ecosystem of applications such as community favourite Aavegotchi and decentralised exchange Quickswap.

Polygon is also a network powered by Chainlink, allowing the Aave Protocol to maintain the highest standard of safety for the protocol price feeds.

New frontiers are also an opportunity to taste the local delicacies!

If the deployment market starts with a limited set of collaterals, being in Polygon is the opportunity for the Aave community to onboard new kinds of collaterals that would be a natural fit in these Networks.

The Aave Market on Polygon is an opportunity to welcome the MATIC asset as collateral, for example.

At launch the following assets will be onboarded on the Polygon Aave Market :

• MATIC
• USDC
• USDT
• DAI
• WETH
• AAVE
• WBTC

To make the experience seamless for the pioneers willing to explore this new frontier with us, a smart-contract bridge will soon be available to bring your favourite assets to Polygon. Users of the bridge will receive part of the transaction fee used in MATIC tokens to cover most of their transaction fees on the Polygon blockchain.

Meanwhile, the Polygon Bridge is available to transfer assets from Ethereum to Polygon

Thanks to the integration of EIP-3085, switching from Ethereum to the Polygon network is as easy as one-click for every Metamask user, just add the Polygon network when your Metamask Pop-up appears and confirm.

if you’re not using Metamask, please refers to the official Polygon network documentation to set-up your network RPC

While depositing into Aave on Polygon, you might see a “0.00$” gas fee reference in Metamask.
It’s because Metamask User interface doesn’t show transactions that cost below 0.01$ and Polygon is multiple times cheaper to use than this threshold.

Here’s an indicative cost of Aave Protocol interactions, please note that these costs might change in the future with potential network congestion and MATIC asset valuation.

• Deposit AAVE : $0.000061
• Borrow USDC : $0.000102
• Withdraw AAVE : $0.000109
• Repay USDC : $0.000072

Aave has also integrated with Transak to enable the direct purchase of Polygon assets with fiat currencies.

Feel free to join the Aave fam on Twitter or Discord!

Exploring New Frontiers with Aave was originally published in Aave Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

The Aave Protocol is a decentralised liquidity protocol, which allows users to unlock liquidity across various assets in a multi-pool approach. The new AMM Liquidity Pool enables liquidity providers (“LPs”) of Uniswap and Balancer to use their LP tokens as collateral in the Aave Protocol.

The Rise of AMMs

With the rise of Uniswap in 2018 and the emergence of “Automated Market Makers” (AMMs) in the DeFi ecosystem, users of Ethereum are now able to swap assets without the need for centralised third-party intermediaries. Users are able to facilitate the provision of liquidity and earn fees for doing so.

How do LP tokens work?

By providing liquidity, users automatically obtain LP tokens from the AMM. In most cases, LP tokens represent the crypto assets the user deposited into the AMM along with a proportional scale of the trading fees collected over time in the particular liquidity pool into which the user deposited assets. (Frequently, the LP token represents a 50/50 ratio with ETH and another crypto asset, making them potentially less volatile than their underlying assets.) Because LP tokens typically accrue trading fees over the time the user’s assets remain in the liquidity pool, the LP tokens potentially accrue value over time as well.

AMMs were one of the first ways to earn a passive income in the DeFi ecosystem and remain so today.

A first successful Proof of Concept

Last year, the Aave Protocol developed an “AMM Liquidity Pool” proof of concept with the “Aave Uniswap V1 Market,” which allowed users to deposit Uniswap v1 LP tokens in the Aave Protocol and use them as collateral. Given the community’s interest in this pool, users will now be able to use LP tokens from several AMMs, with proposals and decisions from Aave Governance about which AMM protocols and collateral to add.

The Multi-Market Approach

The AMM Market is the first of many markets of Aave, on Ethereum, and potentially also on different networks, allowing the community to explore “new frontiers” with Aave.

Launch Collaterals and Protocol Support Phase 1:

Today, users will be able to begin depositing LP tokens from both Uniswap v2 and Balancer.

Uniswap is the center of gravity of AMM protocols. Its robust, simple code and innovative model inspired actors across several blockchains.

Uniswap has significant daily volume and $4B of liquidity.

At launch the following Uniswap V2 LP tokens are supported:

• DAI/USDC
• WBTC/USDC
• DAI/WETH
• USDC/WETH
• AAVE/WETH
• LINK/WETH
• BAT/WETH
• SNX/WETH
• UNI/WETH
• YFI/WETH
• CRV/WETH
• MKR/WETH
• REN/WETH
• WBTC/WETH

Balancer is one of the most innovative AMMs in the ecosystem. Their smart pool system broke the 50/50 ratio status quo and allowed for more sophisticated liquidity pools.

There are significant synergies between Balancer and the Aave Protocol. Balancer co-hosts art of the Aave Safety Module protecting Aave liquidity providers.

In addition, based on the smart pool architecture, Balancer LP token holders will continue to earn BAL rewards each week.

At launch the following Balancer LP tokens (BPT) are supported:

• WBTC/WETH
• BAL/WETH

At this time, users who deposit LP tokens may borrow the following crypto assets: DAI, USDC, ETH, wBTC. and USDT. Users who deposit DAI, USDC, ETH and wBTC may borrow tokens.

To give an accurate estimation of the value of the LPs tokens from both Uniswap & Balancer, the Aave Protocol leverages Chainlink’s decentralised oracle service. The smart-contract to calculate the value of the LP tokens has been audited by ConsenSys Diligence.

Launch Collaterals and Protocol Support Phase 2:

As noted above, it will be possible to deploy additional AMM liquidity pools over time, particularly upon proposals from Aave Governance — and such pools will be deployed in a second phase (coming soon). The AMM liquidity pools will be released to Aave Governance in full in short order.

The AMM Liquidity Pools will not be covered by the Aave Safety Module at launch, but Aave Governance can decide to include these pools through the AIP process.

The Aave community will decide on the following steps

The Aave Protocol is decentralised and owned by its community of AAVE token holders (referred to as “Aave Governance”). For the support of new collaterals and new AMM protocols, feel free to make proposals in the governance forum and contact your community representative to whom you delegated your votes.

We can’t wait to see the AMM Liquidity Pools bloom with your input.

In DeFi there are no Aave users and there are no AMMs users.

There are only DeFi users.

Feel free to join the Aave fam on Twitter or Discord!

Aave AMM Market Released was originally published in Aave Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

The wait is finally over — the migration tool to upgrade full positions from Aave V1 to Aave V2 is now available to all users!

Seamless upgrade

Migrating full positions, even when you have positions opened, is now accessible directly on your V1 dashboard.

Under the hood, the migration tool is powered by Flash Loans and in a single transaction will:

• take liquidity from Aave V2
• use it to pay back your loans in V1
• migrate your V1 collateral to V2
• open up equivalent positions in V2
• bring back the liquidity to V2

This complex transaction is done on auto-pilot so all you need to do on your side is select the collaterals and positions you want to upgrade and click on ‘migrate’.

Reminder: you will need ETH to cover the transaction fees of this transaction.

If you have positions opened, the tool will inform you of your new HF. Please be mindful of this new HF to mitigate liquidation risks.

Complex operations on the Ethereum blockchain can be costly, so if you have many assets borrowed and deposited into V1, feel free to migrate in several batches.

We do not recommend migrating more than 5 assets (Deposited & Borrowed) in a single migration transaction.

The future of V1

The Aave Protocol V2 is the future of Aave and already ~820M$ of liquidity adopted the upgraded version of Aave, but feel free to migrate to V2 at your own pace! The V1 contracts are always running on the Ethereum Blockchain. Even if V1 slowly fades in favour of V2, the contracts will remain accessible in the future.

A progressive V1 -> V2 transition plan is currently being discussed with the community to slowly fade V1 in favour of the V2 upgrade by disabling asset reserve borrows gradually.
Even in this scenario, however, your deposits will remain fully accessible, and you will be able to add collateral to protect your Health Factor,
you will also keep the ability to migrate at any point.

Feel free to join the discussions on this topic on the governance forum.

If you want to stay updated on Aave upgrades and news, feel free to follow Aave on twitter or join the official Discord channel!

See you on V2!

Aave Protocol migration tool released was originally published in Aave Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

When setting up the design and user flows back in 2019 before the release of Aave Protocol on mainnet, we did not anticipate the enormous growth of Aave and the DeFi space. Like our TVL, our ideas kept growing with new features for Aave users. The addition of these new features would require more workable space in the user interface.

The design team decided to overhaul the layout of the user interface. In V1, the main navigation was on the left side which interacts with the ‘content area’ on the right side. This seemed to work fine for V1. However, with the release of V2 and additional features such as staking, governance, yield & collateral swaps, repay with collateral, credit delegation, stable and variable borrowing, and many more to come, it was clear that V2 needed a change of layout to accommodate all these new features. Additionally, preparing for future scalability is always important, especially in a space that innovates as rapidly as DeFi.

After conducting research about dark and light mode for the UI, the design team settled on a “hybrid” combination between light and dark mode solution for the default V2 colour scheme. After the initial release of V2, more colour themes will be released and users will be able to select and set their preference. These colour schemes will be: default, dark mode, and light V1 Aave. For the fans missing the flashy purple/blue colour all over the UI, no need to worry — it will be an option for the theme!

The design team tried different approaches and decided to go for a more ‘classic’ approach with the ‘menu’ in the top/header bar. This is to accommodate for the space needed for the new features and a dropdown for sub-sections within categories.

Underneath the menu is the user information/data specifically for that view. For example, when a user is in the ‘dashboard’ they would see the ‘deposits’, ‘collateral’, ‘health factor’ and more metrics, all accompanied by nice visual representations like various pie charts.

Located under this ‘user information’ area is the ‘content/action’ area. In this area the user will need to take actions such as entering the amount to deposit or selecting which type of APR they prefer when borrowing.

This new layout adjusts for more flexibility and scalability in the future while giving users the information they need in a very clear and understandable way.

The user dashboard gets an upgrade as well. No need to switch between ‘deposits’ and ‘borrow’, everything is seamlessly connected in one overview giving the user a birds’ eye view of what is happening with their deposits and borrows. In the future, the ‘dashboard’ view will be expanded to include more metrics.

On some views, like the dashboard for example, there is now a clever way to collapse and expand the information area for the user who needs some more space if they are on smaller devices such as 10 inch screens, mobile phones, or for those who just want a less data-heavy view.

The deposit and borrow main views have been updated as well. The separation between what a user deposited and borrowed previously and what they can deposit/borrow is made clearer in the layout. On the left you will see a list of available assets to deposit/borrow and on the right in the square card you will find your current deposit/borrow positions.

Another nice upgrade in the new V2 layout is the visibility of the AAVE governance token balance. This will always be visible for the user from every view. The balance is an aggregation composed of 3 AAVE balances: AAVE in your wallet, AAVE deposited in the protocol, and AAVE that you’ve staked in the Safety Module.

In the same corner there is the dropdown for the ‘markets’. The initial V2 release includes only the default Aave Market, but additional markets will be added soon. Version 1 can be selected from the ‘markets’ dropdown and will take the user directly to the V1 interface. Switching from V1 to V2 while a user is inside the DApp will be done via the same ‘markets’ dropdown. The logic behind this is that V2 is essentially another market.

The ghost mascot you all know and love will help users onboard and navigate through the Aave Protocol! He’ll be giving hints, notifications, and important messages for users in need of a bit of help.

These are the main design updates for the initial V2 release, and more will follow in the coming weeks. The design team will constantly work to improve the UI and UX to make DeFi as accessible and seamless as possible!

DISCLAIMER: Be advised that all the data used in this blog post is not based on fact, but fiction. The images used are mock-ups and can be changed or may be different on actual implementation. In addition, the data shown for APY/APR are just for the mock-ups, so they are not real rates.

The Genesis team greatly appreciates all of your feedback! Feel free to follow Aave on Twitter or join the official Discord.

Aave V2 Design Upgrade was originally published in Aave Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

The Aave Protocol V2 launched just over a week ago, and has rapidly grown in market size, now reaching over $98M. The V1 → V2 migration tool has not even been released yet (Soon™), so this growth is particularly Aavesome.

Last week, there was a governance vote on AIP-4, a proposal to activate Aave V2 governance. The votes were validated over the weekend, and today it’s time for the next milestone on the decentralisation journey:

The release of V2 governance!

With V1 governance, only the Aave Genesis Team could submit Aave Improvement Proposals (AIPs). AIPs are binding on-chain governance proposals that require some technical knowledge and automatically execute once the votes are in and validated. Today, any Aave community actor that meets the requirements can create an AIP to add a new token to the protocol, update risk parameters, add a new liquidity market, and more! V2 governance aims to be inclusive of everyone with a stake in the Aave ecosystem and preserve decentralisation and security.

Segregation between proposition and voting power

AAVE and stkAAVE holders are not only able to create proposals themselves with V2 governance, but also delegate this proposal creation power to another actor! You’ve probably already heard that vote delegation would be a thing in V2, but one of the most innovative mechanisms of V2 governance is that AAVE holders can separately delegate their proposal power and voting power. This means that they now have the choice to delegate their proposal power to another specialised actor while keeping their voting rights, or even delegating them to someone else like a “protocol politician”.

This makes the governance more scalable, as the ability to assess and vote on a proposal requires different knowledge/skills than those needed to create an AIP. For example, since AIPs require some technical knowledge, a non-technical AAVE holder could delegate their proposition power to someone technical while keeping their right to vote on the AIPs.

Voting strategies upgraded

With different AAVE token forms comes different voting strategies! In V2 governance, both AAVE and stkAAVE holders have voting rights, so staking will not be a hurdle for participating in the governance. These voting strategies can be updated through governance proposals to include more forms of AAVE (i.e. aAAVE, staked AAVE/ETH AMM shares, etc.)

Multiple executors bring security

Different updates and parts of the Aave ecosystem may have different consensus and security needs. For example, changing the logic of the AAVE token is something that could have a huge impact on the ecosystem and must be treated with greater care. Thus, there will be 2 executors for V2 governance: 1 with a short execution delay (timelock) and 1 with a long timelock. The timelock is there to act as a buffer to ensure the security of the protocol.

• Executor 1 (short timelock) will control the Aave Protocol V1 and V2 Risk Parameters, the token distributor for V2, contract collecting fees for V1, the AAVE Reserve Ecosystem, and changes to this timelock itself.
• Executor 2 (long timelock) will control changes to the AAVE and stkAAVE tokens, updates to V2 governance parameters, and any changes to this timelock itself.

The guardian for extra protection

If most governance tokens are stored on centralised exchanges, it would be possible for a governance attack to occur where a centralised entity uses its users’ AAVE tokens to take over the governance proposals and voting. To prevent this, V2 governance brings in “the guardian”, a 5/10 multisig with veto power in case malicious code is introduced in an AIP.

The Guardians have been chosen from the Aave community, and they can be changed later through elections.

Current Guardians are: James Vaugh (Fire Eyes/Metacartel), Anthony Sassano (SET protocol/ETHhub/Daily Gwei), Mariano Conti (ex MakerDAO head of smart contracts), Tarun Chitra (Gauntlet), DeFiSaver, Zerion, Parafi Capital, Framework Venture, Arthur0x and the Aave Genesis Team.

For an overview of the V2 governance mechanisms:

That’s all folks!

This important step towards decentralisation means that community members can also create AIPs and vote, and delegate both powers to actors of their choice, making the Aave ecosystem a liquid democracy with many avenues for people to participate. Now more than ever, the protocol is truly in the hands of the community.

Your feedback is the best asset, and it is always welcome! Looking to take the first steps to get more involved? Make your voice heard on the governance forum, follow Aave on Twitter, or join the official Discord server for more updates and discussion.

Aave Protocol Governance V2 has been activated! was originally published in Aave Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

As part of Aave’s focus on security and transparency, the Aave Genesis team will be periodically releasing a report centred on the security of the Aave Protocol and all the other systems of the Aave ecosystem.

Aave Governance v2

ARC (Aave Request for Comments)

After the release of the Aave Protocol v2 last week, the upgrade of the Aave Governance from v1 to v2 has been submitted to the community for discussion.

More details about the proposal can be found in the governance forum, but in terms of security, there are certain aspects to highlight:

1. As with any other software system, some parts of the infrastructure are critical. The Aave governance has the objective of controlling all the different parts of the ecosystem, and taking into account the aforementioned, permissions over contracts are split between 2 different smart contracts, with different configurations. The first (Executor with long timelock) has control over pieces with low frequency of interaction, like the AAVE governance token or the StkAAVE of the Safety Module. The second (Executor with short timelock) has control over pieces with higher frequency of interaction, like the Aave Protocol v1 and v2. Having a longer timelock on changes concerning tokens, and in general longer time-configurations is usually a good practice security-wise, as it leads to longer reaction window for any external party integrating the tokens.

2. The design goals of this Governance V2 were simplicity, by following industry standard practices; and innovation, by introducing delegation of proposition power in both the AAVE and StkAAVE.

3. There is a guardian role with permissions to cancel proposals in order to have a safe-guard against malicious ones. This role will be on a multi-signature wallet with 5-of-10 signatures needed.

4. All of the changes proposed have been audited by industry security leaders and usual collaborators of AAVE, in this case PeckShield and Certora.

If the community considers it appropriate, the next steps will be the deployment of the necessary smart contracts in the Ethereum main network, and the creation of the proposal on the Aave Governance v1 to proceed with the upgrade to v2.

Aave Protocol V2

One week has passed since the release of the Aave Protocol v2, and we are proud that there haven’t been any incidents. However, the following potential attack vector has been discovered and fixed during these first days.

On Friday, 4 December 2020, 19:18 UTC, the Aave team received a notification from the security researcher Josselin Feist from Trail of Bits reporting the following issue:

There was a possible attack vector in the Aave Protocol v2 that had the potential to cause a smart contracts Denial-of-Service attack on the protocol that could impact the state of the protocol, other protocols integrating Aave and users. The vulnerability is the following:

The implementation contract of the LendingPool proxy was not correctly initialized at that moment, and because of a connection with another LendingPoolCollateralManager contract, via DELEGATECALL, it would be possible for an attacker to provoke a selfdestruction of the implementation logic, leaving the system temporarily not operative until a new implementation is set.

Even if this doesn’t involve any loss of funds, which is the most critical scenario in a protocol like Aave, the potential consequences are considered high according to our standards.

As it can be seen here, the LendingPool contract uses a DELEGATECALL proxy pattern, meaning that users interact with the proxy, while the code executed is on the implementation.

This implementation contract contains an initialize function, which sets the addresses provider address (_addressesProvider here), and can only be called if the initializer function modifier does not revert. The conditions are:

On the running system on Friday, even if everything was correctly configured on the proxy contract, it was not the same case on the logic contract itself:

• revision on the implementation was 2
• lastInitializedRevision was 0

So, the require was passed and anyone could call on the LendingPool implementation initialize and set the _addressesProvider on the storage of the implementation contract. This malicious contract would return a LendingPoolCollateralManager address from _addressesProvider.getLendingPoolCollateralManager() containing also malicious code.

After that, the attacker would call the liquidationCall function on the LendingPool implementation. As the state here is completely different to the one in the proxy (the real state of the system), nothing on the protocol can be affected, but if the liquidationCall function in the malicious returned LendingPoolCollateralManager does a selfdestruct, this will destroy the LendingPool implementation contract, as a DELEGATECALL is used.

Initially, it could appear that when a proxy contract calls as implementation an address without code (remember that the code was self-destructed in the previous step), the transaction would just revert. But this is not actually the case on the used OpenZeppelin proxy contract, as the proxy lacks an existence check on its fallback function. This means that if the proxy does a DELEGATECALL on an implementation address with no code, the proxy will return success, but no actual code is executed. And this is where the Denial-of-Service appears: anybody calling the LendingPool legitimately would have his transaction succeeded, but without any state change in the protocol.

As soon as the Aave team received the report from Josselin, we suspected that due to the “obscure” nature of the vulnerability, it could also probably affect v1 of the protocol. Also, we knew that the solution would be easy and fast to execute, just by calling the initialize function in the LendingPool of both protocols with the correct/current _addressesProvider, blocking any further attack opportunity.

We also immediately realised that, even if we use the proxy pattern extensively, the only vulnerable place was the Aave Protocol itself, because the attack vector only appears in presence of a DELEGATECALL to another contract.

A high-level recap of our steps were:

• 7:18 PM UTC The team receives the vulnerability report from Josselin, immediately 3 members of the Aave team initiate the internal discussion involving Josselin on the next steps
• 7:34 PM UTC We call initialize in the v1 LendingPool, the most critical system https://etherscan.io/tx/0x98089120cd9b1a83a8c5233f6773ff9c12b7451a12532b7ef103d0a85419aa4e
• 7:53 PM UTC We call initialize in the v2 LendingPool, https://etherscan.io/tx/0x5e7b4c263d3f764583bd9fbd39bd7276295f033bf42bbcd97bc0e4d8f7d22ed2
• 8:13 PM UTC We call initialize in the v1 Uniswap LendingPool https://etherscan.io/tx/0x714d19c1057de00921836a9edbb24319f3ff64e4499bf80c6f86bdf57cbe852b

With all the main systems fully protected, we deeply reviewed all of our other contracts deployed in main, but as for our initial thoughts, nothing was affected.

Consequences of a hypothetical attack

As previously described, the attack would be a Denial-of-Service involving Ethereum smart contracts, and because of their particular nature, the criticality is usually higher than in a “traditional” DoS.
Taking into account the reaction time of the Aave team, a hypothetical attack would have a margin of time to generate profit/damage in a range of minutes/hours, and could be as following:

• The attacker executes the exploit on both v1 and v2 LendingPool contracts.
• At this point, the points of further exploit are:
• Just stopping the service of the protocol, creating some loss of state affecting all users interacting with during the attack timeframe, that later on would need to be reconstructed from the inputs.
  - Temporary block ETH funds of users doing new deposits() in the LendingPool, as the ETH would be transferred and the deposit() function would still succeed. The balance of these users would need to be modified according to their deposits later on.
  - Block all the extraction of funds from the protocol, as no code would allow for transfers out.
  - In the case of Aave v2, due to the usage of a WETHGateway contract to allow people holding ETH to deposit WETH, an attack vector could appear stealing funds of users trying to deposit WETH during the attack time frame.
  - More sophisticated exploits based on platforms integrated with Aave, dependant on their particular implementation.

With a carefully designed plan, potentially involving some kind of social engineering, it can’t be discarded that some users could have loss of funds if the attacker realised the WETHGateway attack vector, which involves quite a deep understanding of the system. The rest of the problems, even if tedious to fix, would have a solution.

Finally, the vulnerability was fixed and the system didn’t suffer any disruption of its operations, thanks to the report and help of Josselin Feist and the quick reaction of the Aave team. From the perspective of Aave, this reinforces two fundamental parts of our strategy:

• Our bug bounty program, attracting more pairs of eyes over critical software like the Aave protocol. We have rewarded the attack vector disclosure with an amount of 25 000 USD.
• The importance of quick reaction and well defined security procedures, looking from the perspective of potential consequences to this vulnerability if not solved quickly.

For regular updates, feel free to follow Aave on Twitter or join the Discord.

Aave Security Newsletter was originally published in Aave Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

It’s the moment we’ve all been waiting for… V2 of the Aave Protocol on mainnet!

The Aave Protocol V1 launched at the beginning of this year, with the goal of unlocking value in DeFi and improving the user experience. The protocol quickly grew to over $1B market size in less than 6 months, record growth for the DeFi space! V1 brought to market innovations like Flash Loans and aTokens as new ways to unlock previously locked capital in DeFi and provide a permissionless savings account.

The Aave Protocol took major steps toward becoming more decentralised with the handover of the Admin Keys to the community. The Aave ethos is that finance should be as you like it, and with a working governance and “Aavenomics”, the future of the protocol is in your hands.

This week the Aave Protocol hit another major milestone, with $1B in Flash Loans volume! Due to the 0.09% fee for Flash Loans, this has created an additional $906K going to reward depositors since the launch of V1.

Today, the Genesis Team is happy to introduce some Aavesome new features to unlock more value in DeFi and make the overall experience more seamless.

The Genesis Team is excited about this glow up, and your feedback throughout the V1 phase has been the inspiration for these updates. For more details on V2, feel free to read the Whitepaper.

What’s new with V2?

Yield & Collateral swap

In DeFi, assets that were being used as collateral were tied up, but now with V2 they are free to be traded. Users can trade their deposited assets, across all currencies supported in the Aave Protocol, even when they are being used as collateral. Collateral swapping can be a useful tool to avoid liquidations. If the price of your collateral starts to fall, for example, you can simply trade it for a stablecoin so you don’t have to worry about price fluctuations and potential liquidation. This feature also allows you to swap your assets to get the best yields on the market, essentially creating the first market for collateral and yield trading in DeFi.

Flash Loans Upgraded

Flash Loans were the first undercollateralised loan option to shake up the DeFi space, resulting in the creation of many innovative tools and “money legos”. Flash Loans continued to inspire ideas to make new features possible in Aave V2.

Repayment with collateral

Before V2, if a user wanted to use part of their collateral to repay a loan, they had to first withdraw the collateral, use it to buy the borrowed asset, and then finally repay the debt and unlock the deposited collateral. This requires at least 4 transactions across multiple protocols, costing time and money and making for an overall not-so-seamless experience. This new feature allows users to close their loan positions by paying directly with their collateral in just 1 transaction — smooth and simple.

Flash liquidations

Previously, a liquidator needed to have capital in their own wallet or source it from somewhere else in order to liquidate a position and get that liquidation bonus. Flash Loans are a great equaliser that make it possible for everyone to have access to liquidity so they can take advantage of the financial tools DeFi offers. With Aave V2, liquidators can utilise Flash Loans to flash borrow the capital from the Aave Protocol itself in order to execute a liquidation.

Batch Flash Loans

Flash Loans are getting more powerful. With V1, Flash-borrowers could only borrow one currency at a time. Batch Flash Loans let developers execute a Flash Loan with multiple assets inside the same tx. This means a Flash-borrower can access virtually all the Protocol liquidity.

Debt Tokenization

In V2, debt positions are tokenized, so borrowers will receive tokens that represent their debt. This debt tokenisation enables native Credit Delegation within the Aave Protocol and allows borrowers to manage their debt position from cold wallets.

Native Credit Delegation

Undercollateralised loans in DeFi have been an increasingly popular way to open up access to liquidity without needing existing capital, and Native Credit Delegation will expand on this with V2.

Credit Delegation was introduced back in July, and then the first Credit Delegation on Aave Protocol to DeversiFi happened over the summer, using OpenLaw to conclude the loan agreement. Credit Delegation received a lot of hype, and now Aave V2 makes it native! Credit Delegation is designed so that a borrower could be an institution, business, NGO, cryptocurrency exchange (like DeversiFi), and more, opening up DeFi as a source of liquidity to the rest of the financial world. CD enables delegators to earn extra yield on top of the yield they already earn from the protocol and borrowers to access an uncollateralized loan.

The next step will be to add Credit Delegation to the UI, but for now if you’re a developer, you can follow this tutorial and try it out for yourself.

Gas Optimisations

Anyone using Ethereum recently has probably noticed some network congestion and high gas prices for transactions. To help mitigate these costs, Aave V2 introduces gas optimisations, lowering the cost of protocol transactions up to 50% in some cases!

Stable & Variable Rate Borrowing

DeFi is all about giving you more options so you can get what you want from finance. With Aave V2, borrowers can have both a stable borrow position and a variable borrow position at the same time, with the same underlying asset, from the same wallet. This gives borrowers more options and flexibility for their loan position, and borrowers are still able to switch between the variable and stable rate at any time.

Decentralised Access to V2

In the spirit of decentralisation, you can access Aave V2 directly from:

• Argent
• Zapper
• Zerion
• imToken
• DeFi Saver

You should decide what your finances look like, and that includes having access to Aave’s financial tools and services directly from your favourite wallets and platforms.

Migration of Liquidity to V2

Recently AIP-3 was passed to make the migration from V1 to V2 more seamless. By using a Flash Loan powered migration tool, users will be able to make the transition without having to close their V1 loan positions.

This migration tool will be introduced later, so if you have V1 positions, no need to close them.

Security & Audits

Security is the top priority at Aave. Formal verification was completed by Certora, and you can read the full report here.

Aave V2 has been audited by MixBytes; CertiK; ConsenSys Diligence; and PeckShield, which includes an additional audit report in Chinese. Aave is the first company in the industry to do this, thus appealing to the growing Chinese market. A 5th audit by Sigma Prime is coming soon, and that will also be available publicly.

In addition to the smart contract audits, Aave is working with Gauntlet to test the financial infrastructure of the protocol: resilience to attacks by bad actors as well as incentives for honest participants. A Market Risk Assessment Report will present the market and liquidity risks of Aave’s assets as well as their performance under extreme scenarios with optimised parameter suggestions. Further analysis will assess the Ethereum congestion risk and how to make Aave more resilient.

Reserve Factor and Parameters Changes

The DeFi space has witnessed incredible growth and battle testing leading to a risk reduction across the Aave Market. Furthermore, the Aave ecosystem is mature with an involved and educated community. V2 pushes some of Aave’s current borrowing limits with an optimisation of the risk parameters:

• Increased collateral capacity for USDC, BAT, LINK, UNI, WBTC and WETH
• Cheaper stablecoin borrowing rates below optimal utilisation

V2 also introduces a Reserve Factor to finance the long term sustainability of the DAO. The Reserve Factor allocates a share of the protocol’s income to the ecosystem reserve. This reserve is used to sustain the DAO and pay contributors. One of the key expenses of the DAO is to reward Safety Module Stakers who cover the risk of deficit. As such, the Reserve Factor is also a risk premium and so it is calibrated based on the overall risk of the asset.

Thank you for being part of the journey

Aave has partnered up with Coingecko for an epic contest:

• 5000 candies gets you an Aave Ultraswag pack with 1 backpack, 1 t-shirt, 1 beanie and a special NFT “Aave-Chan” (10 units)!
• 1500 candies gets you a special edition Aave-Chan NFT (490 units)

Additionally, to celebrate the launch of V2, the first 100 addresses to use V2 and deposit at least $100 worth of assets for at least 10 days will receive an extra-special “pioneers” NFT in partnership with POAP!

The Genesis Team can’t wait to hear what you think about V2! Feel free to join the Aave Discord server, follow Aave on twitter, and join the governance forum to learn about and discuss future protocol updates.

The Aave Protocol V2 was originally published in Aave Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

A while ago, the Genesis Team released this plan outlining some features to expect with Aave V2, making finance a more seamless experience. Today, Aave V2 is live on the Kovan testnet, and you can check it out here.

Since the beginning of 2020 when the Aave Protocol first launched, the Genesis Team has collected feedback from the community which has been invaluable in making improvements to the protocol. Now the governance power is in your hands, and the Genesis Team will take on the role of builders who gather popular proposals on the governance forum, and enact the updates voted on by the governance.

Aave V2 is a culmination of community feedback that brings some architecture redesign to upgrade the protocol, along with some exciting new features to push the limits of the DeFi user experience with new tools and UI/UX improvements.

You can find the whole documentation here.

How to Test Aave V2

You can test Aave V2 without spending real assets on the testnet client here! Be sure to switch your wallet provider to the Kovan network in order to use the testnet free of cost. You can get tokens to test from the faucet here — simply select the token of your choice and submit the transaction. Make sure to have ETH before using the faucet. You can find the Kovan ETH faucet here. For further instructions on how to test the Aave Protocol on testnet, including how to get ETH for testing, feel free to refer to the testing FAQ.

You can find the contract addresses for Aave V2 on Kovan in the documentation here.

Security

The code is currently under 4 audits and formal verification, results will all be published before mainnet launch. Additionally, there is an ongoing Bug Bounty up to $250 K to compensate those that discover new bugs or vulnerabilities and disclose them safely. You can find the criteria and details of the Bug Bounty process here.

What’s next?

Feel free to try out V2 on testnet! Your feedback is always appreciated. Feel free to follow Aave on Twitter for frequent updates, join the discussion on Discord, and voice your opinion on the Governance Forum!

Aave V2 is Available on Public Testnet! was originally published in Aave Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

After a memorable edition last year, the EthGlobal team is back with a second edition of EthOnline and the HackMoney hackathon! Aave is proud to sponsor the event again and will be present during the whole event to support builders.

This edition gives hackers 3 full weeks to hack their best project on Aave and take their fair share of the 8000 aUSDC Aave prize pool!

The Aave Journey

During the last edition in April 2020, Aave was a 50M$ Money Market Protocol and the ecosystem was just discovering the use-cases of Flash Loans and debating the concept of stable rates.

Now Aave is a 1.8B$ Money Market Protocol with 20 assets and an imminent migration from the LEND to the AAVE asset allowing the Aave community to take full control of the Aave Protocol.

400M$ volume of Flash Loans have allowed swift liquidations for a safer and more resilient DeFi ecosystem and arbitrage for more liquid markets.

On average, 20% of all Aave loans are now using stable rates to protect borrowers from short-term volatility.

BUT we’re still in the early days of the Aave journey!

The upcoming V2 upgrade of the protocol will soon offer a wider playground for developers. The V2 architecture is very close to V1, migration of projects built during the hackathon should require minimal tweaks for a V2 upgrade.

3 Weeks, Endless Opportunities

David Truong prepared special documentation full of resources and ideas for this hackathon. Feel free to get inspired by the great work of previous hackathon winners and by the suggested ideas, but don’t feel limited in any way by the suggestions — we encourage you to express your creativity during the event!

The Hackmoney event will last for 3 weeks starting on October 2nd. Past experiences have proved that hackathons spanning several weeks are the best opportunities to convert a crazy idea to the start of a great application!

Developers are also invited to dive into our technical documentation and get familiarized with Aave’s original features such as Credit Delegation and Flash Loans.

We will be available on the official EthOnline Discord, and joining the community in the #Developers channel of the Aave discord is also always a safe bet!

Synergies are Welcome

DeFi is a CO-OP game! Success highly depends on synergies and strategies, and hackers leveraging the Aave Protocol and other protocols within the ecosystem are encouraged.

If you’re building a no-loss lottery system leveraging on Aave interest, feel free to use Chainlink VRFs to assure provably fair RNG.

If you’re building an Aave Flash Loan arbitrage app, building on top of Paraswap.io or Uniswap is the best road to success.

DeFi is all about breaking the silos of the CeFi mindset, and hackers are invited to think globally and build something that benefits the ecosystem as a whole while providing their own added value!

Prize Pool Upgraded

For our second participation in EthOnline, we decided to upgrade the prize rewards pool. This time, up to 8000 aUSDC will be distributed to the winners!

• 4000 aUSDC for the Winning spot
• 2500 aUSDC for the second team
• 1500 aUSDC for the follow-up team

Hackathons are always a great time to collect feedback from the community of builders and witness great things bloom in real-time. We can’t wait to see what you’ll build on Aave!

Aave x HackMoney is back! was originally published in Aave Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.