Aave V2 represents a architectural upgrade from V1, introducing major improvements in architecture design, gas optimization, and protocol flexibility while maintaining the core lending/borrowing functionality. The core lending logic remains unchanged from V1.
Key Architectural Differences from V1
1. Token-Centric Reserve Management
V1 Approach: Centralized reserve management in
LendingPoolCore contract- All liquidity was pooled in a single core contract
- Interest calculations handled centrally
V2 Innovation: Decentralized reserve management via aToken contracts
- Each reserve manages its own liquidity through the aToken contract
- aTokens automatically accrue interest via increasing exchange rates
- More modular and scalable architecture
2. Enhanced Collateral System
V1: Basic collateralization
V2: Advanced collateral management using bitmaps
- Bitmap-based configuration: Each user's collateral/borrow status stored in 2 bits per reserve
- Gas optimization: Reduced storage costs for user configurations
- Collateral swapping: Enabled through flash loan-integrated transactions
3. Dual Debt Structure
V1 Limitation: Users could only choose one debt type per asset
- Either stable OR variable rate borrowing for each reserve
V2 Enhancement: Simultaneous stable and variable debt positions
- Users can maintain both debt types for the same asset
- Flexible debt restructuring capabilities
4. Advanced Flash Loans
V1: Basic flash loans with reentrancy guards
- Limited functionality due to security constraints
- Could not interact with Aave protocol during flash loan execution
V2: Powerful flash loan system without reentrancy guards
- Multi-asset flash loans: Borrow multiple assets in single transaction
- Protocol integration: Can interact with Aave during flash loan execution
- Debt conversion option: Choose to open debt positions instead of immediate repayment
5. Credit Delegation System
V1: No native credit delegation capability
V2 Innovation: Permissionless credit delegation infrastructure
- Liquidity providers can delegate borrowing power to other users
6. Gas Efficiency Improvements
Optimization in transaction costs:
- Bitmap storage: More efficient user configuration management
7. Enhanced Risk Management
V2 introduces more sophisticated safety mechanisms:
- Improved health factor calculations: More accurate risk assessment
- Collateral-specific parameters: Fine-tuned risk parameters per asset
- Advanced liquidation engine: Better capital protection during market volatility
8. Debt Tokenization
V1: Debt positions were internal accounting entries
V2: Debt positions represented as tokens
- StableDebtToken and VariableDebtToken are ERC-20 compliant
9. WETH Integration
V1: Native ETH handling with special cases
V2: Unified WETH approach
- Simplified contract logic by using WETH throughout
- Reduced complexity in asset handling
- Better compatibility with other DeFi protocols
Protocol Upgrade Benefits
Capital Efficiency
- Collateral swapping: Optimize collateral composition without intermediate steps using flashloan.
- Simplified interactions: More intuitive contract interfaces.
- Reduced gas costs: Cheaper transactions for common operations
- Greater flexibility: More ways to manage positions and risks
Protocol Security
- Modular architecture: Isolated risk containment