Aave has launched version 2 (V2) of its marketplace, replacing the previous version which was launched at the beginning of the year.
The Aave Protocol V2 allows users to trade their deposited assets across all currencies supported in Aave’s marketplace, even when they are being used as collateral.
The Ethereum-based lending platform said that collateral swapping can be a useful tool to avoid liquidations.
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“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,” Aave said in a blog post on it website.
“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 decentralised finance.”
Users can now use part of their collateral to repay a loan in one transition rather than the four it previously took.
Previously, lenders had to withdraw the collateral, use it to buy the borrowed asset, then repay the debt and unlock the deposited collateral.
With Aave V2, users can utilise flash loans to borrow the capital from the Aave Protocol itself in order to execute a liquidation.
Flash loans are uncollateralised loans that allow the borrowing of an asset, as long as the borrowed amount and a fee can be returned before the end of the transaction.
Previously, a liquidator needed to have capital in their own wallet or source it from somewhere else in order to liquidate a position and access that liquidation bonus.
In V2, debt positions are tokenised, so borrowers will receive tokens that represent their debt. This enables native credit delegation within the Aave Protocol.
Aave said it will launch a flash loan-powered migration tool later this year that will allow users to make the transition without having to close their V1 loan positions.