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.