Today, Enzyme is thrilled to announce we have enabled borrowing on Aave V3, the latest version of the widely popular DeFi liquidity protocol. Now, users can leverage the enhanced features of Aave V3 on both our Ethereum and Polygon deployments to supply liquidity and borrow assets.

What is Aave V3?

Aave V3 is the latest version of the Aave Protocol, an innovative, non-custodial liquidity protocol. Users can participate as suppliers or borrowers, earning interest on supplied assets and borrowing in an overcollateralized (or undercollateralized with flash loans) manner. Aave V3 augments the core concepts of its protocol (aTokens, instant liquidity, stable rate borrowing, credit delegation, etc.) with new features, including increased capital efficiency, risk mitigation and security enhancements alongside a new, compatible user interface.

Some of the key features of Aave V3 include:

• Isolation mode, which limits the risk of new assets used as collateral by only permitting borrows up to a certain amount, allowing for a wider variety of listed assets without increasing the risk to the protocol;
• The High Efficiency mode (or “eMode”) is designed to maximise capital efficiency when collateral and borrowed assets are correlated in price by allowing borrowers to extract the highest borrowing power out of their collateral;
• Supply caps, that enable Aave governance to set limits on assets supplied, minimising exposure to certain assets;
• Optimised gas costs for all relevant functions, reducing costs 25% across the board.

Why should you borrow assets using Aave V3 on Enzyme?

Borrowers are able to obtain liquidity (working capital) without selling your assets.

Before borrowing, you need to supply assets to be used as collateral. After this, simply head to the Borrow section and click on “Borrow” for the asset you want to borrow. Set the amount you need based on your available supplies that would be used as a collateral for the loan. From there, select either stable or variable rate and confirm your transaction. You can always change your rate afterwards as many times as you want.

Below we answer some of the most common questions related to borrowing on Aave V3.

Q: How much can I borrow?

The maximum amount you can borrow depends on the value you have supplied and the available liquidity. For example, you can’t borrow an asset if there is not enough liquidity or if your health factor doesn’t allow you to.

Q: What asset do I need to repay?

You repay your loan using the same asset you borrowed. For example, if you borrow 1 ETH you will pay back 1 ETH + interest accrued. If you want to pay back the loan based on USD price, you can borrow any of the available stable coins such as USDC, DAI, USDT, etc.​​

Q: How much would I pay in interest?

The interest rate you pay for borrowing assets depends on the borrowing rate which is derived from the supply and demand ratio of the asset. Moreover, the interest rate of a variable rate changes constantly, whereas a stable interest rate provides interest rate stability. You can find your current borrowing rate at any time in the Borrowings section of your dashboard.

Q: What is the health factor?

The health factor is the numeric representation of the safety of your deposited assets against the borrowed assets and its underlying value. The higher the value is, the safer the state of your funds are against a liquidation scenario. If the health factor reaches 1, the liquidation of your deposits will be triggered.A Health Factor below 1 can get liquidated. For a HF=2, the collateral value vs borrow can reduce by 1 out of 2: 50%. The health factor depends on the liquidation threshold of your collateral against the value of your borrowed funds.

Q: When do I need to pay back the loan?

There is no fixed time period to pay back the loan. As long as your position is safe, you can borrow for an undefined period. However, as time passes, the accrued interest will grow making your health factor decrease, which might result in your deposited assets becoming more likely to be liquidated.

Q: How do I pay back the loan?

In order to pay back the loan you simply go to the Borrowings section of your dashboard and click on the re-pay button for the asset you borrowed and want to repay. Select the amount to pay back and confirm the transaction.

Q: How do I avoid liquidation?

In order to avoid the reduction of your health factor leading to liquidation, you can repay the loan or deposit more assets in order to increase your health factor. Out of these two available options, repaying the loan would increase your health factor more.

Using E-mode to Borrow Assets

In Aave V3, one of the main new features is E-mode (high efficiency).

E-mode allows borrowers to extract the highest borrowing power out of their collateral by maximising capital efficiency when collateral and borrowed assets have correlated prices. For example, DAI, USDC, USDT are all stablecoins pegged to USD. These stablecoins are all within the same E-mode category. Accordingly, a user supplying DAI in E-mode will have higher collateralization power when borrowing assets like USDC or USDT.

Only assets of the same category (for example stablecoins) can be borrowed in E-mode. E-mode does not restrict the usage of other assets as collateral. Assets outside of the E-mode category can still be supplied as collateral with normal LTV and liquidation parameters. When E-mode is enabled, you will have higher borrowing power over assets of the same E-mode category.

What assets will Enzyme support?

Initially, we will support supplying and borrowing across the following assets on both Mainnet and Polygon.

The assets that will be available on Mainnet include:

• aEthAAVE (Aave Ethereum AAVE)
• aEthBAL (Aave Ethereum BAL)
• aEthcbETH (Aave Ethereum cbETH)
• aEthCRV (Aave Ethereum CRV)
• aEthDAI (Aave Ethereum DAI)
• aEthLDO (Aave Ethereum LDO)
• aEthLINK (Aave Ethereum LINK)
• aEthLUSD (Aave Ethereum LUSD)
• aEthMKR (Aave Ethereum MKR)
• aEthrETH (Aave Ethereum rETH)
• aEthSNX (Aave Ethereum SNX)
• aEthUNI (Aave Ethereum UNI)
• aEthUSDC (Aave Ethereum USDC)
• aEthUSDT (Aave Ethereum USDT)
• aEthWBTC (Aave Ethereum WBTC)
• aEthWETH (Aave Ethereum WETH)
• aEthwstETH (Aave Ethereum wstETH)

The assets that will be available on Polygon include:

• aPolAAVE (Aave Polygon AAVE)
• aPolBAL (Aave Polygon BAL)
• aPolCRV (Aave Polygon CRV)
• aPolDAI (Aave Polygon DAI)
• aPolDPI (Aave Polygon DPI)
• aPolGHST (Aave Polygon GHST)
• aPolLINK (Aave Polygon LINK)
• aPolMATICX (Aave Polygon MATICX)
• aPolMIMATIC (Aave Polygon MIMATIC)
• aPolSTMATIC (Aave Polygon STMATIC)
• aPolSUSHI (Aave Polygon SUSHI)
• aPolUSDC (Aave Polygon USDC)
• aPolUSDT (Aave Polygon USDT)
• aPolWBTC (Aave Polygon WBTC)
• aPolWETH (Aave Polygon WETH)
• aPolWMATIC (Aave Polygon WMATIC)
• aPolwstETH (Aave Polygon wstETH)

How to Get Started

How to Borrow on Aave V3?

Note: Before borrowing, Aave V3 tokens must be used as collateral.

1. Go to the “Borrow” tab.
2. Click on “Add Collateral”.
3. Input the amount of Aave V3 tokens you wish to use as collateral and click on “Add Collateral”.
4. Confirm the transaction details and submit the transaction.
5. Once collateral is added, navigate to the list of collaterals.
6. Click on the 3 dots beside your collateral and select “Borrow Assets”.
7. From the dropdown menu, choose the token you want to borrow, specify the amount, and click on “Borrow”.
8. Review the transaction details.
9. Confirm and sign the transaction with your wallet.

How to Repay Borrowed Assets on Aave V3?

1. Navigate to the list of assets you’ve borrowed.
2. Click on the 3 dots beside the borrowed asset and select “Repay Assets”.
3. Input the amount you wish to repay and click on “Repay”.
4. Review the transaction details.
5. Confirm and sign the transaction with your wallet.

How to Manage Collateral on Aave V3?

1. To Withdraw Collateral: Navigate to the list of assets you’ve set as collateral. Click on the 3 dots and select “Withdraw Collateral”. Specify the amount, click “Withdraw Collateral”, review and confirm the transaction.
2. To Borrow More Assets: Follow the steps in the borrowing section after you’ve added collateral.

How to Enable E-Mode on Aave V3?

1. E-Mode allows users to maximise their loan-to-value ratio for specific asset categories up to 97%.
2. Navigate to the “Borrow” tab.
3. Click on “Enable E-Mode”.
4. Choose the desired asset category (e.g., Stablecoins, ETH correlated, Matic Correlated). d. Activate “E-Mode”.
5. Review the transaction details and confirm.

Note: E-Mode settings can be modified, or it can be disabled entirely. However, changing the mode will impact your loan-to-value ratio.

For more detailed information, please visit our documentation here: https://docs.enzyme.finance/managers/trade/defi-protocols/aave-V3

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