Aave V3 Features
V3 Market offers greater capital efficiencies, increased security, and cross-chain functionality, while facilitating increased decentralization across the protocol. Aave V3 brings new features as well
Here is what you can do on Aave V3:

Isolation Mode

Isolation mode allows Aave Governance to list new assets as isolated assets, which have a specific debt ceiling. Only certain assets can be borrowed in isolation mode—specifically, approved stablecoins. In order for an asset to become approved for borrowing, assets are voted on by AAVE token holders through the Aave Governance Forum.
The debt ceiling for an isolated asset is represented as the maximum amount in USD that can be borrowed against the user’s collateral with two decimals of precision.

How can I enter isolation mode?

Entering isolation mode is specific to certain isolated assets that are voted on and approved by Aave Governance. You cannot utilize non-isolated assets as collateral to enter isolation mode. The steps to entering isolation mode are as follows:
  1. 1.
    From the dashboard select an isolated asset to supply.
  2. 2.
    You will then see an information notification explaining that you are entering into isolation mode.
  3. 3.
    Once you have successfully entered isolation mode, you will then be able to supply an isolated asset.
  4. 4.
    You can also borrow assets once in isolation mode; however, you will only be able to borrow stablecoins up to a certain debt ceiling.

How can I exit isolation mode?

To exit isolation mode, you will need to disable the collateralized isolated asset that you have supplied.
  1. 1.
    From the “Your Supplies” section, click the slider button to disable the isolated asset.
  2. 2.
    Confirm the disabled isolation mode setting. You have now successfully exited isolation mode.

How does isolation mode affect my borrowing power?

Upon entering isolation mode, you will be limited to borrowing stablecoins. This is further evidenced under the “Assets to Borrow” section where you will see the available stablecoins listed.
Each isolated asset will have a specific debt ceiling, which means that it is only possible to borrow up to the specified debt ceiling amount. The debt ceiling is visible on the reserves page of each asset.

High Efficiency Mode (E-mode)

The E-mode feature maximizes 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 used as collateral and be borrowed in E-mode.

How do I enter E-mode?

To enter E-mode from the dashboard, toggle to the dropdown menu under the “"Your Borrows”" where you will find an “Enable E-mode” button. Initially, the button to enable E-mode will indicate that E-mode is “disabled.” Click “Enable E-mode" ” and follow the instructions in the pop-up. Once you have followed the instructions, you will have enhanced borrowing power (i.e., up to 97% LTV) within E-mode and can only borrow assets within the same category of assets (for example, stablecoins).

How do I exit E-mode?

To exit E-mode, select “"Disable E-mode”" from the dropdown under the “Your Borrows” section. Follow the instructions in the pop-up to exit E-mode.

How does E-mode affect my borrowing power?

When E-mode is enabled, you will have higher borrowing power over assets of the same E-mode category.

How can I use permit?

Previously in Aave V2, moving assets required transaction approvals, which cost gas (i.e., network transaction costs) on both the approval and supply transactions. With Aave V3, you can move your assets seamlessly between all Aave V3 markets over different networks. The permit function of Aave V3 allows you to move your funds from a wallet by simply signing an approval message instead of approving a transaction on the network to avoid gas fees.

Can I move my funds between V2 and V3 markets?

To move assets between versions of the Aave protocol (i.e., V2 and V3), you will need to withdraw your funds from V2 and supply your funds into V3. For example, if you supply funds in ETH V2 and change to ETH V3, you will not see your balance from ETH V2 reflected in ETH V3 until you withdraw your funds from ETH V2 into your wallet, change markets from V2 to V3, and supply your assets to ETH V3
Keep in mind that moving funds from V2 to V3 will cost you gas fees.

Have gas fees lowered?

With Aave V3, gas costs have been optimized for all the relevant functions. Gas costs have been reduced by around 20-25% across the board.

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The V3 technical paper is available here, and you can find a full explanation of V3 and its features here.