What are key new features of Aave V3?

Aave V3 maintains the core concepts of V2 markets (i.e. aTokens) while providing several new features and enhancements. Portal is one new feature that allows users to seamlessly move their assets across various V3 deployments on different blockchain networks. This means a user’s supplied liquidity can be transferred from one network to another simply by burning the aToken on the source network (e.g. Ethereum) while minting them on the destination network (e.g. Polygon). High efficiency mode (eMode) allows borrowers to ensure they are achieving the highest borrowing power with their collateral. eMode allows Aave to categorize each different asset based on its Loan-to-Value (LTV), liquidation threshold, and liquidation bonus. This provides borrowers greater access to capital as it limits which assets the user can borrow by category. A category refers to a set of assets pegged to the same underlying asset such as stablecoins or ETH pegged assets. If a user chooses to operate in eMode, when that user supplies assets of the same category as collateral, the borrowing power (LTV), and maintenance margin (liquidation threshold) are overridden by the eMode category configuration to allow for higher capital efficiency. Isolation mode is a new risk management parameter that allows the protocol to limit the risk of new assets used as collateral. New assets listed on V3 under isolation mode can only borrow stablecoins that Aave has permissioned to be borrowed. In V3, governance can also configure both borrow and supply caps. Borrow caps allow governance to set limits on how much of each asset can be borrowed, while supply caps enable governance to vote to limit how much of a certain asset can be supplied to Aave. Borrow caps minimize liquidity pool insolvency while supply caps reduce protocol exposure to a certain asset and help mitigate exploits like infinite minting or oracle manipulation.

How can you move funds between V2 and V3?

You cannot freely move your assets between V2 and V3. Aave V3 introduces a new set of smart contracts that are not compatible with V2 smart contracts. To move funds between the two, you will need to withdraw your funds from V2 and then supply the funds to V3.

How can you enter and exit isolation mode?

Isolation mode is enabled only on certain assets voted on by governance. You cannot enter isolation mode using non-isolated assets as collateral. After successfully entering isolation mode on an asset, you can only borrow stablecoins up to a certain debt ceiling. To exit isolation mode, you will need to disable the collateralized isolated asset that you have supplied.