Aave Community Rallies Behind Proposed Metis Deployment

The community of Aave, the leading DeFi lending protocol with $8.5B in total value locked, is rallying behind a proposal to deploy the protocol’s v3 iteration on Metis Andromeda, an Ethereum Layer 2 network.

An initial temperature check published on Saturday has received near-unanimous support. The poll will close on Thursday.

The poll reaffirms Aave’s commitment to supporting Ethereum’s burgeoning Layer 2 ecosystem. V3, Aave’s latest iteration, is currently live on seven chains, including top L2s Arbitrum and Optimism, and the Polygon sidechain.

Metis Andromeda is the fifth-largest Layer 2 network with a total value locked (TVL) of $127M, according to L2beat.

Liquidity Incentives

Should the proposal pass, Metis has offered 100,000 of its native METIS tokens as liquidity mining incentives for Aave users on the network over six months.

Aave users could also receive additional rewards through Metis’s Builder Mining Reward program, which distributes 4,000 METIS (currently $117,000) each month to participating protocols based on the percentage of monthly transactions they represent. For example, Aave users would receive 400 METIS each month if the protocol is responsible for 10% of the network’s monthly transaction count.

Hybrid Rollup

On March 3, the MetisDAO Foundation unveiled plans for the network to become a hybrid rollup.

Optimistic rollups work by bundling transactions on Layer 2 and submitting them to the Ethereum mainnet for finalization, meaning most transactions are much faster and cheaper compared to the mainnet. However, mainnet withdrawals require a seven-day delay for fraud detection.

By contrast, zero-knowledge rollups offer improved security and performance at the expense of compatibility with the Ethereum Virtual Machine (EVM), Ethereum’s core smart contract engine, meaning developers cannot easily port their code from mainnet to L2 without making significant changes.

Metis said it plans to combine the EVM compatibility of Optimistic Rollups with the “censorship-resistance, security, and fast transaction finality enabled by zero-knowledge proofs.”

Short-lived Success

Metis’ TVL peaked above $700M in March 2022. Hermes, a decentralized exchange, and Starstream, a yield aggregator, each boasted TVLs of more than $200M on Metis at the time.

But Metis’s moonshot moment was short-lived, with opportunistic hackers exploiting Starstream and stealing the project’s treasury reserve of its native STARS token, a stash worth roughly $15M.

The stolen tokens were then used as collateral on Agora, a lending protocol, enabling the attacker to borrow additional assets. The hacker used the borrowed funds to push up the price of STARS, giving them even greater borrowing power with which to repeat the cycle.

Agora incurred more than $6M worth of bad debt as a result of the heist, further impacting confidence in Metis’s DeFi ecosystem. Starstream announced it would wind down in June 2022.