Aave V4: Major Upgrade of the Next Generation Decentralized Finance Lending Platform

Aave, as one of the largest and most mature lending protocols in the Decentralized Finance ecosystem, draws significant attention from the industry for any of its movements. Recently, at the ETHCC conference, Aave's founder officially announced the upcoming launch of the next-generation significant iteration version—Aave V4.

Aave V4 is not just a regular upgrade, but a key milestone in Aave's long-term strategic roadmap for 2030. This upgrade was officially proposed in May 2024 and aims to systematically address the limitations exposed during the operation of version V3, particularly breakthroughs in key areas such as scalability and risk management. Through this far-reaching update, Aave hopes to fundamentally reshape the underlying architecture and core functions of the Decentralized Finance lending protocol, preparing for the future development of the protocol.

This article will delve into the contents of Aave V4, review its evolution, analyze the new architecture, and interpret these changes within the broader trends of the Decentralized Finance industry.

The Evolution of Aave

Aave originated from ETHLend, a P2P platform where lenders and borrowers needed to find each other's counterparties, but the process of finding matching counterparts was slow and full of uncertainties. After recognizing these fundamental flaws, the team upgraded the brand to Aave( in September 2018, decisively shifting from the P2P model to a liquidity pool-based peer-to-contract )P2C( model, where funds were pooled together to enable instant lending. The subsequent Aave V2 optimized smart contracts to further reduce transaction costs on the Ethereum network, allowing more people to access Decentralized Finance.

The current version Aave V3 has made significant strides in capital efficiency and risk management compared to version V2. It introduces several key features, such as:

• Efficient Mode ) E-Mode (: When the prices of the assets deposited and borrowed by users are highly correlated, E-Mode allows users to unlock greater borrowing capacity. This directly addresses the issue of insufficient capital efficiency for correlated assets in V2.

• 隔离模式)Isolation Mode(: Allows new, higher-risk assets to be launched in an "isolated" manner. The collateral provided under the isolation mode can only be used to borrow a set of stablecoins approved by governance, with a clear debt limit, and cannot be mixed with other collateral. This effectively "isolates" the risk of new assets and prevents risk contagion.

However, Aave V3 has also exposed a deeper strategic limitation: a single entity architecture cannot flexibly respond to the demands of emerging markets and diverse scenarios. When the industry begins to introduce RWA as collateral, the single architecture of Aave V3 proves to be inadequate. RWA involves off-chain legal compliance, counterparty risk, and different liquidation logic, which cannot simply be squeezed into the existing smart contract framework.

This is the core issue that Aave V4 aims to fundamentally address: how to evolve from a single rigid product to a flexible platform that can support countless financial scenarios.

Aave V4: Modular New Architecture

Aave V4 introduces a brand new design called "Liquidity Hub + Spoke" ) Liquidity Hub + Spoke ( model. This architecture is a direct response to the limitations of a "single entity," which we can understand through a simple analogy from traditional finance: a central bank and its network of commercial banks.

• Liquidity Hub: Aave's "central bank"

On every blockchain network running Aave, there is a unified liquidity center that aggregates assets supplied by all users. This center serves as the central liquidity source for the entire network. It does not directly provide "retail" services to end users. Instead, it focuses on macro liquidity management and risk control, providing stable and deep liquidity for the entire ecosystem. This model is expected to improve capital utilization, bring higher returns to lenders, and offer lower interest rates to borrowers.

Liquidity centers on different chains are not isolated; rather, they can efficiently communicate and transfer liquidity with each other. This is primarily achieved through a mechanism known as the "Unified Cross-Chain Liquidity Layer," which is fundamentally supported by Chainlink's cross-chain interoperability protocol.

• Spoke:Aave's "specialized commercial bank"

The liquidity center operates in the background, and users will interact with protocols through various Spokes. Spokes are user-facing, modular lending markets, each designed for a specific purpose and connected to the central liquidity center. They function like specialized commercial banks. For example, there may be:

• Core Spoke: A general lending solution for handling low-risk, high-liquidity blue-chip crypto assets such as ETH and WBTC.

• E-Mode Spoke: Specifically optimized for stablecoins, LSTs, and other highly correlated currency pairs, providing the highest capital efficiency.

• RWA Spoke: Tailored for tokenized treasury bonds, real estate, and other real-world assets. This type of Spoke can integrate stricter access, custody, or compliance rules to meet institutional and regulatory requirements.

• A high-leverage trading Spoke, designed for professional traders seeking high risk and high returns, featuring a special interest rate model and risk control parameters.

The most important aspect of this design is its openness. Aave V4 will allow developers to build and propose their own Spoke. If a new Spoke design is approved by Aave's governance, it can obtain a line of credit from the liquidity hub, thereby leveraging Aave's vast liquidity network to launch a new, specialized market. This fundamentally transforms Aave from a mere product into a foundational platform for financial innovation.

Comparison: Aave vs. Sky) before MakerDAO(

To fully understand Aave's strategic direction, it would be helpful to compare it with its main competitor Sky. Sky recently underwent a rebranding, renaming itself Sky, and launched its own "endgame" plan. It can be said that "great minds think alike," as Sky has also adopted a modular architecture, marking a shift in the entire industry towards more flexible and scalable design.

) similarities

The architecture of Sky can be described as "Sky Core + SubDAO".

• Sky Core plays the role of a "central bank" in the Sky ecosystem, inheriting the function of issuing stablecoins ###, now USDS, originally DAI (. It establishes the most fundamental rules, maintains the stability of USDS, and serves as the ultimate credit and security guarantee.

• SubDAO is a semi-independent, specialized organization operating within the Sky ecosystem, playing the role of a "commercial bank" targeted at specific areas. The core work of SubDAO is asset management and risk assessment. They are authorized by the Sky Protocol to receive specific types of collateral and initiate requests to Sky Core for minting USDS.

The similarities between Aave's "Liquidity Hub + Spoke" and Sky's "Sky Core + SubDAO" are evident: both recognize that a single entity cannot meet all market demands, and therefore adopt the model of "central bank + specialized commercial banks": the central bank formulates policies and provides liquidity, while specialized commercial banks are responsible for developing specific business scenarios.

) differences

Despite their similarities, Aave and Sky also have significant differences in core business, economic models, and ecological sovereignty.

First, let's discuss the types of liquidity: Aave's Liquidity Hub aims to provide liquidity for a wide range of asset classes, including stablecoins, volatile assets like ETH###, derivative assets like LSTs(, and more. Sky inherits this gene, and its core strategy has always revolved around the issuance, stability, and promotion of its native stablecoin USDS. The main task of its SubDAO is to create more application scenarios and demand for USDS, deepening its liquidity moat.

Secondly, there is the economic model and sovereignty: this is the most fundamental difference between the two. Sky SubDAO is granted a high degree of economic sovereignty, and each SubDAO is allowed to issue its own governance tokens, which enables it to build independent economic models, implement its own incentive programs, and directly capture the value created by its business growth.

In contrast, the independence and autonomy of Spokes in Aave V4 are much weaker. Currently, Spokes cannot issue their own tokens. They are an extension of the Aave core protocol, and the value they generate will flow back to the Aave DAO. Spokes are similar to different divisions under a large group; they operate under the unified Aave brand and economic framework, and the value created also flows back to the group's headquarters.

![Interpreting Aave V4: Love and Kill with MakerDAO, Different Paths to the Same Goal])https://img-cdn.gateio.im/webp-social/moments-956fdc9027e6e121e459bc00001ff61a.webp(

Macroscopic Perspective

The architectural changes of Aave and Sky are not isolated events, but a direct response to the major trends shaping the future of Decentralized Finance.

) Integrate RWA

The next frontier of DeFi growth is widely considered to be the tokenization of real-world assets such as government bonds, real estate, and private credit. These assets come with unique legal and compliance requirements, making it difficult to manage them within a single, large protocol. Aave V4 and Sky's modular architecture are well-suited for this, allowing protocols to create independent, customizable, and even permissioned "sandbox" environments specifically designed to undertake and manage RWAs while maintaining their core decentralized and permissionless characteristics.

( The rise of application chains

One logical endpoint of this modular evolution is that major protocols launch their own dedicated blockchains, known as "Appchain." Aave and Sky have both announced plans to develop in this direction, with Aave Network and NewChain set to launch respectively.

Why are these already successful protocols coincidentally moving towards application chains? The answer lies in sovereignty and value capture. Having their own application chain means that protocols can fully control their execution environment, customize fee markets, capture MEV that would originally be taken by public chain miners or validators, and provide users with a smoother, more integrated experience. More importantly, using native tokens as Gas and staking assets creates a value capture flywheel that is more powerful and direct than simply collecting interest shares. This marks a transition of the protocol's identity from "tenant" to "landlord."

) impact on Ethereum

Although these application chains seem to be "leaving" Ethereum, in reality, their design relies on Ethereum. Aave Network and NewChain both plan to use Ethereum as their ultimate security and settlement layer. This reflects a broader shift in Ethereum's role—from a place where all activities occur to a foundational trust layer that provides security for a vast interconnected chain ecosystem.

However, this transition also poses severe challenges to Ethereum's economic model. Historical experience shows that when the activity of major protocols migrates to Layer 2, the transaction volume on the Ethereum mainnet decreases, leading to a reduction in fee income. The decrease in Base Fee burning will weaken the deflationary mechanism of ETH, subjecting it to inflationary pressures.

Therefore, in the face of the major trend of DeFi protocols independently becoming chains, Ethereum must proactively evolve and explore new economic models that can effectively capture value from its new role as an "ecological security provider," thus maintaining the healthy operation of the entire ecosystem.

Conclusion

Aave V4 is not just an upgrade, but a strategic repositioning. It is a thoughtful solution to the internal challenge of "a single entity cannot meet diverse needs" and a forward-looking response to external opportunities such as RWA and a multi-chain landscape.

By transforming into a modular open platform, Aave is laying the groundwork for becoming the infrastructure of next-generation on-chain finance, beyond simple lending applications. The "Liquidity Hub + Spoke" model brings higher capital efficiency to users and provides developers with unprecedented flexibility. This evolution echoes the movements of its main competitors, marking the maturation of the DeFi industry and preparing for broader adoption and more complex financial integrations. The launch of Aave V4 will be a key event to watch, as it has the potential to set new standards in the DeFi lending space for the coming years.

This article is based on publicly available information and does not constitute investment advice. Cryptocurrency investment carries significant risks; please make decisions cautiously.