Aave V4: A new chapter for Decentralized Finance lending platform

As one of the important cornerstones of the DeFi ecosystem, any movement of Aave is closely watched. At the recent ETHCC conference, the founder of Aave officially announced the upcoming launch of a new generation of important iterative version - Aave V4.

Aave V4 is not just a simple routine upgrade, but a key milestone in Aave's long-term strategic roadmap for 2030. This upgrade was first proposed in May 2024, aiming to systematically address the limitations exposed during the operation of version V3, particularly making breakthroughs in critical 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 DeFi lending protocol, preparing for future development.

This article will explore the content of Aave V4 in detail, 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 started with ETHLend, a P2P platform. Due to the slow and uncertain process of finding matching counterparts, the team upgraded the brand to Aave(V1) in September 2018, shifting from a P2P model to a liquidity pool-based point-to-point contract model, enabling instant lending. The subsequent V2 version further reduced transaction costs by optimizing smart contracts.

The current V3 version has made significant strides in capital efficiency and risk management, introducing several key features:

• Efficient Mode ( E-Mode ): When the asset prices deposited and borrowed by users are highly correlated, it allows for higher borrowing capacity.

• 隔离模式(Isolation Mode): Allows new, higher-risk assets to be launched in an "isolated" manner to prevent risk contagion.

However, V3 also exposes deeper strategic limitations: a single entity architecture cannot flexibly respond to the demands of emerging markets and diversified scenarios. Especially when introducing RWA( such as tokenized government bonds or private credit ) as collateral, V3's single architecture seems inadequate.

The core issue that Aave V4 aims to fundamentally address is: how to evolve from a single rigid product into 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 can be likened to the central banks and their commercial bank networks in traditional finance:

• Liquidity Center: Aave's "central bank" On each blockchain network running Aave, there will be a unified liquidity center that aggregates all user-supplied assets. It focuses on macro liquidity management and risk control, providing stable and deep liquidity for the entire ecosystem.

Liquidity centers on different chains can communicate efficiently and transfer liquidity through the "Unified Cross-Chain Liquidity Layer" (CCLL).

• Spoke:"Specialized Commercial Bank" of Aave Users interact with various Spokes and protocols. Spoke is a user-facing, modular lending market, and each market is designed for a specific purpose. For example:
  • Core Spoke: General lending for low-risk, high-liquidity blue-chip crypto assets.
  • E-Mode Spoke: Optimized for stablecoins, LST, and other highly correlated currency pairs, providing maximum capital efficiency.
  • RWA Spoke: Customized for tokenized government bonds, real estate, and other real-world assets.
  • High Leverage Trading Spoke: Designed for professional traders, featuring unique interest rate models 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. After governance approval, new Spokes can obtain credit lines from the liquidity hub to leverage Aave's liquidity network to launch specialized markets. This will transform Aave from a mere product into a foundational platform for financial innovation.

Comparison: Aave vs. Sky( vs. MakerDAO)

To fully understand Aave's strategic direction, it is helpful to compare it with its main competitor Sky( and MakerDAO). Sky has also recently undergone a rebranding and launched the "Endgame" plan, which similarly adopts a modular architecture.

similarities

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

• Sky Core plays the role of "central bank", inheriting the function of issuing stablecoins, formulating core rules, and maintaining the stability of USDS.

• SubDAO is a semi-independent specialized organization that acts as a "commercial bank" for specific fields, responsible for asset management and risk assessment.

Aave's "Liquidity Hub + Spoke" is highly similar to Sky's "Sky Core + SubDAO" model, both adopting the "central bank + specialized commercial bank" model.

difference

Despite the similarities, Aave and Sky have significant differences in core business, economic models, and ecological sovereignty:

1. Types of Liquidity: Aave's Liquidity Hub provides liquidity for a wide range of asset classes. Sky focuses on the issuance, stability, and promotion of its native stablecoin USDS.

2. Economic Model and Sovereignty: Sky SubDAO has a high degree of economic sovereignty, can issue its own governance tokens, and build an independent economic model. The independence of Spokes in Aave V4 is relatively weak, and they cannot issue their own tokens; the value created flows back to the Aave DAO.

Macroscopic Perspective

The architectural shift of Aave and Sky reflects the major trends shaping the future of Decentralized Finance:

1. Integrate RWA: The modular architecture is beneficial for managing RWAs with unique legal and compliance requirements.

2. The Rise of Application Chains: Aave and Sky both plan to launch exclusive blockchains ( Aave Network and NewChain ), in order to achieve greater sovereignty and value capture capabilities.

3. Impact on Ethereum: The independence of major DeFi protocols on their own chains may affect Ethereum's economic model, and Ethereum needs to explore new value capture methods.

Conclusion

Aave V4 represents a strategic repositioning, responding to internal challenges and external opportunities. By transforming into a modular open platform, Aave is laying the groundwork to become the infrastructure for next-generation on-chain finance. The "Liquidity Hub + Spoke" model offers users higher capital efficiency while providing developers with unprecedented flexibility.

The launch of Aave V4 will be a key event worth watching, with the potential to set new standards in the Decentralized Finance lending space and drive the entire industry towards maturity.