Decentralized finance platform Aave is set to launch its significant V4 protocol upgrade in Q4 2025. This update introduces a modular lending market structure designed to optimize liquidity use and enhance the user experience.
The upgrade replaces the current monolithic architecture with a new hub and spoke modular design, allowing multiple lending markets to operate with customized parameters while sharing liquidity efficiently.
Liquidity hubs will serve as centralized pools supplying capital to distinct market spokes, each defined by one of three risk profiles. This setup enables varied borrowing and lending rates tailored to specific asset classes, replacing the uniform rate system used in previous versions.
According to Aave’s update, each market spoke registers with the hub, draws liquidity, and upon loan repayment returns a base rate plus an asset-specific risk premium depending on collateral makeup.
The V4 update also introduces a unified user interface providing a wallet-level overview of all market spokes. Users will gain thorough insights into different modules and can easily route trades across them from this consolidated view.
Dynamic risk configurations in Aave V4 aim to mitigate unexpected liquidations triggered by changes such as collateral threshold adjustments. Unlike the uniform risk approach of V3, this approach offers more granular control to protect user positions.
The liquidation mechanism will be enhanced with a health-targeted model that liquidates only the necessary amount to restore healthy collateral levels, enabling optimal lender recovery without fully closing borrower positions.
Additionally, users can opt into a Position Manager feature with automated capabilities for borrowing, repayment, withdrawal, and general transaction management.
A multi-call feature will allow batching multiple actions into single transactions, improving execution efficiency and user convenience.
Aave plans to release a white paper, publicize the V4 codebase, and launch a testnet as preparation steps leading to a full rollout later in 2025.
This upgrade arrives as total value locked in DeFi networks approaches $156 billion, nearing all-time highs last reached in December 2021. Aave’s platform alone had locked over $40 billion as of August, marking it as a key player in the evolving DeFi ecosystem.
