Aave V4: Modular Architecture Reshaping the Future of Decentralized Finance Lending

As one of the important cornerstones of the DeFi ecosystem, Aave, the largest and most mature lending protocol, has always attracted attention from the industry. Recently, at the ETHCC conference, the founder of Aave officially announced the upcoming launch of the next generation of important iterative version - Aave V4.

This upgrade is not just a simple routine update, but a key milestone in Aave's 2030 long-term strategic roadmap. The upgrade was first proposed in May 2024, with the core goal of systematically addressing the limitations exposed during the operation of the V3 version, particularly making breakthroughs in key areas such as scalability and risk management. Through this far-reaching update, Aave aims to fundamentally reshape the underlying architecture and core functions of the Decentralized Finance lending protocol, laying the foundation for future development.

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

The Evolution of Aave

Aave started with ETHLend, a P2P platform where lenders and borrowers need to find counterparts, but the matching process is slow and uncertain. Recognizing these flaws, the team upgraded the brand to Aave( in September 2018, changing from a P2P model to a liquidity pool-based point-to-contract )P2C( model, enabling instant lending. The subsequent V2 further optimized smart contracts to reduce transaction costs on the Ethereum network, allowing more people to access Decentralized Finance.

The current version V3 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 the user are highly correlated, it allows for a higher borrowing capacity.

• Isolation Mode ): Allows new high-risk assets to be launched in an "isolated" manner, which can only be used to borrow specific stablecoins, with a clear debt limit.

However, V3 also exposes deeper strategic limitations: a single entity architecture cannot flexibly respond to the demands of emerging markets and diverse scenarios. When the industry begins to introduce RWA( such as tokenized government bonds or private credit) as collateral, V3's single architecture appears inadequate. RWA involves off-chain legal compliance, counterparty risk, and different clearing logic, all of which cannot be simply squeezed into the existing smart contract framework.

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

Aave V4: Modular New Architecture

V4 introduces a brand new "Liquidity Hub + Spoke" ( model, which is a direct response to the limitations of the "single entity" approach.

• Liquidity Center: Aave's "central bank"

On every blockchain network running Aave, there is a unified liquidity center that aggregates all assets supplied by users. It serves as the central liquidity source for the entire network, focusing on macro liquidity management and risk control, providing stable and substantial liquidity for the whole ecosystem.

Liquidity centers on different chains can efficiently communicate and transfer liquidity, mainly achieved through the "Unified Cross-Chain Liquidity Layer" ) CCLL ( mechanism. The core technological support is Chainlink's cross-chain interoperability protocol ) CCIP (.

• Spoke:Aave's "specialized commercial bank"

Users will interact with the protocol through various Spokes. Spoke is a user-oriented modular lending market, with each market designed for a specific purpose and connected to a central liquidity hub. For example:

• Core Spoke: General lending for low-risk, high-liquidity blue-chip crypto assets like ETH and WBTC.

• E-Mode Spoke: Optimized for stablecoins, LSTs, and other highly correlated currency pairs, providing maximum capital efficiency.

• RWA Spoke: Customized for tokenized treasury bonds, real estate, and other real-world assets.

• High-Leverage Trading Spoke: Designed for professional traders, featuring special interest rate models and risk control parameters.

The most important aspect of this design is its openness. V4 will allow developers to build and propose their own Spokes. The new Spoke design can obtain credit lines from the liquidity center after governance approval, leveraging Aave's vast liquidity network to launch new specialized markets. This will transform Aave from a mere product into a foundational platform for financial innovation.

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

Comparison: Aave vs. Sky) before MakerDAO(

Sky) recently underwent a rebranding as MakerDAO( and launched the "Finality" plan. Its architecture can be described as "Sky Core + SubDAO":

• Sky Core plays the role of "central bank", inheriting the function of issuing stablecoins ) now as USDS (.

• SubDAO is a semi-independent specialized organization responsible for asset management and risk assessment. They are authorized to receive specific collateral and initiate minting requests for USDS to Sky Core.

Aave's "Liquidity Hub + Spoke" is quite similar to Sky's "Sky Core + SubDAO": both adopt the "central bank + specialized commercial bank" model.

However, there are differences between the two in terms of core business, economic model, and ecological sovereignty:

• Types of Liquidity: Aave provides liquidity for a wide range of asset classes, while Sky focuses on the issuance and promotion of USDS.

• Economic Model and Sovereignty: Sky SubDAO has a high degree of economic sovereignty and can issue its own governance tokens. Aave Spokes has weaker independence, and the value created flows back to Aave DAO.

Macroscopic Perspective

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

1. Integrating RWA: A modular architecture is conducive to managing RWAs with unique legal and compliance requirements.

2. The Rise of Application Chains: Aave and Sky both plan to launch dedicated blockchains ) Aave Network and NewChain (, to gain greater sovereignty and value capture.

3. Ethereum's Role Transformation: From a place where all activities occur, it has shifted to being a foundational trust layer providing security for the interconnected chain ecosystem. This poses challenges to Ethereum's economic model, necessitating the exploration of new value capture methods.

Conclusion

Aave V4 marks the strategic transformation of the protocol from a single lending application to an open finance platform. The "Liquidity Hub + Spoke" model brings higher capital efficiency to users and provides unprecedented flexibility for developers. This evolution reflects that the DeFi industry is maturing, preparing for broader adoption and complex financial integration. The launch of V4 is expected to set new standards in the DeFi lending space in the coming years.