Hey,
I've been covering Aave since the early days of ETHLend, V2, V3.
A year ago, I published a comprehensive video on my Spanish YouTube channel breaking down everything Aave had planned for V4, based on the governance proposals.
It was theory then. Now it's live.
Here's what you need to know.
❌ The Problem V3 Had (That You Probably Felt)
If you've used Aave V3, you've hit this wall: you want to borrow against your stETH, but the pool is shallow. Or a new collateral type gets listed and rates are terrible. Or a new asset launches in isolation mode with tiny caps and no real liquidity.
That's not a bug. It's a structural limitation.
In V3, every market is an island. Liquidity supplied to the Core market stays in the Core market. It can't flow to Prime, or to any specialized market.
The result: idle capital sitting in one pool while another pool has demand and nothing to serve it.
V4 fixes this at the architectural level.
⛏ The Fix: Hub and Spoke
The foundational change is the Hub and Spoke model.
A Liquidity Hub holds assets centrally. It's the pool of pools: the shared vault.
Spokes plug into it, each with their own risk parameters, collateral rules, and borrowing environments.
Users interact with Spokes. The Hub works behind the scenes.
Think of it like a bank with specialised branches. Private banking, retail, and business lending all operate under different rules and serve different clients. But they all draw from the same capital reserves. You don't need to raise new capital every time you open a new branch.
In practice, this means:
An LST Spoke offers high borrowing power for stETH/weETH users
An RWA Spoke supports tokenized gold with its own risk rules
An institutional Spoke serves DeFi-native credit desks
All of them draw from the same Hub
Less idle capital. Deeper borrowing power. More markets without fragmented depth.
✨ Other Very Intersting stuff on V4
In V3, two borrowers with the same debt paid the same rate. It didn't matter if one used ETH as collateral and the other used a volatile altcoin.
V4 ends that.
Your borrowing rate now reflects your actual collateral risk. Read the full breakdown →
Blue-chip borrowers get better rates.
Riskier collateral pays more.
New Liquidation Engine: Smarter and Less Brutal
In V3 when your health factor dropped below 1, up to 50% of your position could get liquidated at once (even if you were only slightly underwater!).
V4 changes both the logic and the incentive. Full liquidation engine breakdown →
Target Health Factor: Liquidators now repay only enough debt to bring your position back to a target health factor. Not a fixed chunk, just the minimum needed.
Variable Liquidation Bonus: The bonus paid to liquidators scales with how unhealthy your position is. A barely-underwater position offers a small bonus. A deeply underwater one offers more. The riskiest positions get liquidated first.
This is what it means for you:
👉 You lose less when things go wrong.
👉 The protocol bad debt risk drops.
Rates That Adapt Automatically
In V3, changing the interest rate curve required a governance vote. Slow, reactive, often late.
V4 introduces fuzzy-controlled rates. The system adjusts rate curves and inflection points automatically based on market conditions. No governance vote needed for routine adjustments. Rates respond to the market in real time.
GHO Gets Upgraded
GHO, Aave's native stablecoin gets deeper protocol integration in V4.
Soft liquidations: Instead of losing collateral in one hard hit, GHO positions get liquidated gradually. When prices drop, collateral converts to GHO in stages. When prices recover, it converts back. Less brutal for users, less bad debt for the protocol.
Interest paid in GHO: Stablecoin market users can receive interest directly in GHO. This expands GHO supply organically — no incentive programs needed.
Emergency Redemption: If GHO depegs severely, the protocol can gradually redeem collateral from the weakest positions to restore the peg. A safety valve that didn't exist before.
🆚 V3 vs V4 Summary
V3 | V4 | |
|---|---|---|
Liquidity | Sits in separate pools | Flows where it's needed |
Borrowing Power | Limited by pool size | Taps into shared liquidity |
System Design | Fixed structure | Modular plug-and-play |
Risk Pricing | Same rate for all collateral | You pay for the risk you take |
Liquidations | Fixed 50% close factor | Only what's needed to recover |
Interest Rates | Governance-adjusted | Auto-adjusts to market |
Cross-chain | Works across chains, separately | Designed to connect them |
▶ What's Live on Mainnet Today
V4 launches with three Hubs on Ethereum. Full parameters in the activation proposal.
Core Hub — The main market. Most assets, most Spokes.
Prime Hub — Conservative collateral posture. Stricter parameters.
Plus Hub — Strategy-heavy stablecoin activity with its own caps.
All Hubs launch with conservative supply and borrow caps. The DAO will expand caps as it observes live behavior. Don't expect full capacity from day one.
🤔 What About Your V3 Positions?
Nothing to do. V4 runs alongside V3 as a separate deployment. Your existing positions stay exactly where they are.
🧙 How to Get the Most Out of V4 Right Now
Lenders: Rates are conservative at launch. Watch cap expansions over the next few weeks — that's when yield opens across new Spokes.
Borrowers: Check the e-Mode Spokes. If your collateral and debt are price-correlated (stETH and ETH, for example), e-Mode gives significantly better borrowing power.
LST holders: Dedicated Spokes from Lido, EtherFi, and Kelp are live. Built for LST collateral — maximum borrowing efficiency without the risk bleed of a generalist pool.
XAUt holders: Aave V4 is one of the first major DeFi protocols to support gold-backed collateral natively. This is new territory worth watching.
GHO users: The soft liquidation upgrade makes GHO positions safer to hold. Worth revisiting if you avoided it before because of hard liquidation risk.
As with anything in DeFi, especially new protocols or upgrades, always proceed with caution, and never lose sight of security and risk management.
Watch the governance forum. Cap increases and new Spoke proposals will shape the next 90 days.
That’s all for today, I hope you learned something new and feel free to try aave v4 on mainnet yourself!
Have thoughts? Find me on X or drop a reply below