Aave's Next Step: In-Depth Analysis of the Comprehensive Upgrade to V4

Author: Jack Inabinet Source: bankless Translation: Shan Ou ba, Jinse Finance

This week, Aave Labs officially launched its long-awaited V4 lending market on Ethereum.

Even though its current scale is still small—at the time of writing, V4 active borrowing totals just $1.07 million, corresponding to total deposits of $4.75 million—its development team’s ambitions are anything but modest. Aave Labs CEO Stani has claimed that the team’s latest design is a revolutionary breakthrough in the lending space, with the potential to open market space for a brand-new category of assets.

Today, we’ll take a deep dive into Aave V4, break down the core innovation of the “hub-and-spoke” lending market, and explore how this architecture could redefine the future of on-chain leverage.

This Aave did not iterate upward from the existing V3 lending market. Instead, it deployed V4 in parallel, meaning the two versions will coexist and run independently.

On each network where Aave V3 is deployed, it sets up only a single banking system. Assets are managed together, and all users share the same default risk. V4, on the other hand, introduces a “hub-and-spoke” architecture, aiming to make the Aave lending market more modular, customizable, and capital-efficient.

Simply put, V4 supports the existence of multiple mutually isolated Aave liquidity “hubs” within the same network, which theoretically allows Aave to support a wider range of assets as collateral.

• “Hub”: As a shared pool of funds, the borrowing and lending capital deposited by users aggregates here, while providing liquidity to multiple markets at the same time.

• “Spoke”: An independent lending environment connected to the hub, where you can independently set the collateral types, risk parameters, and liquidation rules.

Funds deposited through the spokes are routed into the hub. When borrowers take out loans, they draw from this shared liquidity layer in the hub.

(Data source: Aave)

Although Aave V4’s initial launch is set with control mechanisms—managed by the Aave DAO to govern deposit/loan limits and to approve new spoke connections—the possibility of enabling truly permissionless market creation should not be underestimated.

In an interview with The Block about the launch of V4, Aave Labs CEO Stani Kulechov hinted at this outlook: “It will be governed by a DAO, but in the future it will have the ability to be permissionless. The key is whether this model is secure.”

Most importantly, V4’s modular, hub-based liquidity model means that these newly created markets don’t need to raise funds from scratch. Developers can quickly build customized lending markets, while also tapping into Aave’s shared liquidity layer. This maintains capital concentration while enabling innovative experiments in edge scenarios.

In a video Stani Kulechov posted on the X platform, he emphasized the core differences between Aave V4 and its predecessor versions:

“The biggest difference between Aave V4 and V3 is that the architecture achieves complete modularity,” Kulechov explained. He said this design makes the protocol easier to scale when new application scenarios emerge. He added that this flexibility will unlock entirely new categories of lending, allowing users to borrow using unconventional assets such as data as collateral.

If this grand vision comes to fruition, Aave V4 could spark a new wave of on-chain lending— as investors use Aave’s shared liquidity to obtain leverage, everything from real-world assets to data streams could face a tokenization wave.

But this does not mean Aave’s path forward will be smooth sailing.

First, new lending markets cannot automatically achieve cold-start. If a certain type of asset lacks stable demand, lenders may be unwilling to provide capital—this is precisely the startup challenge facing the markets that V4 aims to empower.

On the governance side, it adds another layer of complexity. While the DAO is responsible for managing risk parameters and approving new spoke connections, this newly granted authority sits at a particularly sensitive node. In recent months, multiple Aave core community management teams have stepped down, citing concerns about a drift toward centralization and governance direction.

At the end of the day, Aave V4 should be seen as an entirely new underlying infrastructure rather than a finished product. Its technical architecture expands the boundaries of what’s possible, but how well it ultimately performs still needs to be tested over time.