➥ Aave V4 - All You Need to Know
@aave has just unveild its most significant evolution to date: Aave V4.
This redesign could establish a new benchmark for DeFi lending.
With Aave V4, Aave advances to a new level. This comprehensive redesign addresses inefficiencies in V3 and introduces new features.
Let's dive in the new features! 🧵
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➠ The problem in V3:
Aave at the fundamental level works like decentralized money market that allows users to lend and borrow cryptocurrency without involving banks. Lenders earn interest, while borrowers provide collateral.
Liquidity was split into isolated pools for different assets or markets. This made capital inefficient and mixed risks together, like having multiple small swimming pools instead of one large one.
If one pool ran low, borrowing slowed, even if others had spare liquidity.
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➠ V4’s solution ⟶ a Hub & Spoke model.
➢ Liquidity Hub:
A single, shared pool for each network (e.g., @Ethereum). All deposits go here, creating one deep liquidity source.
➢ Spokes:
Customized and isolated borrowing strategy connected to the Liquidity Hub. Each Aave Spoke can have its own rules and risk profile, one for stablecoins, another for volatile assets, another for yield strategies. If one Spoke fails, others remain unaffected.
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➠ How it works:
⟶ Lenders deposit crypto into the Liquidity Hub
⟶ The Liquidity Hub keeps track of total funds, how much is being used, interest rates, and average extra fees.
⟶ The Liquidity Hub also monitors how much each Spoke uses, with possible limits to control risk
⟶ Spokes pay the current base rate plus an extra fee based on their risk level.
⟶ Spokes can check balances in the Liquidity Hub to see their collateral ratios.
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Why Aave V4 is better:
► Eliminates liquidity fragmentation for efficiency.
► Isolates risks for a better safety approach.
► Modular design, making it highly customizable.
► Increase utilization of $GHO, Aave stablecoin
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Potential future Implementations:
➢ Fixed-rate loans.
➢ Real-world assets as collateral.
➢ LP shares for borrowing.
➢ Institutional KYC tools.
V4 makes it easier for both retail and institutions to participate. The next wave of DeFi adoption will come from products that combine depth of liquidity with flexibility, and Aave is positioning itself ahead of that curve.
Also, Aave V4's testnet probably drops in the upcoming month!
Let me know who's excited for DeFi Season?
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