Giving a glance at the upcoming Aave V4
Being still on development, Aave V4 is predicted to shake up DeFi lending with its brand-new mechanism design. One smart system is ready to set the higher standard for Aave as it withstands the reputation in terms of lending protocol.
Down here is a re-edit from the ghost itself to explore V4 (referred from the Aave blog)
Being still on development, Aave V4 is predicted to shake up DeFi lending with its brand-new mechanism design. One smart system is ready to set the higher standard for Aave as it withstands the reputation in terms of lending protocol.
Down here is a re-edit from the ghost itself to explore V4 (referred from the Aave blog)
1. Liquidity Hub or so called a “unified powerhouse”
In V4, liquidity is no longer split across separate markets. Instead, all assets are stored in a unified Liquidity Hub for each blockchain network.
The Hub operates behind the scenes as the central liquidity source while users interact with Spokes as their entry points. Key features include:
- Authorization control tracks which Spokes can access specific assets and enforces withdrawal limits
- Core accounting ensures total borrowed assets never exceed supplied assets
- Share-based tracking uses an efficient calculation
system that handles interest accumulation properly
This design fixes V3's biggest headache where assets stuck in one market couldn't help meet borrowing demand elsewhere. Now, all liquidity flows through the Hub, making the whole system more efficient, delivering better rates for both lenders and borrowers.
In V4, liquidity is no longer split across separate markets. Instead, all assets are stored in a unified Liquidity Hub for each blockchain network.
The Hub operates behind the scenes as the central liquidity source while users interact with Spokes as their entry points. Key features include:
- Authorization control tracks which Spokes can access specific assets and enforces withdrawal limits
- Core accounting ensures total borrowed assets never exceed supplied assets
- Share-based tracking uses an efficient calculation
system that handles interest accumulation properly
This design fixes V3's biggest headache where assets stuck in one market couldn't help meet borrowing demand elsewhere. Now, all liquidity flows through the Hub, making the whole system more efficient, delivering better rates for both lenders and borrowers.
2. Specialized spokes
Spokes are the elements of V4 that act as user-facing interfaces and connect to the Liquidity Hub, each designed for specific use cases. Users supply and borrow assets through this component, not the hub. Think of them as specialized branches of a bank, each serving different customer needs.
Spokes are the elements of V4 that act as user-facing interfaces and connect to the Liquidity Hub, each designed for specific use cases. Users supply and borrow assets through this component, not the hub. Think of them as specialized branches of a bank, each serving different customer needs.
Here are some spokes with various risk configurations:
- E-Mode Spokes:
+ These improve upon V3's efficiency mode by becoming dedicated environments for correlated assets. V4's E-Mode Spokes are separated, independent entities with tailored settings, not like V3’s being only featured within markets.
+ For example, a stablecoin E-Mode Spoke allows higher borrowing power when using USDC as collateral to borrow USDT, since both maintain similar values.
- Isolation Mode Spokes:
V3's isolation mode limited how newer assets could be used as collateral within existing markets. V4's dedicated Isolation Spokes create completely separate environments for risky assets, with the Hub controlling exactly how much liquidity they can access
- RWA Spokes:
Real-world asset integration becomes easier with dedicated Spokes that handle tokenized treasury bills or other traditional assets with appropriate custody and redemption controls
- Vault Spokes:
Enable borrowing against assets held in external vaults like Safe wallets, without requiring direct asset supply to the protocol
- E-Mode Spokes:
+ These improve upon V3's efficiency mode by becoming dedicated environments for correlated assets. V4's E-Mode Spokes are separated, independent entities with tailored settings, not like V3’s being only featured within markets.
+ For example, a stablecoin E-Mode Spoke allows higher borrowing power when using USDC as collateral to borrow USDT, since both maintain similar values.
- Isolation Mode Spokes:
V3's isolation mode limited how newer assets could be used as collateral within existing markets. V4's dedicated Isolation Spokes create completely separate environments for risky assets, with the Hub controlling exactly how much liquidity they can access
- RWA Spokes:
Real-world asset integration becomes easier with dedicated Spokes that handle tokenized treasury bills or other traditional assets with appropriate custody and redemption controls
- Vault Spokes:
Enable borrowing against assets held in external vaults like Safe wallets, without requiring direct asset supply to the protocol
This new design completely changes how DeFi lending works by bringing all the scattered liquidity together and making everything run more smoothly, which means better rates for everyone and easier updates that won't break the whole system.
The best part is that anyone can now build their own custom Spoke and plug into this massive liquidity pool. This creates a space where innovation can spread while tapping into the strongest liquidity network in DeFi.
The best part is that anyone can now build their own custom Spoke and plug into this massive liquidity pool. This creates a space where innovation can spread while tapping into the strongest liquidity network in DeFi.
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