The latest version of the top lending protocol creates a shared liquidity pool that customized markets can connect to.
Aave, the largest lending protocol in the DeFi space, is preparing to change how money flows in DeFi with its upcoming V4. The latest version of Aave creates a system where all deposited funds can be shared across different lending markets, a liquidity structure its developers describe as “DeFi’s operating system.”
In the latest research note from Aave’s developers, they explained that the V4 upgrade, which is reportedly scheduled for Q4, introduces a modular “hub-and-spoke” architecture, where “Hubs” centralize liquidity, while “Spokes” are specialized lending markets that connect to these Hubs. Each Spoke can implement its own lending rules and risk parameters, allowing for customized borrowing and lending experiences, the developers wrote.
“This approach empowers the broader DeFi community to build on Aave rather than competing with it. Service providers and integrators can create specialized experiences while accessing deep liquidity, expanding innovation within the Aave ecosystem rather than fragmenting it across separate markets,” the article reads.
Aave, which has over $45 billion in total value locked (TVL) across 19 chains, per DefiLlama data, positions V4 as a new infrastructure layer for DeFi, planning to remove the bootstrapping problem that “forces every new market to compete with existing successful markets for the same deposits.”
Unified Liquidity Infrastructure
The approach addresses a basic issue from older versions of the protocol, where liquidity was split into many small, separate pools. But under V4, different markets will be able to use the same larger shared pool, instead of each starting from zero.
For example, a market for PENDLE could borrow USDC from the shared pool, while a market for Uniswap’s UNI could borrow ETH, and a stablecoin market like Ethena’s sUSDe could also draw from that same shared liquidity pool — all three would use the same funds rather than separate pools for each pair.
Other DeFi protocols have also adopted a more modular approach, but not in exactly the same way as Aave V4. For instance, Euler V2 — the 10th largest decentralized lending protocol — gives builders a kit to make vaults, where each vault holds its own funds unless extra linking is added. Compound’s Comet also runs single-asset markets, which is a simpler modular approach, though it doesn’t give many different markets instant access to one shared pool, according to Nansen.
Aave calls its V4 design — letting many markets draw from the same liquidity pool from day one — “DeFi’s operating system,” referring to a system that new markets can connect to without building their own liquidity infrastructure.
Aave’s native asset, AAVE, is trading around $274, up 94% in the past year, but still over 58% below its 2021 all-time price above $661.
