Aave’s V4 protocol upgrade is coming: Here’s what to expect

Decentralized finance (DeFi) platform Aave is releasing its V4 update, a major protocol upgrade, sometime in the fourth quarter of 2025, introducing modular lending markets and new risk controls among new features.

The update introduces a “hub and spoke” modular design to Aave to allow for crypto borrowing and lending^[1] markets with more custom parameters, without trapping liquidity in different siloes, according to an update^[2] from Aave.

Liquidity hubs act as central pools for modular spokes; each of the spokes represents a different market with one of three risk profiles and features different borrowing and lending rates, replacing Aave’s current uniform rates. The team wrote:

“Each Spoke registers with the Hub, draws liquidity, and, upon repayment, returns both a base rate set at the Hub level and an asset-specific risk premium tied to its collateral composition.”

The update includes a new user interface that gives a “unified, wallet-level view” of all the modular spokes, allowing users to see detailed information and route trades through different market modules from the unified overview.

Related: $70B DeFi protocol Aave goes live on Aptos in ecosystem expansion^[4]

Aave V4 will feature dynamic risk configurations to prevent unexpected liquidations of positions due to changes like lowering collateral thresholds.

Changing these global parameters in Aave V3 created a risk of liquidation^[5] if the user had multiple positions open.

The liquidation engine will also shift to a “health-targeted” model, where liquidations do not represent a fixed sum or the entire position, but only enough to bring a loan back up to the desired collateral parameters, allowing the lender to collect while leaving the borrower’s position open.

Users will have the option of selecting a “Position Manager” that can automatically execute actions, including withdrawal, borrowing, repayment and other transaction management features. 

In addition, the update will introduce a multi-call feature, allowing users to batch actions into a single transaction for easier execution.

Aave’s V4 upgrade is slated^[7] for release sometime in the last three months of 2025, and the next steps include releasing a whitepaper, making the V4 codebase public, and launching a testnet for the upcoming version of the DeFi protocol.

The launch is highly anticipated as total value locked (TVL) in DeFi crosses the $156 billion mark and is approaching peak levels^[9] reached in December 2021, during the previous bull market, according^[10] to DefiLlama.

Magazine: DeFi will rise again after memecoins die down: Sasha Ivanov, X Hall of Flame^[11]