Aave’s Fourth Version: Modular Hubs Transform the DeFi Liquidity Ecosystem

The upcoming Aave V4 protocol upgrade, scheduled for the fourth quarter of 2025, will introduce a modular "hub and spoke" framework designed to boost liquidity efficiency and strengthen risk controls within decentralized finance (DeFi). This overhaul transitions Aave from its current unified architecture to a model where central liquidity hubs serve as shared pools, while spokes function as customizable lending and borrowing markets, each with their own risk parameters. Spokes tap into the hub for liquidity, allowing for individualized lending and borrowing rates without locking capital into isolated pools. This structure is intended to minimize liquidity fragmentation and maximize capital efficiency, with dynamic risk premiums added to base rates to better match borrowing costs to collateral quality Aave V4 Slated for Q4 2025 — Here's What Users Should Know [ 1 ].

Among the notable features are a Reinvestment Module, which puts idle funds to work in low-risk yield strategies, and a liquidation engine focused on targeting only the required collateral to restore solvency, thus reducing the impact on user positions. The new liquidation process also offers variable incentives for liquidators, encouraging prompt action during periods of market volatility. Users will also have access to a Position Manager, which can automate tasks like withdrawals, repayments, and borrowing, simplifying complex operations Aave V4 Launch Roadmap Released [ 2 ].

This upgrade signals a strategic pivot toward

mainnet, as Labs consolidates its activities on the most economically efficient deployments and gradually retires less active layer-2 and alternative layer-1 instances. This shift is in line with governance objectives, given that 86.6% of Aave’s yearly revenue is generated on mainnet. The focus on Ethereum is further supported by adopting the ERC-4626 standard for share-based accounting, streamlining tax processes and integration with other DeFi protocols Aave V4 roadmap signals end of multichain sprawl [ 3 ].

The V4 roadmap outlines the release of a public testnet featuring an updated user interface, the formal publication of the codebase, and comprehensive security assessments. The team is prioritizing both formal verification and manual code audits to address potential vulnerabilities, underscoring their dedication to robust security in a high-risk sector. Governance will remain central, overseeing risk settings and approving new spokes to maintain adaptability while safeguarding the protocol’s stability Aave Labs Publishes V4 Launch Roadmap for DeFi Upgrade [ 4 ].

With total value locked (TVL) surpassing $40 billion as of August 2025, Aave’s leadership in DeFi lending—holding a 48% market share—underscores the importance of this upgrade. The protocol’s native stablecoin, GHO, will also see expanded integration, including features like soft liquidation and interest payments in GHO for stablecoin markets. These improvements are designed to reinforce Aave’s status as a key bridge between traditional finance and DeFi, especially as institutional interest in real-world assets (RWAs) continues to grow Aave's Dominance in DeFi: TVL Milestones, v4 [ 5 ].

The launch of V4 is expected to transform the DeFi sector by enabling lending across multiple chains and encouraging innovation through modular, permissionless spoke creation. By tackling liquidity challenges and enhancing risk management, Aave aims to cement its position as a core infrastructure provider for the next generation of decentralized finance.