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 markets with more custom parameters, without trapping liquidity in different siloes, according to an update 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.
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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 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 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 reached in December 2021, during the previous bull market, according to DefiLlama.
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