Aave Announces Major Upgrade Aave V4

Aave Announces Major Upgrade Aave V4

Aave Labs, the team behind the Aave lending platform, has proposed a series of significant updates and expansions following the introduction of V3. Upgrades include Aave V4, Aave Network, Cross-Chain Liquidity Layer, and the implementation of non-EVM L1.

Aave V4 Addresses Fragmented Liquidity Issues

According to the latest blog post, Aave V4 will be built with a new, efficient, and modular architecture while aiming to minimize disruptions to third-party integrators.

The most significant architectural change in this latest iteration is the introduction of the Integrated Liquidity Layer, which expands on the concept of portals introduced in Aave V3. This layer allows for infrastructure that is fully agnostic, independent, and abstract for liquidity provision.

It is also proposed to manage supply/withdrawal limits, interest rates, assets, and incentives while allowing other modules to draw liquidity from it. This enables the Aave DAO to add or remove lending modules without the need to migrate liquidity.

The main function of this architectural approach is to facilitate the addition or enhancement of lending features without overhauling the entire system or liquidation modules, while also addressing the fragmented liquidity issues present in previous versions of the protocol.

Aave's proposal reveals that the liquidity layer is capable of supporting both supplied and native minted assets, thereby enhancing integration with stablecoin GHO and other secured protocol assets. Aave V4 also proposes fully automated interest rates.

Image: Illustration of Aave V4 smart account. Source: Aave Blog.

Smart Accounts are another feature proposed to be introduced in the V4 upgrade to simplify the user experience by addressing key issues in Aave V3. This feature eliminates the need for a separate wallet to manage positions when borrowing using eMode or isolated assets.

Conclusion

Aave's announcement of the major upgrade, Aave V4, marks a significant advancement in the evolution of the Aave lending platform. The proposed enhancements, including the Integrated Liquidity Layer and Smart Accounts, demonstrate Aave's commitment to improving user experience and addressing liquidity fragmentation issues. By introducing a more efficient and modular architecture, Aave aims to facilitate the addition of new lending features while maintaining seamless integration for third-party developers. Furthermore, the proposal to support both supplied and native minted assets enhances flexibility and interoperability within the Aave ecosystem. Overall, the introduction of Aave V4 signifies a proactive step towards achieving a more robust and accessible decentralized lending protocol.

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