- The upgrade introduces unified Liquidity Hubs to eliminate fragmented markets.
- Spokes enable modular lending setups with independent risk profiles.
- Version 4 is designed to improve capital efficiency and foster new development opportunities.
Aave, a leading lending protocol in the decentralized finance landscape, is on the verge of rolling out a transformative update. Just two days after announcing a mobile savings application, the team has launched the testnet for Aave V4, marking a significant leap forward in the way liquidity is managed within the platform.
Aave V4 testnet, featuring a developer preview of our new interface, Aave Pro, is now live. pic.twitter.com/q7ltPy0pxC
— Aave (@aave) November 19, 2025
The upcoming version will revolutionize the typical multi-market setup, moving toward a more streamlined “Hub and Spoke” architecture. This shift seeks to enhance the overall decentralized finance lending experience, particularly for developers eager to create new risk markets or experiment with unconventional assets.
The official blog outlines:
Each Layer 1 or Layer 2 network will feature at least one Aave V4 Liquidity Hub, with the possibility of hosting multiple Hubs within each network. The Spokes provide an innovative framework for experimentation, ensuring that liquidity does not become a hindrance. This design allows for the introduction of new risk profiles and supports innovation while maintaining liquidity integrity.
A Review of Aave V3
Aave V3’s structure operates with markets that function independently of one another. Deployments such as Ethereum Prime and Ethereum Core maintain distinct lists of assets and liquidity pools. Users supply assets to specific markets and can only borrow from these designated avenues.
While the independent market system aids in risk management, it also introduces significant constraints. For example, liquidity tied to one market cannot lend support to borrowing needs in another. Moreover, creating new markets necessitates fresh capital, which can hinder swift adoption and lead to a fragmented user experience.
The Aave team elaborated:
This fragmentation also limits economies of scale for borrowing and complicates the process of incorporating novel assets or implementing unique borrowing setups, ultimately resulting in a more complex user interface.
A New Era with Unified Liquidity Hubs
The V4 upgrade aims to overhaul Aave’s lending ecosystem through the introduction of a Liquidity Hub—a consolidated pool of assets that serves all markets within the platform. This innovative approach ensures that borrowers and lenders are leveraging a single source of liquidity rather than disparate pools.
While users won’t interact directly with the Hub, their deposits will ultimately funnel into it. The Hub is responsible for maintaining interest calculations, accounting, and setting borrowing limits.
Each L1 or L2 network is designed to host at least one Hub, with exceptions for chains requiring specialized configurations or managing heavy traffic loads. The expectation is that this consolidation will significantly boost capital efficiency by minimizing idle funds and improving borrowing conditions across the board.
Aave’s Current Market Performance
Despite the promising developments in the Aave ecosystem, the market for AAVE’s native token shows troubling signs. The token experienced a sell-off, dropping over 6% within a 24-hour period and landing at $166.
A significant 27% decline in daily trading volume further underscores the negative sentiment surrounding AAVE. This downward trend coincides with broader market weakness, as the global cryptocurrency market cap slipped more than 4% to $3.04 trillion, following Bitcoin’s fall below $90,000, currently trading at $89,478.
