Aave v4 Upgrade Key Points Analysis

The upgrade plan for Aave v4 includes several important improvements, addressing long-standing issues and planning for future development. Below is a summary of the main content of this upgrade:

1. Unified Liquidity Management

The new version will implement centralized management of all funds, avoiding the dispersion of liquidity across different modules. This design allows the protocol to add or remove functional modules more flexibly in the future, without the need to migrate funds, laying the groundwork for long-term expansion. The user experience will also be significantly improved, eliminating the need to switch between multiple versions or manually migrate funds.

2. Automated Interest Rate Adjustment

The v4 plan will adopt a fully automated interest rate mechanism that can dynamically adjust the slope of the interest rate curve based on market conditions. This will replace the current method controlled by governance mechanisms, with the hope of improving capital efficiency and reducing governance burdens. The new interest rate model will respond more flexibly to market demand, providing optimized rates for suppliers and borrowers.

3. Introduction of Liquidity Premium

The new version will dynamically adjust borrowing rates based on the risk status of the collateral assets. For higher-risk collateral, the borrowing cost will increase accordingly; conversely, the borrowing cost for low-risk assets will decrease. This mechanism helps to better manage the risks of different assets.

4. Smart Account and Vault Features

v4 will launch the smart account feature, allowing users to manage multiple positions through a single wallet, significantly simplifying the protocol interaction process. At the same time, the new vault feature allows users to collateralize assets for loans within the smart account, while the collateral does not enter the liquidity pool, thereby reducing the risk transmission.

5. Dynamic Risk Parameters and Asset Management

The new version supports the creation of independent risk configurations for individual assets and introduces an automated asset delisting mechanism. These improvements make risk management more refined while simplifying the governance process. New borrowings will use the new configurations, while existing users will continue to use the original configurations, ensuring a smooth transition.

6. Excess Debt Protection

v4 introduces a new mechanism for tracking and managing under-collateralized positions. When the accumulated excess debt exceeds a preset threshold, the related assets will automatically lose borrowing ability, effectively preventing the spread of bad debts.

7. GHO Stablecoin Integration

The new version will achieve native integration with the GHO stablecoin, allowing for direct minting of GHO on the liquidity layer. It also introduces a "soft liquidation" AMM and an emergency redemption mechanism modeled after crvUSD to handle extreme situations. Additionally, depositors can choose to earn interest in the form of GHO, which helps enhance the stability of GHO.

8. Aave Network Planning

Aave plans to launch a new network layer as the core hub for the GHO stablecoin and lending protocol. This network will use GHO to pay fees, centered around Aave v4, and will be controlled by the community through governance mechanisms for interactions with Ethereum.

Overall, the upgrade plan for Aave v4 specifically addresses several long-standing issues while also making plans for future development. However, there is still some controversy and uncertainty regarding the necessity of launching an independent network layer. How Aave will compete in the stablecoin market in the future, and whether it truly needs its own independent chain, are both issues worth ongoing attention.