Aave v4: Balancing Innovation and Tradition

The launch of Aave v4 has sparked widespread discussion in the industry. This upgrade includes some improvements that should have been implemented earlier and showcases certain inherent thinking of traditional DeFi projects. Below is a summary of the main features of Aave v4:

1. Unified Liquidity Management

The new version adopts centralized liquidity management, unifying the handling of all funds supplied and borrowed. This not only avoids liquidity fragmentation but also facilitates future feature expansion. Users no longer need to switch between different versions or manually migrate funds, greatly enhancing the user experience.

2. Dynamic Interest Rate Adjustment

v4 introduces a fully automated interest rate mechanism that can dynamically adjust the interest rate curve based on market conditions. This improvement addresses the inefficiencies in the governance mechanism and low capital utilization found in previous versions. The new interest rate model will automatically adjust according to supply and demand, optimizing the returns for both suppliers and borrowers.

3. Risk Pricing Mechanism

The new version introduces the concept of "liquidity premium," which dynamically adjusts borrowing rates based on the risk characteristics of collateral assets. This mechanism helps to more accurately reflect the risk levels of different assets, providing users with more reasonable lending pricing.

4. User Experience Optimization

v4 has launched smart accounts and vault features, significantly improving user experience. Users can manage multiple positions with a single wallet, streamlining the protocol interaction process. At the same time, the vault feature allows users to collateralize assets for loans without entering liquidity pools, reducing risk exposure.

5. Flexible Risk 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.

6. Debt Risk Control

v4 introduces an excess debt protection mechanism that prevents the spread of bad debts by automatically tracking and accounting for under-collateralized positions. When the excess debt exceeds the preset threshold, the related assets will automatically lose their borrowing capacity.

7. GHO Stablecoin Integration

The new version has achieved native integration with the GHO stablecoin, allowing for direct minting of GHO on the liquidity layer. At the same time, it introduces a soft liquidation mechanism and an emergency redemption function, enhancing the stability of GHO.

8. Aave Network Planning

Aave plans to launch a new network layer that will serve 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 governed by the community through a governance mechanism.

Although Aave v4 has brought many innovations, some of its decisions, particularly regarding the planning of the Aave Network, seem to reflect certain inherent thinking of traditional DeFi projects. Currently, there are still many uncertainties regarding whether it is truly necessary to launch a separate network layer and how to implement it.

Overall, the upgrades of Aave v4 mainly focus on improving user experience, optimizing risk management, and deepening the integration with the GHO stablecoin. These improvements will undoubtedly enhance Aave's competitiveness in the DeFi space, but its long-term development strategy, especially in terms of infrastructure planning, still needs to be further clarified.