- The upgrade introduces a unified liquidity hub to replace fragmented markets.
- Spokes introduces a modular loan setup with independent risks.
- V4 aims to increase capital efficiency and open new horizons for developers.
Lending protocol Aave is preparing one of its most groundbreaking upgrades.
Just two days after unveiling its mobile savings app, the team launched a testnet of the update, signaling progress on Aave V4, which aims to change the way liquidity moves within the protocol.
The Aave V4 testnet is now live, providing a developer preview of the new interface, Aave Pro. pic.twitter.com/q7ltPy0pxC
— Abe (@aave) November 19, 2025
V4 replaces typical multi-market systems with an innovative, integrated “hub and spoke” architecture.
The version 4 update aims to change the way decentralized finance lending works and prioritize developers looking to launch risk markets or experiment with assets that do not fit perfectly into Aave’s current structure.
The official blog highlighted:
Each L1 or L2 has one or more Aave V4 liquidity hubs, and there can be multiple hubs per network. Spokes allow for more experimentation within these ecosystems without liquidity becoming a limiting factor. This design makes it easier to support new risk profiles and enables innovation without fragmenting liquidity, while also providing a way to provide liquidity to new spokes.
To understand why the V4 upgrade is important, let’s take a look at how Aave V3 works and the challenges that led the team to explore a flexible model.
Explore Aave V3
Each market operates independently in Aave version 3.
Distributions such as Ethereum Prime and Ethereum Core maintain their own asset lists and liquidity pools.
An individual can supply to a specific market and borrow only on that route.
Although this structure helps with risk separation, it has some important limitations.
For example, stagnant liquidity in one market cannot support borrowing in other markets.
Additionally, building a new market requires financing from scratch.
This slows adoption while fragmenting the overall user base.
Additionally, each individual market requires its own pool, making governance difficult and experimentation more difficult.
The Aave team added:
It also limits economies of scale for borrowing and makes it more difficult to support new assets or implement unique borrowing configurations, ultimately making them siled and harder to use.
Integrated liquidity hub to replace independent markets
Meanwhile, version 4 overhauls the Aave lending ecosystem with Liquidity Hub, a shared pool of assets across the entire platform.
The innovative hub acts as the sole source of liquidity, ensuring that borrowers and suppliers leverage the same capital base and replace fragmented capital bases.
Most importantly, users do not interact directly with the hub. However, all deposits will eventually reach the hub.
The hub handles everything, including interest calculations, accounting, and loan limits.
Each L1 or L2 platform can host one or more hubs, except for chains with special requirements or large traffic.
The team expects this integration to significantly improve capital efficiency by reducing idle liquidity and enriching borrowing terms.
AAVE outlook
Aave’s native token has seen significant selling pressure on the daily chart.
It fell more than 6% to $166 in the last 24 hours.
The 27% drop in daily trading volume confirms the bearish sentiment for AAVE.
Meanwhile, the decline is consistent with overall weakness.
As Bitcoin plummeted below $90,000 to trade at $89,478, the global cryptocurrency market capitalization fell more than 4% to $3.04 trillion in the past day.