Aave V4 Upgrade Proposal Released, Introducing “Unified Liquidity Layer” and “Fuzzy Control Interest Rates”

Aave V4 Upgrade Proposal Released, Introducing "Unified Liquidity Layer" and "Fuzzy Control Interest Rates"

Aave V4 Upgrade Proposal Released, Introducing "Unified Liquidity Layer" and "Fuzzy Control Interest Rates"

The entity behind the decentralized lending protocol Aave, Aave Labs, has recently released a governance proposal called “Aave 2030” to determine the development approach for the upcoming Aave V4 and the future expansion roadmap of the Aave protocol.

In a proposal published on the Aave governance forum this week, Aave Labs conducted a “Temperature Check” to assess community feedback on the protocol’s future plans, including the construction of Aave V4. The new version of the protocol aims to optimize capital efficiency and seamlessly integrate Aave’s native stablecoin, GHO. If approved, the initial development of Aave V4 is set to begin in the second quarter of 2024, with full deployment planned for mid-2025.

The proposed new features of Aave V4 include a more efficient architecture that will be completely different from the previous versions of the protocol. According to Aave Labs, the most significant change is the introduction of a “Unified Liquidity Layer,” which is a more flexible and efficient liquidity management approach. Aave Labs explains that these improved lending features are expected to eliminate the liquidity fragmentation issues commonly found in earlier versions of the protocol. With this liquidity layer supporting native “Supply” assets and native minted assets, the integration with Aave’s GHO stablecoin and other collateral assets will be smoother.

The protocol will also implement “Dynamic Reserve” interest rates, which will automatically adjust based on market conditions to optimize rates for borrowers and suppliers. Aave Labs is collaborating with the blockchain oracle network Chainlink to develop a transparent data source to enhance capital efficiency.

While Aave V4 will include many other features such as overcollateralized debt protection, improved liquidation engines, and emergency redemption mechanisms, certain existing features will be deprecated. This includes credit delegation, fixed rates, tokenization of positions, and loan-to-value (LTV) configurations.

Apart from Aave V4, Aave Labs has proposed other plans such as Aave Network, real-world asset (RWA) applications, cross-chain liquidity layers, and non-EVM L1 deployments.