Aave v4

Aave v4 uses a Hub & Spoke model for liquidity management: the Liquidity Hub consolidates protocol-wide liquidity and accounting, while Spokes implement modular borrowing with isolated risk.

The Liquidity Hub (Hub) is the central liquidity source in Aave v4. It maintains oversight of Spokes, granting each a credit line for borrowing and a debit line for supplying. The Hub enforces system‑wide accounting and caps how much liquidity Spokes can draw or add.

Hub assets are the ERC‑20 tokens registered in the Liquidity Hub. They form the shared liquidity that Spokes borrow from and supply to, enabling efficient reuse across Spokes.

Spokes are modules that manage specific borrowing use cases, asset types, or risk profiles. Users interact directly with Spokes, while Spokes draw liquidity from the Hub.

Reserves define how a Hub asset is supplied and borrowed within a specific Spoke. Each Spoke sets its own reserve parameters—like supply caps, borrow caps, and risk settings—while the Hub ensures all activity stays within system‑wide rules.

Borrow and supply rates are determined by a utilization curve. Utilization measures how much of an asset’s liquidity is currently borrowed, expressed as borrowed / total liquidity.

Below an optimal usage ratio, the borrow rate increases gradually; above it, the rate increases more sharply. The supply rate is derived from borrower interest after protocol fees and reflects supply and demand for that asset.

The curve is defined by a base rate, slopes below and above the optimal usage ratio, and the optimal usage ratio itself, configured per hub asset.

Risk Premium represents an additional interest charge applied to a user's borrowing cost based on the quality of their collateral. It is a percentage surcharge on top of the shared borrow rate for that asset, weighted by the collateral needed to cover the debt, and recalculated as the position changes.

A user position is the combined view of what a user has supplied and borrowed within a Spoke. Positions are tracked per reserve internally, and surface as an aggregate view of a user’s activity on that Spoke.

Health Factor reflects position solvency and indicates how close a position is to liquidation. Calculated as eligible collateral value / debt value. Must stay above 1 to avoid liquidation. Increases when debt is repaid or collateral value rises. Decreases as interest accrues, collateral value decreases, or new debt is taken.

Positions become eligible for liquidation when their health factor drops below 1. Liquidators repay part of the debt and receive collateral with a liquidation bonus; thresholds and bonuses are defined per reserve.