From ETHLend to Aave V4: The Ecosystem Development Plan of the Lending Leader

As Aave continues to expand and mature its business, both its Total Value Locked (TVL) and token price have risen amid the 2024 market recovery.

TL;DR

Aave is a multi-chain lending protocol enabling P2C (peer-to-contract) crypto asset borrowing/lending via dynamic interest models and liquidity pools. It ranks 3rd in DeFi TVL, dominating the lending category. Parent company Avara is expanding into cross-chain lending, stablecoins (GHO), social protocols (Lens), and institutional platforms (Aave Arc).
AAVE Tokenomics: Total supply of 16 million, with 13 million allocated to holders and 3 million reserved for ecosystem growth. Circulating supply is ~14.8 million.
2024 Upgrades: Aave V4 proposal focuses on enhancing liquidity utilization through a unified liquidity layer, dynamic risk parameters, and deeper GHO integration.
Market Position: Aave V3 has largely replaced V2, leading competitors in TVL, transaction volume, and multi-chain support (12 networks).
Challenges: Heavy reliance on traditional lending revenue; GHO stablecoin recently regained peg after depegging; Aave Arc TVL remains low post-2022 crash.
Future Outlook: Recommendations include optimizing cross-chain solutions, strengthening GHO-Aave synergy, integrating DeFi capabilities into social platforms, and unifying fragmented services into a cohesive ecosystem.

Introduction

Q1 2024 saw DeFi revenue hit $467M, with lending accounting for 36% of DeFi's $29.6B TVL. Aave emerged as a standout performer:

$6.1B quarterly borrowing volume (+79% QoQ)
$34.9M lending revenue (+40% QoQ)
Dominates Ethereum, Arbitrum, and Polygon lending markets

1. Project Overview

Evolution Timeline

2017: Launched as ETHLend (P2P lending)
2018: Pivoted to P2C model, rebranded as Aave
2020: V1 mainnet launch
2023: Parent company renamed to Avara
2024: V4 upgrade proposal unveiled

👉 Explore Aave's latest developments

2. Core Business & Mechanisms

2.1 Lending Innovations

V3 Features:
- E-mode: Higher efficiency for correlated assets
- Isolation Mode: Risk containment for volatile assets
- Portals: Cross-chain liquidity bridges

Interest Model: Dynamic rates adjust based on:

| Utilization Rate | Rate Change |
|------------------|-------------|
| < Optimal        | Gradual     |
| > Optimal        | Exponential |

2.2 Flash Loans

0.05% fee per transaction
Atomic settlements within single blocks (~13 seconds)
Used for arbitrage, collateral swaps, and debt refinancing

3. Ecosystem Expansion

3.1 GHO Stablecoin

Facilitator Model: Community-approved minters
Discount Mechanism: stkAAVE holders earn rate reductions
V4 Integration: Native minting and "soft" liquidations

3.2 Lens Protocol

Social media actions as NFTs (profiles, follows, collects)
Decentralized Twitter alternative (Lenster) and video platform (Lenstube)

3.3 Institutional Products

Aave Arc: Permissioned pools with KYC
Current TVL: <$50M (down from 2022 peak)

4. Competitive Landscape

Metric	Aave	Compound	Radiant
TVL	$10.7B	$2.1B	$0.4B
Chains	12	4	3
Flash Loan	40%	<5%	N/A

Key Advantage: Aave's cross-chain portal technology outpaces rivals in liquidity fragmentation solutions.

5. Risks & Opportunities

Challenges

GHO Stability: Requires deeper protocol integration
Cross-Chain Risks: Smart contract vulnerabilities
Regulatory Uncertainty: Especially for Aave Arc

Growth Levers

V4 Adoption: Unified liquidity layer could reduce migration friction
GHO Utility: Expand as primary collateral across Aave markets
Aave Network: Potential L1/L2 hub for DeFi services

FAQ

Q: How does Aave compare to traditional banks?
A: Aave eliminates intermediaries, offers global access, and provides transparent, algorithmically set rates.

Q: What happens if GHO depegs again?
A: V4 introduces emergency redemptions where underwater positions are automatically converted to GHO.

Q: Is Aave Arc still active?
A: Yes, but TVL remains low; primarily serves regulated institutional players.

👉 Start borrowing on Aave today

Conclusion

Aave's dominance stems from its capital efficiency and multi-chain agility, but maintaining leadership requires:

Executing V4's technical vision
Tightening GHO's protocol integration
Expanding non-lending revenue streams

The proposed Aave Network could be the linchpin for long-term ecosystem cohesion—if delivered effectively. With $10B+ TVL and proven resilience, Aave remains the benchmark for DeFi lending innovation.