The Complete Evolution of Decentralized Lending: From ETHLend to Aave V4

The DeFi market showed significant growth in the first quarter of 2024, with lending as one of its core functions, accounting for 36% of the TVL in the DeFi space. In this context, Aave, as an important player, performed impressively, with a total borrowing amount reaching $6.1 billion in the first quarter, a quarter-on-quarter increase of 79%, and lending revenue growing by 40% to $34.9 million, continuing to maintain its leading position.

Aave started with the ETHLend project founded by Stani Kulechov in May 2017. At the end of 2018, ETHLend transformed into Aave, introducing a liquidity pool model. In November 2023, Aave Companies renamed itself to Avara and launched new services including the stablecoin GHO and the social network protocol Lens. Currently, Aave V3 is running stably on 12 blockchains, and the upgrade proposal for version V4 will be announced in May 2024.

As of mid-May 2024, Aave ranks third in the DeFi space with a TVL of $1.0694 billion. Avara is headquartered in London, with about 96 employees. The core team includes founder and CEO Stani Kulechov, COO Jordan Lazaro Gustave, CFO Peter Kerr, and head of institutional business Ajit Tripathi.

Aave has received financing support multiple times during its development. In 2017, it raised $16.2 million through an ICO, in July 2020 it secured $3 million in Series A funding, and in October of the same year, it completed $25 million in Series B funding. In May 2021, Aave went live on Polygon and received a lending mining reward worth $200 million in Matic.

Aave's core business is Decentralization lending. Its features include lending pools, aToken model, innovative interest rate mechanisms, and flash loan capabilities. Aave V2 simplifies the architecture and introduces debt tokenization, while V3 further enhances capital efficiency and launches efficient mode, isolation mode, and portal features. The upcoming V4 version will adopt a new architecture and introduce innovative designs such as a unified liquidity layer.

Aave's borrowing interest rates use a dynamic model, adjusting based on capital utilization rates. Different assets have three interest rate strategies, applicable to stablecoins, mainstream assets, and high-risk assets. Aave also has a strict liquidation mechanism, managing risks through parameters such as loan-to-value ratio, health factor, and liquidation threshold.

Flash loans are a major innovation of Aave, allowing for the borrowing of large amounts of assets without collateral and repayment within the same block. The Aave V3 protocol charges a fee of 0.05% for each flash loan transaction. Additionally, Aave has introduced a credit delegation mechanism that allows depositors to delegate their unused credit lines to others.

The Aave V4 version will introduce several innovative designs:

1. Unified Liquidity Layer: Simplifying liquidity management between different functional modules.
2. Liquidity Premium: Adjusting borrowing rates based on asset risk.
3. Fuzzy control interest rate: Automatically adjust the interest rate curve to optimize capital efficiency.
4. Smart Accounts and Vaults: Enhancing User Experience and Security
5. Excess Debt Protection Mechanism: Prevent the Spread of Bad Debts
6. GHO Native Integration: Improve Stablecoin Provider Returns
7. Aave Network: The main hub for Aave and GHO

GHO is a stablecoin launched by Aave, utilizing innovative mechanisms such as facilitators, asset buckets, and discount models. Lens Protocol is a social networking protocol launched by Aave on Polygon, transforming social behaviors into NFTs. Aave Arc is a private liquidity pool solution aimed at institutional investors.

In terms of revenue, Aave's total revenue for the 2023-2024 fiscal year is $20.2646 million, which is a slight decline from the previous year. Major sources of income include borrowing revenue, flash loan fees, other functional fees, and GHO minting fees. In the lending market competition, Aave maintains a leading position with a TVL of $1.025 billion and dominates multiple mainstream blockchains.

The total supply of AAVE tokens is 16 million, with a current circulation of about 14.7 million. AAVE plays a central role in platform governance and staking rewards. Holders can earn returns by directly staking AAVE or providing AAVE-ETH liquidity.

Looking ahead, Aave faces competitive pressure from the cross-chain lending market and needs to accelerate the launch of version V4. At the same time, Aave needs to further develop its GHO stablecoin business and strengthen its integration with lending functions. Overall, Aave still maintains a leading position in asset utilization, market share, and trading volume, but continuous innovation is required to consolidate its market position.