Overview
This post presents our recommended initial risk parameters for the Aave V4 launch. The initial market configuration is intentionally conservative in its cumulative Add Caps, designed to support a gradual growth and testing phase as the new architecture matures in production. Parameters across all hubs are set to limit initial exposure while providing high market efficiency and making use of the new tooling introduced in the Aave V4 codebase.
Given Aave V4’s significantly different design space and risk surface compared to V3, we have grounded our recommendation in how V4’s mechanisms behave, rather than targeting a repetition of the V3 Core Instance, and in several cases, this has led to deliberate deviations from the V3 baseline. The sections below explain each area in detail.
Market Design
The recommended launch configuration consists of three hubs, each structured around a distinct user intent.
The Core Hub serves as the primary general-purpose borrowing environment, structured around seven spokes each targeting a distinct collateral type, user intent, and risk profile.
- The Main Spoke is the broadest entry point into the Core Hub and the primary venue for most borrowing strategies. It supports a wide range of collateral, including ETH, WBTC, cbBTC, wstETH, weETH, AAVE, LINK, USDC, and USDT, against which users can borrow stablecoins, BTC, or ETH. The breadth of the collateral set necessitates conservative parameterization relative to more isolated configurations, consistent with a cross-margin environment. USDe borrowing against eligible collateral is supported through a credit line sourced from the Plus Hub, keeping all Ethena-related supply within that hub while extending USDe borrowing access to Core Hub users.
- The Lido, EtherFi, and Kelp Spokes are dedicated LST and LRT looping environments. Each spoke is structured identically; the protocol-specific liquid staking or restaking token (wstETH, weETH, and rsETH, respectively) serves as the sole collateral, with ETH as the only borrowable asset. This design cleanly isolates looping risk per protocol, allows spoke-level liquidation parameters to be tuned for the correlation properties of each LST/LRT relative to ETH, and prevents cross-asset contamination between liquid staking positions.
- The Lombard BTC Spoke enables LBTC holders to borrow WBTC and cbBTC, supporting Babylon staking loop strategies. The high correlation between LBTC and native BTC assets allows for more competitive parameterization than would be possible in a cross-asset environment, while the dedicated spoke structure contains any LBTC-specific risk, including Babylon protocol exposure, within a bounded perimeter.
- The Gold Spoke lists XAUt as collateral against a stablecoin borrowable set. This spoke is introduced in response to demonstrated demand for the XAUt/stablecoin pair observed over the past month, which establishes a credible baseline for utilization projections.
- The Forex Spoke supports trading and hedging across fiat-pegged stablecoins, with USDT, USDC, and EURC as collaterals against a borrowable set that includes USDT, USDC, USDG, EURC, RLUSD, GHO, and frxUSD. The tight correlation between these assets allows for high collateral factors and narrow liquidation parameters, enabling capital-efficient EUR/USD exposure.
- The Tokenized Spoke is a visual simplification of multiple per-asset spokes that operate as a supply-only vehicle, accepting deposits of WETH, USDT, USDC, USDG, GHO, USDE, RLUSD, and frxUSD without enabling borrowing. Its purpose is to tokenize these deposit positions, making them composable within external vaults and strategies. This spoke does not introduce additional collateral risk to the Core Hub and serves primarily as an integration layer for protocols building on top of Aave V4 liquidity.
The Prime Hub is designed for users who prioritize continuous collateral liquidity and optimized parameterization over yield. All collateral within this hub is non-borrowable, which entirely eliminates rehypothecation and ensures deposited collateral remains continuously available regardless of broader market conditions. Stablecoin borrowing is supported through credit lines sourced from the Core Hub and native stablecoin markets. This hub targets users who value safety, simplicity, and full isolation from systemic liquidity events.
The Plus Hub concentrates leveraged stablecoin strategies, including Ethena and Pendle token looping, in an environment isolated from the Core and Prime hubs. This prevents strategy-driven utilization and unwind dynamics from creating spillover effects elsewhere in the system.
The full rationale for the Hub and Spoke design as such can be found in the following research piece.
Collateral Factor, Liquidation Threshold, and Liquidation Bonus
V3 vs V4: Fundamentally Different Liquidation Mechanics
A central challenge in calibrating V4 liquidation parameters is that V4’s dynamic close factor mechanism is structurally different to V3’s fixed close factor model. It is not possible to configure V4 to behave identically to V3, and understanding why is essential to evaluating the parameter choices made here.
How V3 worked. In V3, the close factor was a piecewise constant: 50% while the health factor (HF) was above 0.95, jumping to 100% below that threshold. This threshold was applied uniformly across all assets. In practice, this had some intuitive advantages for volatile positions: assets with lower liquidation thresholds (LTs) tended to move through the liquidation window more quickly, so the protocol would reach 100% CF relatively early once a position remained distressed. But the rule was not explicitly tied to positional solvency. For highly correlated or highly levered positions with high LTs, the same system would net an opposite outcome, where a position could become very distressed, or even approach insolvency, without ever benefiting from the 100% CF regime in a meaningful way. The configuration was simple and directionally useful in some cases, but it was ultimately a global heuristic rather than a solvency-aware design.
How V4 works. V4 replaces that fixed threshold with a dynamic derivation based on debtToTarget , i.e. the amount of debt that must be repaid to restore a position to the spoke-configured targetHealthFactor. As a result, the effective close factor at a given HF is implied by the asset configuration and the position state. In particular, the math is defined over the interval between the initial effective close factor and the bad debt threshold, 1 / (1 + LB), and the resulting function increases gradually across that domain. This has an important consequence: for any configured target health factor, the close factor always reaches 100% exactly at the bad debt threshold, for every asset and every LT.
This is, in many ways, a more mathematically grounded construction than V3’s fixed thresholds. But it also creates a meaningful tradeoff: V4 is explicitly solvency-informed, yet not inherently asset-informed. By construction, it only converges to 100% once the position reaches the insolvency boundary implied by the liquidation bonus. That means V4 can be less aggressive than V3 for assets where earlier, more forceful liquidation may still be desirable from a risk-management perspective.
This has two important implications:
For volatile assets (lower LT, higher LB), the gap between HF = 1 and the bad debt threshold is relatively wide. The CF curve ramps up gradually across that range. Below what would have been V3’s 0.95 HF threshold, V4’s curve will always be less aggressive than V3’s step function; this is unavoidable. The only available lever is the early portion of the liquidation window (HF between 1.0 and ~0.95), where the initial CF setting determines whether V4 is more or less aggressive than V3’s 50% baseline. Setting a higher initial CF compensates for the later effective leniency.
For highly correlated assets (high LT, low LB, e.g., LST/ETH pairs with LB ~1%), the bad debt threshold sits very close to HF = 1, compressing the entire interpolation range into a narrow HF band. In practice, the CF ramp reaches 100% well before HF = 0.95, making V4 structurally more aggressive than V3 across most of the liquidation window for these assets, where necessary. V3’s 100% CF cliff at 0.95 would never have been triggered for a position that is already underwater at HF of 0.96. Starting from a lower initial CF provides a small window of relative leniency near the liquidation threshold, even if that window closes quickly.
Parameter Choices
Given the above, we have targeted the following initial close factors with the proposed liquidation parameters:
- Volatile assets: 60% initial CF (vs. V3’s 50%). This compensates for the structural leniency of V4’s curve in the later liquidation window, the portion where V4 will always be less aggressive than V3’s cliff.
- Highly correlated assets: 35% initial CF (vs. V3’s 50%). Because V4 is inherently more aggressive than V3 for these pairs throughout most of the liquidation window, a lower starting point provides a brief region of partial leniency near HF = 1 before the curve steepens sharply toward 100%.
These are not deviations from V3 as a target; they are calibrations that account for the structural properties of V4’s mechanism, with the objective of achieving appropriate solvency protection for each asset class within V4’s design constraints.
Dynamic Liquidation Bonus Configuration
V4’s liquidation bonus parameters, maxLiquidationBonus, liquidationBonusFactor, and healthFactorForMaxBonus, shape the timing and magnitude of liquidator incentives throughout the liquidation window.
Given the previously covered leniency in liquidation for Volatile asset setups, we take the opportunity presented by the introduction of a Dynamic LB Configuration to apply a small increase in the liquidation bonus relative to the decrease in the health factor for spokes involving volatile assets. Effectively compensating for the reduction in the effective Close Factor.
Furthermore, as liquidations in practice tend to trigger close to HF = 1.0, the effective bonus at that point, equal to maxLiquidationBonus × liquidationBonusFactor, is the most consequential quantity for liquidator participation. To preserve continuity with V3 incentives at that point, maxLiquidationBonus is set at a 1.11x multiplier relative to the V3 liquidation bonus per asset, paired with a liquidationBonusFactor of 0.9 for volatile-to-stable spokes. This keeps the effective bonus at HF = 1.0 aligned with V3 while allowing a higher ceiling as positions deteriorate further.
For correlated-asset spokes, liquidationBonusFactor is set to 1.0: given the already compressed HF range between liquidation eligibility and bad debt, reducing the factor would steepen the bonus ramp within a window that is inherently narrow, imposing disproportionate losses on levered correlated positions. healthFactorForMaxBonus is set to 0.9 for volatile spokes as a clean conservative value that ensures maximum liquidator incentives are in place before any position in the spoke approaches bad debt.
A more nuanced and in-depth analysis of Aave’s liquidation mechanism and its behaviour on V4 will be published shortly following this analysis.
| Chain | Hub | Spoke | Liquidation Bonus Factor | Target Health Factor | Health Factor For Max Bonus |
|---|---|---|---|---|---|
| Ethereum | Core Hub | Main Spoke | 90.00% | 1.2400 | 0.90 |
| Ethereum | Core Hub | Lido Spoke | 100.00% | 1.0137 | 0.99 |
| Ethereum | Core Hub | EtherFi Spoke | 100.00% | 1.0191 | 0.99 |
| Ethereum | Core Hub | Kelp Spoke | 100.00% | 1.0218 | 0.99 |
| Ethereum | Core Hub | Lombard BTC Spoke | 100.00% | 1.0615 | 0.99 |
| Ethereum | Core Hub | Gold Spoke | 90.00% | 1.3075 | 0.90 |
| Ethereum | Core Hub | Forex Spoke | 100.00% | 1.0442 | 0.99 |
| Ethereum | Prime Hub | Bluechip Spoke | 90.00% | 1.1740 | 0.90 |
| Ethereum | Plus Hub | Ethena Ecosystem Spoke | 100.00% | 1.0332 | 0.99 |
| Ethereum | Plus Hub | Ethena Correlated Spoke | 100.00% | 1.0277 | 0.99 |
We will follow up with quantitative research covering the optimal use of the offered dynamic LB configuration following the launch of the market and after initial market observations.
Collateral factors and liquidation thresholds are set largely in line with their relative assets on the V3 Instance across the Main and Plus hubs, with the Prime hub receiving more competitive settings reflective of its isolated, non-rehypothecated structure and the full liquidity availability for liquidations that this design ensures.
Specific parameters, such as wstETH Collateral Factor in the Main and Lido Spokes, have been set in accordance with the requests by the Growth teams, while ensuring they remain within our risk standards.
| Chain | Hub | Spoke | Reserve | Collateral Factor | Max Liquidation Bonus | Borrowable | Collateral Risk | Liquidation Fee |
|---|---|---|---|---|---|---|---|---|
| Ethereum | Core Hub | Main Spoke | ETH | 83.00% | 5.55% | TRUE | 0 | 10.00% |
| Ethereum | Core Hub | Main Spoke | wstETH | 80.00% | 6.66% | FALSE | 0 | 10.00% |
| Ethereum | Core Hub | Main Spoke | weETH | 80.00% | 7.77% | FALSE | 0 | 10.00% |
| Ethereum | Core Hub | Main Spoke | WBTC | 78.00% | 5.55% | TRUE | 0 | 10.00% |
| Ethereum | Core Hub | Main Spoke | cbBTC | 78.00% | 5.55% | TRUE | 0 | 10.00% |
| Ethereum | Core Hub | Main Spoke | AAVE | 76.00% | 8.33% | FALSE | 0 | 10.00% |
| Ethereum | Core Hub | Main Spoke | LINK | 71.00% | 7.77% | FALSE | 0 | 10.00% |
| Ethereum | Core Hub | Main Spoke | USDC | 78.00% | 5.00% | TRUE | 0 | 10.00% |
| Ethereum | Core Hub | Main Spoke | USDT | 78.00% | 5.00% | TRUE | 0 | 10.00% |
| Ethereum | Core Hub | Main Spoke | EURC | 0% | - | TRUE | - | - |
| Ethereum | Core Hub | Main Spoke | RLUSD | 0% | - | TRUE | - | - |
| Ethereum | Core Hub | Main Spoke | USDG | 0% | - | TRUE | - | - |
| Ethereum | Core Hub | Main Spoke | frxUSD | 0% | - | TRUE | - | - |
| Ethereum | Core Hub | Main Spoke | GHO | 0% | - | TRUE | - | - |
| Ethereum | Core Hub | Lido Spoke | wstETH | 95.50% | 1.00% | FALSE | 0 | 10.00% |
| Ethereum | Core Hub | Lido Spoke | ETH | 0.00% | - | TRUE | - | - |
| Ethereum | Core Hub | EtherFi Spoke | weETH | 95.50% | 1.00% | FALSE | 0 | 10.00% |
| Ethereum | Core Hub | EtherFi Spoke | ETH | 0.00% | - | TRUE | - | - |
| Ethereum | Core Hub | Kelp Spoke | rsETH | 95.00% | 1.00% | FALSE | 0 | 10.00% |
| Ethereum | Core Hub | Kelp Spoke | ETH | 0.00% | - | TRUE | - | - |
| Ethereum | Core Hub | Lombard BTC Spoke | LBTC | 86% | 3% | FALSE | 0 | 10.00% |
| Ethereum | Core Hub | Lombard BTC Spoke | WBTC | 0.00% | - | TRUE | - | - |
| Ethereum | Core Hub | Lombard BTC Spoke | cbBTC | 0.00% | - | TRUE | - | - |
| Ethereum | Core Hub | Gold Spoke | XAUt | 75.00% | 6.66% | FALSE | 0 | 10.00% |
| Ethereum | Core Hub | Gold Spoke | USDC | 0.00% | - | TRUE | - | - |
| Ethereum | Core Hub | Gold Spoke | RLUSD | 0.00% | - | TRUE | - | - |
| Ethereum | Core Hub | Gold Spoke | USDG | 0.00% | - | TRUE | - | - |
| Ethereum | Core Hub | Gold Spoke | frxUSD | 0.00% | - | TRUE | - | - |
| Ethereum | Core Hub | Gold Spoke | EURC | 0.00% | - | TRUE | - | - |
| Ethereum | Core Hub | Gold Spoke | GHO | 0.00% | - | TRUE | - | - |
| Ethereum | Core Hub | Gold Spoke | USDT | 0.00% | - | TRUE | - | - |
| Ethereum | Core Hub | Forex Spoke | EURC | 90.00% | 2.00% | TRUE | 0 | 10.00% |
| Ethereum | Core Hub | Forex Spoke | USDC | 90.00% | 2.00% | TRUE | 0 | 10.00% |
| Ethereum | Core Hub | Forex Spoke | USDT | 90.00% | 2.00% | TRUE | 0 | 10.00% |
| Ethereum | Core Hub | Forex Spoke | RLUSD | 0.00% | - | TRUE | - | - |
| Ethereum | Core Hub | Forex Spoke | USDG | 0.00% | - | TRUE | - | - |
| Ethereum | Core Hub | Forex Spoke | frxUSD | 0.00% | - | TRUE | - | - |
| Ethereum | Core Hub | Forex Spoke | GHO | 0.00% | - | TRUE | - | - |
| Ethereum | Prime Hub | Bluechip Spoke | ETH | 86.00% | 4.44% | FALSE | 0% | 10.00% |
| Ethereum | Prime Hub | Bluechip Spoke | WBTC | 84.50% | 4.44% | FALSE | 0% | 10.00% |
| Ethereum | Prime Hub | Bluechip Spoke | cbBTC | 84.50% | 4.44% | FALSE | 0% | 10.00% |
| Ethereum | Prime Hub | Bluechip Spoke | wstETH | 85.50% | 4.44% | FALSE | 0% | 10.00% |
| Ethereum | Prime Hub | Bluechip Spoke | USDC | 0.00% | - | TRUE | - | - |
| Ethereum | Prime Hub | Bluechip Spoke | USDT | 0.00% | - | TRUE | - | - |
| Ethereum | Prime Hub | Bluechip Spoke | GHO | 0.00% | - | TRUE | - | - |
| Ethereum | Core Hub | Bluechip Spoke | USDC | 0.00% | - | TRUE | - | - |
| Ethereum | Core Hub | Bluechip Spoke | frxUSD | 0.00% | - | TRUE | - | - |
| Ethereum | Core Hub | Bluechip Spoke | EURC | 0.00% | - | TRUE | - | - |
| Ethereum | Core Hub | Bluechip Spoke | USDT | 0.00% | - | TRUE | - | - |
| Ethereum | Plus Hub | Ethena Ecosystem Spoke | PT-USDE-7MAY2026 | 93.00% | 3.00% | FALSE | 0 | 10.00% |
| Ethereum | Plus Hub | Ethena Ecosystem Spoke | PT-sUSDE-7MAY2026 | 92.00% | 4.00% | FALSE | 0 | 10.00% |
| Ethereum | Plus Hub | Ethena Ecosystem Spoke | sUSDe | 92.00% | 3.00% | FALSE | 0 | 10.00% |
| Ethereum | Plus Hub | Ethena Ecosystem Spoke | USDe | 93.00% | 2.00% | TRUE | 0 | 10.00% |
| Ethereum | Plus Hub | Ethena Ecosystem Spoke | USDC | 0.00% | - | TRUE | - | - |
| Ethereum | Plus Hub | Ethena Ecosystem Spoke | USDT | 0.00% | - | TRUE | - | - |
| Ethereum | Plus Hub | Ethena Ecosystem Spoke | GHO | 0.00% | - | TRUE | - | - |
| Ethereum | Core Hub | Ethena Ecosystem Spoke | USDC | 0.00% | - | TRUE | - | - |
| Ethereum | Core Hub | Ethena Ecosystem Spoke | frxUSD | 0.00% | - | TRUE | - | - |
| Ethereum | Core Hub | Ethena Ecosystem Spoke | USDT | 0.00% | - | TRUE | - | - |
| Ethereum | Plus Hub | Ethena Correlated Spoke | PT-USDE-7MAY2026 | 95.80% | 2.00% | FALSE | 0 | 10.00% |
| Ethereum | Plus Hub | Ethena Correlated Spoke | PT-sUSDE-7MAY2026 | 94.00% | 3.00% | FALSE | 0 | 10.00% |
| Ethereum | Plus Hub | Ethena Correlated Spoke | sUSDe | 92.00% | 3.00% | FALSE | 0 | 10.00% |
| Ethereum | Plus Hub | Ethena Correlated Spoke | USDe | 93.00% | 2.00% | TRUE | 0 | 10.00% |
Add and Draw Caps
Add and draw caps have been set following Aave Labs’ planned gradual rollout and adjusted using the methodology established in our previous cap recommendations, with the specifications reflecting the hub-and-spoke structure of Aave V4 and the distinct risk profiles of each hub.
| Chain | Hub | Spoke | Reserve | Add Cap | Draw Cap |
|---|---|---|---|---|---|
| Ethereum | Core Hub | Main Spoke | ETH | 1,500 | 130 |
| Ethereum | Core Hub | Main Spoke | wstETH | 229 | 0 |
| Ethereum | Core Hub | Main Spoke | weETH | 58 | 0 |
| Ethereum | Core Hub | Main Spoke | WBTC | 16 | 1 |
| Ethereum | Core Hub | Main Spoke | cbBTC | 13 | 1 |
| Ethereum | Core Hub | Main Spoke | AAVE | 5,000 | 0 |
| Ethereum | Core Hub | Main Spoke | LINK | 31,250 | 0 |
| Ethereum | Core Hub | Main Spoke | USDC | 1,250,000 | 1,250,000 |
| Ethereum | Core Hub | Main Spoke | USDT | 1,250,000 | 1,250,000 |
| Ethereum | Core Hub | Main Spoke | EURC | 225,000 | 150,000 |
| Ethereum | Core Hub | Main Spoke | RLUSD | 500,000 | 340,000 |
| Ethereum | Core Hub | Main Spoke | USDG | 500,000 | 340,000 |
| Ethereum | Core Hub | Main Spoke | frxUSD | 500,000 | 312,500 |
| Ethereum | Core Hub | Main Spoke | GHO | 500,000 | 500,000 |
| Ethereum | Core Hub | Lido Spoke | wstETH | 406 | 0 |
| Ethereum | Core Hub | Lido Spoke | ETH | 0 | 441 |
| Ethereum | Core Hub | EtherFi Spoke | weETH | 500 | 0 |
| Ethereum | Core Hub | EtherFi Spoke | ETH | 0 | 530 |
| Ethereum | Core Hub | Kelp Spoke | rsETH | 563 | 0 |
| Ethereum | Core Hub | Kelp Spoke | ETH | 0 | 588 |
| Ethereum | Core Hub | Lombard BTC Spoke | LBTC | 9 | 0 |
| Ethereum | Core Hub | Lombard BTC Spoke | WBTC | 0 | 5 |
| Ethereum | Core Hub | Lombard BTC Spoke | cbBTC | 0 | 3 |
| Ethereum | Core Hub | Gold Spoke | XAUt | 125 | 0 |
| Ethereum | Core Hub | Gold Spoke | USDC | 0 | 125,000 |
| Ethereum | Core Hub | Gold Spoke | RLUSD | 0 | 62,500 |
| Ethereum | Core Hub | Gold Spoke | USDG | 0 | 62,500 |
| Ethereum | Core Hub | Gold Spoke | frxUSD | 0 | 62,500 |
| Ethereum | Core Hub | Gold Spoke | EURC | 0 | 50,000 |
| Ethereum | Core Hub | Gold Spoke | GHO | 0 | 62,500 |
| Ethereum | Core Hub | Gold Spoke | USDT | 0 | 125,000 |
| Ethereum | Core Hub | Forex Spoke | EURC | 300,000 | 312,500 |
| Ethereum | Core Hub | Forex Spoke | USDC | 187,500 | 50,000 |
| Ethereum | Core Hub | Forex Spoke | USDT | 200,000 | 50,000 |
| Ethereum | Core Hub | Forex Spoke | RLUSD | 0 | 90,000 |
| Ethereum | Core Hub | Forex Spoke | USDG | 0 | 90,000 |
| Ethereum | Core Hub | Forex Spoke | frxUSD | 0 | 62,500 |
| Ethereum | Core Hub | Forex Spoke | GHO | 0 | 12,500 |
| Ethereum | Core Hub | Core Tokenized ETH Spoke | ETH | 250 | 0 |
| Ethereum | Core Hub | Core Tokenized USDC Spoke | USDC | 312,500 | 0 |
| Ethereum | Core Hub | Core Tokenized USDT Spoke | USDT | 312,500 | 0 |
| Ethereum | Core Hub | Core Tokenized RLUSD Spoke | RLUSD | 125,000 | 0 |
| Ethereum | Core Hub | Core Tokenized USDG Spoke | USDG | 125,000 | 0 |
| Ethereum | Core Hub | Core Tokenized frxUSD Spoke | frxUSD | 125,000 | 0 |
| Ethereum | Core Hub | Core Tokenized GHO Spoke | GHO | 125,000 | 0 |
| Ethereum | Core Hub | Core Tokenized EUR Spoke | EUR | 112,500 | 0 |
| Ethereum | Prime Hub | Bluechip Spoke | ETH | 130 | 0 |
| Ethereum | Prime Hub | Bluechip Spoke | WBTC | 6 | 0 |
| Ethereum | Prime Hub | Bluechip Spoke | cbBTC | 5 | 0 |
| Ethereum | Prime Hub | Bluechip Spoke | wstETH | 114 | 0 |
| Ethereum | Prime Hub | Bluechip Spoke | USDC | 150,000 | 175,000 |
| Ethereum | Prime Hub | Bluechip Spoke | USDT | 150,000 | 187,500 |
| Ethereum | Prime Hub | Bluechip Spoke | GHO | 500,000 | 562,500 |
| Ethereum | Prime Hub | Prime Tokenized USDC Spoke | USDC | 37,500 | 0 |
| Ethereum | Prime Hub | Prime Tokenized USDT Spoke | USDT | 37,500 | 0 |
| Ethereum | Prime Hub | Prime Tokenized GHO Spoke | GHO | 125,000 | 0 |
| Ethereum | Plus Hub | Ethena Ecosystem Spoke | PT-USDE-7MAY2026 | 250,000 | 0 |
| Ethereum | Plus Hub | Ethena Ecosystem Spoke | PT-sUSDE-7MAY2026 | 1,400,000 | 0 |
| Ethereum | Plus Hub | Ethena Ecosystem Spoke | sUSDe | 375,000 | 0 |
| Ethereum | Plus Hub | Ethena Ecosystem Spoke | USDe | 312,500 | 300,000 |
| Ethereum | Plus Hub | Ethena Ecosystem Spoke | USDC | 150,000 | 187,500 |
| Ethereum | Plus Hub | Ethena Ecosystem Spoke | USDT | 150,000 | 187,500 |
| Ethereum | Plus Hub | Ethena Ecosystem Spoke | GHO | 500,000 | 562,500 |
| Ethereum | Plus Hub | Ethena Correlated Spoke | PT-USDE-7MAY2026 | 50,000 | 0 |
| Ethereum | Plus Hub | Ethena Correlated Spoke | PT-sUSDE-7MAY2026 | 400,000 | 0 |
| Ethereum | Plus Hub | Ethena Correlated Spoke | sUSDe | 250,000 | 0 |
| Ethereum | Plus Hub | Ethena Correlated Spoke | USDe | 312,500 | 325,000 |
| Ethereum | Plus Hub | Plus Tokenized USDC Spoke | USDC | 37,500 | 0 |
| Ethereum | Plus Hub | Plus Tokenized USDT Spoke | USDT | 37,500 | 0 |
| Ethereum | Plus Hub | Plus Tokenized USDe Spoke | USDe | 78,000 | 0 |
| Ethereum | Plus Hub | Plus Tokenized GHO Spoke | GHO | 125,000 | 0 |
As V4 spokes do not natively support tokenized deposit positions, we introduced one Tokenized Spoke per asset per hub as a dedicated integration layer. These spokes are supply-only and accept deposits exclusively of the primary borrowable assets of their respective hub. By restricting the depositable set to primary borrowables, the tokenized representation remains simple and composable, with a well-defined and predictable underlying.
Tokenized Spokes are intended as the standard entry point for integrators, vaults, aggregators, and strategies that wish to route liquidity into Aave V4 markets.
Credit Lines
Credit lines in V4 allow liquidity to flow between hubs and spokes without requiring local supply to exist natively at the destination. While this is a powerful bootstrapping mechanism, we believe excessive reliance on credit lines, particularly from lower-risk to higher-risk hubs, poses a structural impairment to the long-term development of local stablecoin markets. If credit lines consistently provide cheaper and more liquid stablecoin access than the native market, they suppress the organic development of local supply, creating a persistent dependency rather than a transition tool.
Our approach, therefore, distinguishes between two directions of flow with different long-term intentions.
For credit lines flowing from lower-risk to higher-risk hubs, such as from the Core Hub into the Plus Hub, we aim to support initial demand to bootstrap the collateral side of the market. But, as the higher-risk hub stablecoin markets mature and local supply becomes self-sufficient, we intend to reassess these lines against the hub’s organic liquidity depth and constrain or phase them out accordingly.
For credit lines flowing from higher-risk to lower-risk hubs, such as from the Core Hub into the Prime Hub, the long-term intent is the opposite: we expect demand-side growth in the lower-risk markets to be consistent, and we anticipate scaling these lines substantially over time to give markets such as Prime uninhibited access to Core stablecoin liquidity. The initial sizes are conservative, not out of a desire to constrain these markets, but to allow native supply to establish itself first and avoid over-reliance on large credit line utilization in a nascent market.
The initial credit line configuration is as follows:
| Chain | Origin Hub | Target Spoke | Reserve | Credit Line Size |
|---|---|---|---|---|
| Ethereum | Core Hub | Ethena Ecosystem Spoke | USDC | 125,000 |
| Ethereum | Core Hub | Ethena Ecosystem Spoke | frxUSD | 62,500 |
| Ethereum | Core Hub | Ethena Ecosystem Spoke | USDT | 125,000 |
| Ethereum | Core Hub | Bluechip Spoke | USDC | 125,000 |
| Ethereum | Core Hub | Bluechip Spoke | frxUSD | 62,500 |
| Ethereum | Core Hub | Bluechip Spoke | EURC | 50,000 |
| Ethereum | Core Hub | Bluechip Spoke | USDT | 125,000 |
These lines fall into two groups:
- The Core Hub → Ethena Ecosystem Spoke lines bootstrap sUSDe/USDe collateralized debt within the Ethena Hub; these are sized against an initial exposure target and can be revisited as the hub’s native stablecoin markets develop depth.
- The Core Hub → Bluechip Spoke lines serve a similar bootstrapping function for the Prime market, with the explicit intention to scale them up over time as local market efficiency improves and native supply becomes insufficient to meet growing demand.
Interest Rate Curves
Interest rate parameters have been set to reflect the usage and demand profile of each hub and spoke.
The parameters provided are broadly consistent with the V3 Core market, with adjustments in the Plus Hub native stablecoins to reflect a stronger demand for Ethena looping.
We have evaluated the application of adopting a Risk Premium both in the Yield Seeking Hub (specifically for the Ethena loop) and in the Prime Hub (where higher collateral parameters could be argued to command a rate premium). In both cases, we have decided against introduction at launch, and we will follow up with further updates when its introduction becomes beneficial for the protocol.
| Chain | Hub | Asset | Base | Slope 1 | Slope 2 | Uoptimal | Liquidity Fee |
|---|---|---|---|---|---|---|---|
| Ethereum | Core Hub | ETH | 0 | 2.35% | 14.00% | 92.00% | 15.00% |
| Ethereum | Core Hub | USDT | 0 | 4.00% | 20.00% | 92.00% | 10.00% |
| Ethereum | Core Hub | USDC | 0 | 4.00% | 20.00% | 92.00% | 10.00% |
| Ethereum | Core Hub | GHO | 0 | 4.00% | 30.00% | 90.00% | 10.00% |
| Ethereum | Core Hub | RLUSD | 0 | 4.00% | 35.00% | 80.00% | 20.00% |
| Ethereum | Core Hub | USDG | 0 | 4.00% | 35.00% | 90.00% | 20.00% |
| Ethereum | Core Hub | frxUSD | 0 | 4.00% | 35.00% | 90.00% | 20.00% |
| Ethereum | Core Hub | EURC | 0 | 5.50% | 35.00% | 90.00% | 10.00% |
| Ethereum | Core Hub | WBTC | 0.25% | 4.00% | 60.00% | 80.00% | 20.00% |
| Ethereum | Core Hub | cbBTC | 0.25% | 4.00% | 60.00% | 80.00% | 20.00% |
| Ethereum | Prime Hub | USDC | 0 | 4.00% | 20.00% | 92.00% | 10.00% |
| Ethereum | Prime Hub | USDT | 0 | 4.00% | 20.00% | 92.00% | 10.00% |
| Ethereum | Prime Hub | GHO | 0 | 4.00% | 30.00% | 90.00% | 10.00% |
| Ethereum | Plus Hub | USDe | 0 | 4.50% | 30.00% | 90.00% | 25.00% |
| Ethereum | Plus Hub | USDC | 0 | 4.50% | 20.00% | 92.00% | 15.00% |
| Ethereum | Plus Hub | GHO | 0 | 4.50% | 30.00% | 90.00% | 10.00% |
| Ethereum | Plus Hub | USDT | 0 | 4.50% | 20.00% | 92.00% | 15.00% |
Conclusion
The initial parameter set for Aave V4 has been constructed to enable a safe, gradual growth phase while remaining extensible as market behavior becomes observable. The most significant calibration decisions, particularly around liquidation parameters, are grounded in the structural mechanics of V4’s dynamic close factor model rather than in a direct translation of V3 settings, which would not accurately reflect how the mechanisms actually operate.
Chaos Labs will closely monitor key metrics across all hubs following the launch and will provide regular parameter updates through governance as warranted.
Disclosure
Chaos Labs has not been compensated by any third party for publishing this recommendation.
Copyright
Copyright and related rights waived via CC0.