title: [ARFC] Deploy Aave V4 on the Monad Network
author: @TokenLogic
created: 2026-09-11
Summary
This proposal recommends deploying an Aave V4 instance on the Monad Network, with an initial market structure designed to support tokenized equities and cash equivalent assets.
The proposed instance would use a hub and spoke architecture to separate assets according to their underlying risk profiles while maintaining access to shared stablecoin liquidity. The structure is designed to limit cross exposure between assets with materially different volatility profiles and provide a framework that can scale as the tokenized equities market develops.
Motivation
The tokenization of RWAs has emerged as one of the fastest growing segments of onchain finance, with tokenized equities and other traditional financial assets increasingly becoming available on public blockchains. This expansion creates an opportunity for lending markets to provide additional utility around these assets.
Tokenized equities are particularly relevant as they provide onchain access to familiar financial exposures while retaining a direct connection to underlying traditional securities. As the range and adoption of tokenized assets continues to expand, there is an opportunity for Aave to establish infrastructure that can support these assets within a controlled framework.
Incentives Package
The initial $15M incentive budget allocated by the Monad Foundation under the Aave V3.7 deployment proposal will also be used to support the transition to and growth of Aave V4 on Monad.
The incentive budget is intended to support liquidity growth and adoption of the V4 deployment, with the specific allocation and distribution strategy to be determined as the deployment progresses.
Market Structure
The proposed Monad Tokenized Equities Hub is structured around three risk differentiated spokes for tokenized equities and cash equivalent assets. The objective is to keep assets with broadly similar market risk together while isolating the amount of hub liquidity that can be drawn by each risk tier.
The Core Assets Spoke contains lower volatility collateral, Growth Assets Spoke contains higher volatility names, and Emerging Listings Spoke is reserved for assets with limited history or exceptionally high volatility.
USDC and USDT0 provide the borrow liquidity across all spokes, while tokenized equities and cash equivalents are collateral only. The collateral factors shown below are indicative and are intended to reflect both observed price volatility and the risk of price gaps while the underlying market is closed over the weekend.
Figure 1. Proposed Monad Equities Hub and spoke structure, including indicative risk parameters and liquidity draw caps
Risk Segmentation Across Spokes
The spoke structure is primarily designed to group assets with similar risk profiles and, critically, to prevent cross collateralisation from transmitting liquidation risk between assets with materially different volatility. By separating higher volatility assets into distinct spokes, a sharp decline in one asset is less likely to create liquidation pressure on more stable assets within the same collateral pool. This allows each spoke to be managed against a more consistent underlying risk profile and limits the potential for contagion across asset classes.
- Core Assets: The Core Assets spoke contains assets with one year realised volatility below 25%. SPYx and QQQx have annualised volatility of 13% and 20% respectively, while SGOVx is effectively cash equivalent.
- Growth Assets: The Growth spoke covers assets with one year realised volatility between 25% and 60%. These assets therefore require materially more conservative parameters. As an asset matures, grows in size, and its volatility declines, it can graduate to the Core Assets spoke.
- Emerging Listings: The third spoke is reserved for assets with less than one year of history or volatility above 60%. It is empty at launch, but provides a framework for onboarding new or exceptionally volatile assets without immediately introducing them into the more established risk pools.
Figure 2. Daily price moves over the last year. The distributions show the increasing dispersion of daily returns as asset volatility rises.
The daily return data illustrates why volatility is a useful first level of segmentation. For example, SPYx has a typical daily move of 0.8%, compared with 3.0% for TSLAx and 3.5% for EWYx. The largest observed daily losses also become materially larger across the risk spectrum, reaching 14.5% for TSLAx and 14.1% for EWYx. This supports separating assets into distinct collateral and liquidity risk buckets.
Managing Weekend Price Gap Risk
Daily volatility alone does not fully capture the liquidation risk of these assets. Because the underlying securities trade only during the market session, their reference prices remain effectively unchanged for roughly 60 hours over the weekend. During this period, xStocks will be neither mintable nor redeemable. A material change in the value of the underlying can therefore appear as a single Monday opening gap, before normal market based liquidation mechanisms can act.
Figure 3. Historical Friday close to Monday open price gaps over five years, with the drop side 99th percentile highlighted.
This makes the historical weekend gap distribution an important input into the collateral parameters. The CF ranges presented in the market structure diagram reflect both the asset’s realised volatility and the tail, represented by the 99th percentile, of its historical weekend drop distribution. The parameters are intended to provide sufficient protection for a maximally leveraged position to withstand a weekend gap materially worse than anything observed over the five year sample, including the liquidator’s bonus, before bad debt arises.
As an additional layer of protection, Aave v4 enables collateral factors to be adjusted dynamically. CFs could therefore be temporarily reduced while markets are closed to limit borrowing capacity. While this would not trigger liquidations for existing positions, users whose positions exceed the temporarily lower factor would be unable to withdraw collateral or borrow further. The CF could then be restored when the market reopens.
Taken together, the proposed structure provides a framework for managing tokenized equities with different risk profiles. By separating assets into distinct spokes, the design limits cross exposure between risk tiers while allowing assets to move between spokes as their risk characteristics evolve. This enables the market to scale while maintaining clear risk boundaries between assets with different characteristics.
Specification
This section will be updated upon receiving feedback from various stakeholders in the lead-up to the deployment.
Hub and Spoke Configuration
The proposed initial Monad deployment will activate one Liquidity Hub and three Spokes: a Core Assets Spoke, a Growth Assets Spoke, and an Emerging Listings Spoke.
| Hub | Assets |
|---|---|
| Monad Tokenized Equities Hub | SPYx, QQQx, SGOVx, NVDAx, SMHx, TSLAx, EWYx, USDC, USDT0 |
| Spoke | Collateral | Borrowable |
|---|---|---|
| Core Assets Spoke | SPYx, QQQx, SGOVx | USDC, USDT0 |
| Growth Assets Spoke | TSLAx, EWYx, NVDAx, SMHx | USDC, USDT0 |
| Emerging Listings Spoke | None at launch | USDC, USDT0 |
Oracle Configuration
The proposed deployment plan is to use Chainlink’s 24/5 oracle infrastructure for xStock price feeds during the initial deployment. These oracles stitch together the regular, extended and overnight session into a continuous price during the week, with no price updates over the weekend. Chainlink Labs is working on a 24/7 pricing solution that will extend these price feeds to provide continuous pricing updates through the weekend gap as well. We are collaborating closely with them on this design and more details on this will be shared by Chainlink Labs in the near future.
Next Steps
- Gather community feedback on the proposed Monad V4 deployment and market structure.
- Finalise the initial asset configuration and risk parameters.
- Progress the proposal to the ARFC Snapshot stage.
- Subject to a successful ARFC Snapshot, submit an AIP for final confirmation and activation.
Disclaimer
TokenLogic is an active service provider to the Aave DAO, the beneficiary of stream 100086 and the KPI as outlined in this publication. The scope of this engagement is available via this forum proposal.
TokenLogic supports and maintains an independent delegate voting platform within the Aave community.
TokenLogic and associated entities have no undisclosed material conflicts of interest at the time of submission.
Copyright
Copyright and related rights waived via CC0.