HOW V4 TURNS AAVE INTO DEFI'S OPERATING SYSTEM

Summary from the TLDR Crypto newsletter

Aave V4 solves the liquidity fragmentation problem where V3's separate markets like Core ($60 billion) and Prime ($2 billion) cannot share liquidity despite holding the same assets, forcing each new specialized market to bootstrap deposits from zero even though Aave holds tens of billions in existing liquidity. The new architecture separates liquidity storage in Hubs from market logic in Spokes, allowing multiple specialized Spokes to draw from shared Hubs based on governance-set credit line allocations, enabling new markets to access Aave's existing depth from day one rather than competing for the same deposits. Spokes enable previously unviable markets, including custom collateral for Ethena's sUSDe and Pendle PTs, institutional segregation requirements, secondary debt position markets, credit against AMM positions with dynamic LTV adjustments, and fixed-tenor credit matching while unmatched liquidity continues earning yield from underlying Hubs. The system creates positive feedback loops where each successful Spoke makes the platform more attractive to next builders through better liquidity utilization, specialized features without asset fragmentation, and innovation atop proven infrastructure rather than repeated bootstrapping.