Difference between Aave V1 vs V2 vs V3 vs V4

If you’ve ever opened DeFiLlama and searched for Aave, you’ve probably thought:

“Why are there separate entries for Aave, Aave V2, Aave V3, etc.? Isn’t this all just… Aave?”

Short answer: each version of Aave is effectively a new protocol generation with its own smart contracts, features, and risk profile.DeFiLlama isn’t being pedantic, it’s reflecting how this actually works on-chain.

Let’s walk through what these versions are, how they differ, and why analytics platforms treat them as separate protocols.

Aave in a Nutshell

Aave is a pooled lending protocol:

• You supply assets into a pool and earn yield.
• Others borrow from that pool, posting collateral.
• Smart contracts handle interest rates, collateral, and liquidations.

Over time, Aave has gone through multiple major upgrades. Crucially, these upgrades are not just “software patches”, they’re new smart contract deployments, which means new pools, new risk, new TVL.

Aave V1 – The Original Engine (Now Legacy)

V1 was Aave’s first real version after the ETHLend days.

Key ideas:

• Classic deposit & borrow model.
• Introduced flash loans, which became a huge DeFi primitive.
• Simpler architecture, higher gas, fewer risk controls compared to later versions.

Over time, V1 has become:

• Legacy / deprecated in practice.
• Maintained but mostly empty relative to newer versions.
• A good snapshot of “early DeFi design,” but not where serious liquidity lives today.

From a data perspective, V1 = its own set of pools and contracts. Nothing there is magically upgraded in place, you need to migrate assets out.

Aave V2 – More Efficient, More Flexible

V2 was the first big overhaul. It wasn’t just “V1 but better docs”, it was an entirely new deployment.

Improvements vs V1:

• Lower gas and cleaner architecture.
• Better handling of collateral and debt:
  • Tokenized debt positions.
  • More flexible repayment and collateral usage.
• New UX and strategy options:
  • “Repay with collateral”
  • More advanced swaps and batch operations
  • Improved flash loan mechanics

From the user’s perspective, V2 made Aave cheaper and more flexible. From an on-chain perspective, though, V2 is a different protocol:

• Different contracts
• Different risk parameters
• Separate liquidity pools and TVL

You don’t just “turn V1 into V2” with a software update; you deploy V2 next to V1, and users migrate.

Aave V3 – Risk Controls, Capital Efficiency, and Multi-Chain

V3 is where Aave really leaned into risk management and capital efficiency, especially across multiple chains.

Headline features included things like:

• Supply & borrow caps to manage risk on long-tail assets.
• Isolation / siloed modes so riskier assets don’t contaminate the whole pool.
• Better capital efficiency and more nuanced interest-rate curves.
• A design that works cleanly across many L1s and L2s, not just Ethereum mainnet.

In practice, this version:

• Became the main Aave instance for most users and integrators.
• Absorbed TVL as liquidity steadily migrated from V2.
• Lives on multiple chains (e.g., Ethereum, Arbitrum, Optimism, etc.), each with its own V3 markets.

Again: entirely new contracts. V3 is not “V2 with a toggle flipped”, it’s a separate protocol instance.

Aave V4 – The Next-Gen Architecture

V4 (rolling out over time) is another major redesign focused on:

• A hub-and-spoke architecture:
  • A core “hub” liquidity layer.
  • Multiple specialized “spoke” modules for different asset types, risk profiles, or features.
• A cross-chain liquidity layer, making Aave behave more like a single global protocol even though it spans many chains.
• Deep integration with GHO, Aave’s native stablecoin.
• More dynamic, automated interest-rate and risk adjustments.

Once again, this is not an in-place patch. V4 will live as its own deployment, with new code, new contracts, and new markets.

So Why Does DeFiLlama List Aave, Aave V2, Aave V3 Separately?

From DeFiLlama’s point of view, each Aave version is:

• A distinct set of smart contracts.
• With its own TVL, balances, and asset mix.
• With its own risk profile and lifecycle.

That’s why you often see entries like:

• Aave (sometimes an aggregate/brand-level view)
• Aave V2
• Aave V3
• And eventually, Aave V4

This separation is useful for several reasons:

1. Different Code, Different Risk

An exploit in V1 doesn’t necessarily affect V3.

• Each version has its own:
  • Codebase and audits
  • Risk parameters
  • Supported asset list

Aggregating everything under “Aave” would hide these differences. For risk analysis, you need to know which version your assets are in.

2. Different Lifecycle Stages

At any given time:

• One version is usually dominant (e.g., V3 right now).
• The previous version becomes legacy, with declining TVL as users migrate.
• The oldest versions become dust, still alive, but with minimal usage.

Showing V1, V2, V3 separately makes it easy to see:

• How liquidity migrates over time.
• Which version is actually being used.
• How “sticky” TVL is for each deployment.

3. Clean Analytics & Rankings

DeFiLlama’s job is to track TVL per protocol deployment, not just per brand.

Treating Aave V1/V2/V3 as separate lets them:

• Rank each version among lending protocols.
• Show historical charts that make sense (e.g., V2 TVL going down while V3 goes up).
• Let power users filter specifically for “Aave V3 on Arbitrum” or “Aave V2 on Ethereum” rather than a blended, meaningless average.

What This Means for Users and Analysts

When you look at Aave in DeFi dashboards, it’s useful to ask:

“Which version am I actually using?”

Because:

• Your risk is tied to the version’s contracts and parameters.
• Your yield can differ between V2 and V3.
• Your TVL exposure (for modeling protocol risk, governance, etc.) is also version-specific.

A few practical tips:

• If you want the most up-to-date features and risk tooling, you’re typically looking at Aave V3 (and soon V4).
• If you see TVL still sitting in V2 or V1, that’s often:
  • Legacy positions
  • Forgotten dust
  • Or users/protocols that haven’t migrated yet
• When reading research or risk reports, always check: “Are they talking about V2 or V3?” Labeling matters.

TL;DR for Your Readers

• Each Aave version (V1, V2, V3, V4) is a separate generation of the protocol, deployed as new smart contracts.
• Old versions don’t auto-upgrade; they coexist as parallel instances with their own pools and TVL.
• DeFiLlama and other dashboards list them separately because they truly are different protocols on-chain, with distinct risk, features, and usage patterns.
• When you say “I’m using Aave,” what you really mean is “I’m using Aave Vx on chain Y” and that distinction matters.

About Portals.fi: Portals.fi is the DeFi Super App. A one-click gateway to the entire on-chain economy. Powered by real-time data and seamless execution, Portals.fi connects traders to over 20 million assets, thousands of protocols, and every major blockchain.

Disclaimer: The content of this blog is for informational purposes only. It is not investment advice. Please do your own research and consult with a qualified financial advisor before making any investment decisions. DeFi investments carry significant risks, and past performance does not guarantee future results. More details here.