Svmuu News According to a working paper published by the Bank of Canada, Aave V3 achieved zero bad loans in 2024, but its risk control mechanism essentially shifts all losses to borrowers to protect the interests of lenders. The research, based on transaction data from January 27, 2023, to May 6, 2025, found that Aave V3 relies on over-collateralization and automatic liquidation mechanisms to close positions before the collateral value falls below the outstanding debt, effectively curbing losses for lenders. However, this model comes at the expense of borrower interests and also exhibits lower capital efficiency compared to traditional lending systems.
The paper also noted that recursive leverage (i.e., repeatedly borrowing against collateral and then using the borrowed assets as new collateral in a cycle) accounted for over 20% of the total borrowing volume and 8.2% of the number of loans, exacerbating borrower risk exposure during market downturns. Liquidation events showed a pattern of concentrated outbreaks, with four asset types—WETH, wstETH, WBTC, and weETH—collectively accounting for 90% of the total liquidation value. (Cointelegraph)