Author: Stani Kulechov, Founder of AAVE

Compiled by: Shenchao TechFlow

Introduction: Securities financing is one of Wall Street's largest yet least-known markets, with daily exposure in the U.S. repo market alone reaching $12.6 trillion. Aave V4's hub-and-spoke architecture is precisely designed to seamlessly accommodate the on-chain migration needs of this trillion-dollar market. From securities-backed lending to repos to securities lending, every segment uses the protocol to compress out the rent taken by traditional intermediaries. (Related reading: Grayscale's Bottom-Fishing Guide: Using Cash Flow to Evaluate Cryptocurrency Value)

Securities financing is one of the largest markets almost no one outside Wall Street pays attention to, and it has already begun moving on-chain. Securities-backed lending is a multi-trillion-dollar business. Daily exposure in the U.S. repo market alone is roughly $12.6 trillion, margin lending has reached a record $1.3 trillion, and securities-backed loans in wealth management add over $400 billion on top of that. The securities lending market, counted separately, has about $4.6 trillion in assets on loan, generating a record $15 billion in revenue in 2025. Today, virtually none of this activity touches a blockchain. That is the opportunity.

The best way to bring it on-chain is to get the market structure right. Between borrowers and lenders sits a stack of custodians, lending agents, tri-party collateral managers, prime brokers, and clearing houses. Each layer takes a fee, adds settlement delays, and obscures information. Collateral is trapped in bilateral relationships, rehypothecation chains extend out of sight, and when something goes wrong, no one can see why for days. Every layer creates work, friction, and cost.

Improving this market structure is exactly what Aave V4 aims to do, and the on-chain rails have already reached scale. The stablecoin market has surpassed $322 billion, Aave holds roughly $23 billion in locked liquidity, GHO is live as Aave's native dollar, and Aave Horizon's total deposits have exceeded $500 million, powering RWA-backed loans. The cash leg, liquidity, and collateral pipelines now all exist.

Why V4

V4 splits the system into a liquidity hub and spokes. The hub is a deep capital pool, and the spokes are modular venues (i.e., markets) that plug into it, each with its own risk parameters, asset scope, and rules. This single design choice almost perfectly maps to how securities financing markets want to be organized: shared liquidity at the base, with segmented, compliant venues on top.

Three flows run through it, and together they constitute the market.

Securities-Backed Lending

Tokenized securities are deposited as collateral into a spoke, using conservative, asset-specific haircuts. The owner borrows GHO or stablecoins without selling. Positions remain transparent, haircuts are explicit, and liquidations run automatically rather than through a back office. The owner retains upside potential and unlocks liquidity; bank balance sheets are freed up. In U.S. wealth management alone, this is already a $400 billion ledger that remains underserved. As real-world assets move toward a tokenization scale of $16 trillion by the 2030s, every asset becomes collateral that can be borrowed against instantly. Horizon's institutional RWA deposits have already surpassed $500 million—demand is clear. For the end user, liquidity arrives in minutes, collateralized by tokenized assets rather than through bilateral credit lines that take days to negotiate, with transparent interest rates set by deep shared pools.

Repo

This is the giant. Repo is short-term collateralized cash borrowing, primarily against government bonds, with daily exposure in the U.S. market alone at roughly $12.6 trillion. On-chain, repo is borrowing stablecoin cash from a low-risk hub against tokenized securities collateral—exactly what V4 is built to do. Atomic delivery-versus-payment eliminates settlement failures, terms are programmable and run 24/7 instead of relying on banking calendars, and roughly $5 trillion in opaque, non-centrally cleared bilateral repo becomes transparent and continuously margined. The market that most needs clean settlement and real-time collateral visibility is the one V4 serves best.

Securities Lending

Tokenized securities themselves become borrowable assets within the hub. Borrowing demand from short sellers and settlement cover pays an interest rate that flows directly back to the asset owners supplying them. The lending agent functions of matching, pricing, and collateral management collapse into the protocol. This is where the fee pool sits—$15 billion in revenue in 2025, corresponding to tens of trillions in lendable supply. Today, lending agents take roughly 20% to 30% of the revenue; billions of dollars annually are extracted before owners see a cent. Routing the same flow through the protocol compresses that take to near zero, and the spread instead accrues to the owners.

A Market Structure Proposal

There are two ways to lay this out, and both share the same spokes. They differ only in how the underlying liquidity is organized.

Option A: Single Shared Liquidity Hub

A single liquidity hub acts as the settlement and collateral core. It holds the cash leg, maintains unified accounting for every position, prices collateral via oracles, and maximum depth exists in one place, shared by everything above it.

Around it sit dedicated spokes, each a venue with its own rulebook but the same underlying liquidity. The SBL spoke accepts tokenized securities as collateral, letting owners draw stablecoins or GHO based on conservative, asset-class-specific haircuts. SBL spokes can be split into multiple spokes based on risk. The repo spoke handles short-term cash borrowing collateralized by high-quality securities, with atomic settlement and continuous margining. The securities lending spoke lists tokenized securities as borrowable assets, with borrowing fees flowing to the owners who supply them.

The advantage of this layout is depth, because one pool means the deepest liquidity and simplest accounting. The limitation is that risk lives in one place, so isolation must be designed at the spoke layer rather than being structural.

Option B: Multiple Hubs by Asset Class and Risk

The alternative is to run multiple liquidity hubs, each confined to an asset class and risk tranche, with spokes connecting to multiple hubs simultaneously. A low-risk Treasury hub uses tight haircuts, where most repo naturally falls; a medium-risk credit and money market hub serves other needs; a higher-risk equity hub uses wider haircuts and stricter liquidation thresholds. Each hub prices and isolates its own risk.

Spokes auto-route across these hubs. The repo spoke sends Treasury collateral to the Treasury hub, the SBL spoke sends equity baskets to the equity hub—the same user sees one venue, while the protocol places each position into the pool whose parameters match.

This brings three things. Risk isolation becomes structural rather than configurational, so an equity shock can be contained without touching the Treasury pools backing repo. Pricing is more precise, because each hub sets rates and haircuts for one risk tranche rather than blending several. Regulatory separation is easier, because a hub can be confined to a single regime while spokes still aggregate the experience across all regimes. The trade-off is shallower depth per hub, but because spokes pull across multiple hubs, total liquidity and composability are preserved. Credit lines between hubs and specific spokes can increase liquidity flow while retaining risk-isolated exposure caps.

The practical path is a spectrum, not a binary choice. Start unified for depth and simplicity, then upgrade to hubs by class and risk as collateral types expand and isolation becomes worth the fragmentation. Either way, the same spokes carry forward.

Roles Under Both Models

Firms previously dispersed across layers become parameters and participants. Lending agents become risk managers who tune hub and spoke parameters, tri-party collateral managers become the hub's accounting and settlement engine (the protocol itself), and prime brokers and clearing houses become operators running permissioned venues. The custodian's ledger becomes the chain itself.

Structural Changes

Functions that previously lived in separate firms move into protocol roles, so the work remains while the rent disappears. Collateral once trapped in bilateral agreements is put to work, because the same asset can support exposure for every hub it qualifies for—no more pre-funded inventory sitting idle at each counterparty, no float losing yield. Permissioned spokes or jurisdiction-scoped hubs enforce KYC, jurisdiction, and eligible-asset rules at the edge while still drawing from shared liquidity, so regulated institutions get venues that match their rules without fragmenting the order book the rest of the market depends on.

Settlement happens at a completely different speed. Traditional securities markets still settle one day post-trade in the U.S. and two days in much of Europe, and the industry's recent move toward one-day settlement itself cost participants roughly $30 billion to implement. V4 settles atomically, around the clock, without failures and at near-zero marginal cost—reconciliation that takes days in traditional finance becomes a single state read on-chain.

What It Unlocks

For asset owners, borrowers, and cash lenders, the gains are concrete. The addressable market size is in the trillions: U.S. repo daily exposure roughly $12.6 trillion, margin $1.3 trillion, securities lending $4.6 trillion on loan, all sitting atop collateral that will be tokenized to $16 trillion by 2030.

Yield is retained rather than extracted, because the 20% to 30% of securities lending revenue that agents take today flows back to asset owners. Settlement no longer fails, because atomic 24/7 delivery-versus-payment replaces T+1 and T+2 cycles and the intraday failures that plague bilateral repo. Capital works harder, because pooled hub liquidity ends idle pre-funded inventory, letting the same collateral flow across venues. Risk becomes visible and controllable—positions, haircuts, and rehypothecation are transparent in real time, and class-based hubs contain shocks at the source. Access takes minutes, so owners can borrow against tokenized holdings on demand, with transparent, market-set rates, rather than spending days negotiating bilateral lines.

Conclusion

Securities financing has been waiting for a settlement and collateral layer that can operate without a stack of intermediaries. Securities-backed lending, repo, and securities lending are three faces of the same balance sheet—you borrow cash against what you hold, finance short-term, or lend it out to earn yield—and together they move tens of trillions of dollars through a pipeline that extracts billions and takes days to settle.

V4 carries all three on one architecture. Whether through a single deep hub or a grid of hubs by class and risk routed across by spokes, the liquidity, stablecoin cash leg, and institutional pipelines are already live. The pipeline is finally getting its upgrade, value flows to those who own the assets, and the market that depends on it is measured in trillions. This is the market Aave can capture.

A whale withdrew 18,300 ETH from Binance and then sold 12,000 ETH to repay a loan from Aave.

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