TechFlow News, April 3: According to a report by Cointelegraph, a working paper released by the Bank of Canada shows that Aave V3 achieved zero non-performing loans in 2024; however, its mechanism protects lenders from losses by shifting those losses onto borrowers.
The study, based on transaction data from January 27, 2023, to May 6, 2025, finds that Aave V3 relies on over-collateralization and automated liquidation mechanisms to close positions before collateral value falls below outstanding debt, effectively curbing lender losses. However, this model comes at the expense of borrowers’ interests and exhibits lower capital efficiency than traditional lending systems.
The paper also notes that recursive leverage—i.e., repeatedly borrowing against collateral and then using the borrowed assets as new collateral in a cyclical manner—accounts for over 20% of total borrowing volume and 8.2% of total loan count, thereby exacerbating borrowers’ risk exposure during market downturns. Liquidation events occur in concentrated bursts, with WETH, wstETH, WBTC, and weETH collectively accounting for 90% of total liquidation value.
