Aave Labs has officially initiated the first step in deploying its next-generation lending protocol, Aave V4, on the Arc blockchain by submitting a “Temp Check” proposal to its community on May 29. This proposal marks the early stage of a process that could see Aave become a cornerstone of Arc’s DeFi infrastructure ahead of Arc’s anticipated mainnet launch in the summer of 2026.
What is Arc and why does the Aave integration matter?
Arc stands out as the public layer-1 blockchain developed by Circle, the creator of the USDC digital dollar. Circle describes Arc as the “economic operating system of the internet.” Transactions on the network are settled using USDC, and Arc is purpose-built for stablecoin liquidity and tokenized real-world assets. The Arc testnet opened in 2023 with participation from institutional giants like BlackRock, Visa, and AWS, as well as leading DeFi projects such as Aave, Curve, and Maple.
During its testnet phase, Arc processed over 150 million transactions across 1.5 million wallets. According to Circle, the network left testnet earlier this year and is now entering a new phase aimed at expanding global stablecoin usage beyond payments.
For Aave, integrating with Arc provides access to the institutional capital Circle targets. On Aave’s Horizon platform, institutional investors already borrow stablecoins against tokenized assets like government bonds, with net deposits surpassing $580 million by the end of 2025.
Looking ahead, Aave DAO’s roadmap for 2026 targets $1 billion in growth through partnerships with major players including Circle, Ripple, Franklin Templeton, and VanEck. Launching V4 on Arc would seamlessly connect Aave’s lending infrastructure directly with Circle’s institutional channels.
Circle CEO Jeremy Allaire expressed his support on social media, stating, “We look forward to seeing V4 on Arc. Two key next-generation infrastructures are working together for the future of DeFi.”
Innovations in V4 architecture
Aave V4 will introduce a central Liquidity Hub based on a Hub-and-Spoke model, replacing the fragmented liquidity pools of earlier versions. Assets collected in these hubs on each blockchain can be directed to Spoke markets with different risk parameters. This design enables the protocol to handle high-volume institutional transactions.
In addition, V4 adopts the ERC-4626 vault standard, eliminating the “rebasing” feature present in existing aTokens. This greatly simplifies reporting for integrated platforms, audit teams, and accounting systems—a move seen as crucial for broader institutional adoption.
Mini glossary: ERC-4626 is a standard for vaults on the Ethereum blockchain. It makes it easier to store and track liquidity consistently across platforms, ensuring lending and deposit operations are transparent and compliant.
The Arc proposal is just part of a larger initiative to expand V4 to Ethereum mainnet and other chains like Avalanche. Recently, a similar vote kicked off on Avalanche with a $15 million incentive package designed to drive growth.
Meanwhile, Babylon Labs has proposed new Spoke markets for V4 that would allow direct use of Bitcoin as collateral.
Controversies in governance
Rolling out V4 more widely has sparked debate within the Aave community. On March 1, a framework dubbed “Aave Will Win”—which included channeling 100% of Aave Labs’ product revenue into the DAO treasury and adopting V4 as the main technical layer—passed with only 52.58% support.
Marc Zeller, founder of the Aave Chan Initiative, claimed the proposal scraped through only because of 233,000 AAVE votes from addresses linked to Aave Labs; excluding those votes, he argued, the motion would have failed. Additionally, Aave’s main technical partner, BGD Labs, announced that from April 1 it would end its collaboration, citing concerns about centralization and an unfair portrayal of V3’s history.
Deployment of V4 on Arc’s mainnet now moves forward amid these disputes. The outcome will directly impact whether Aave can reach Circle’s institutional user base according to its planned timeline.
