A staff paper from the Bank of Canada found that Aave V3 recorded zero non-performing loans in 2024 within its Ethereum lending market. The system’s design, which relies on overcollateralization and automated liquidations, ensured that positions were closed before collateral values dropped below outstanding debt.

This mechanism prevented lender losses across the observed period, highlighting how DeFi lending protocols can use automated risk controls instead of traditional credit assessments. The findings show a model where lender protection is prioritized through strict collateral requirements and real-time liquidation triggers.