A working paper published by the Bank of Canada shows that Aave V3 achieved zero non-performing loans in 2024, but its risk control mechanism essentially transfers all losses to borrowers to protect lenders' interests (BOC). Based on transaction data from January 27, 2023 to May 6, 2025, the study found that Aave V3, relying on over-collateralization and automatic liquidation mechanisms, completed liquidation before the collateral value fell below the outstanding debt, effectively curbing lenders' losses. However, this model comes at the expense of borrowers' interests, and its capital efficiency is lower than traditional lending systems. The paper also points out that recursive leverage (i.e., repeatedly borrowing with collateral and then using the lent assets as new collateral in a cyclical operation) accounted for over 20% of the total loan volume and 8.2% of the number of loans, exacerbating borrowers' risk exposure during market downturns. Liquidation events showed a concentrated outbreak, with WETH, wstETH, WBTC, and weETH accounting for 90% of the total liquidation value. (Cointelegraph)