[Study Suggests Aave V3 May Achieve Zero Bad Debt in 2024] April 3 news: A working paper from the Bank of Canada indicates that Aave V3, through over-collateralization and automated liquidation mechanisms, completes liquidations before collateral value falls below outstanding debt, effectively curbing lender losses. However, the losses are transferred to borrowers, and capital efficiency is lower compared to traditional lending systems. The study, based on transaction data from January 27, 2023, to May 6, 2025, shows that recursive leverage accounts for over 20% of total borrowing volume and 8.2% of loan transactions, exacerbating borrower risk exposure during market downturns. Four asset types—WETH, wstETH, WBTC, and weETH—constitute 90% of total liquidation value.