A Bank of Canada staff paper has found that Aave V3, a platform that reported zero non-performing loans from 2023 to 2025, avoided unrecovered bad debt from its peers. The study used transaction-level data from Jan. 27, 2023, to May 6, 2025, found that positions were typically liquidated before collateral values fell below outstanding debt, helping to contain lender losses across the sample. However, the model also shifted risk onto borrowers and constrained capital efficiency compared to traditional lending systems. The design for AaveV3 relies on automated risk controls rather than traditional underwriting, requiring borrowers to post more collateral than they borrow and liquidating positions when they breach risk thresholds.