To get cash without selling your crypto, you can borrow against it and use the coins as collateral. The catch is that prices move every day while interest adds to the debt. Lending protocols track that risk with one ratio, and once it drops below 1, part of your collateral can be sold to repay the loan.
Aave is the largest of these protocols, with over $1 trillion in loans since its first version (source: Aave Labs, Aave V4 is Live on Ethereum). On Aave, the ratio that decides whether your loan stays open is called the health factor, and every borrow starts with collateral you supply yourself.
What is borrowing on Aave?
Borrowing on Aave means taking a loan from a shared pool against crypto you have supplied. The collateral must be worth more than the loan, a rule called overcollateralization. You can repay at any time (source: Aave, Introduction to Aave V3). The loan has no fixed repayment date (source: Aave, FAQ).
The pool is the core of how Aave works. Suppliers deposit tokens and earn interest on them while borrowers draw from those same deposits (source: Aave, Introduction to Aave V3). Pooled, overcollateralized loans are the standard design for lending on Ethereum, and Aave runs that design on many networks at once.
People borrow for the same reason a homeowner takes out a home equity loan: to raise cash while keeping an asset they expect to hold. Selling closes your position and gives up any later rise in price, whereas a loan gives you working capital and keeps the coins in place as collateral (source: Aave, FAQ). If you hold ETH and need dollars for a bill, borrowing GHO, the stablecoin native to Aave, keeps your ETH exposure. A rally in ETH still benefits you, while a sharp fall puts the loan at risk.
Aave runs two live versions. V3 is deployed on Ethereum and a long list of other networks (source: Aave, Introduction to Aave V3). Its app arranges borrowing around three Dashboard tables called Your Supplies, Assets to Borrow, and Your Borrowings. Aave V4, a newer design now live on Ethereum, runs beside it.
A flash loan is the one exception to the collateral rule, because the tokens must return to the pool within the same transaction. Flash loans are built for developers, who write a contract to request and repay one (source: Aave, FAQ).
Supplying collateral before you borrow
A borrow needs a supplied token with its collateral status turned on. Under Your Supplies on the Dashboard, find the token, toggle its collateral switch, and confirm the transaction in your wallet. From then on, that token adds to your borrowing power (source: Aave, Toggle Collateral Status).
If the token is still sitting in your wallet, supply it on Aave first. The deposit gives you an aToken that represents the supplied asset and tracks its accrued interest (source: Aave, Introduction to Aave V3). For native ETH, the V3 gateway wraps it into WETH before supplying it, and the corresponding receipt is aWETH (source: Aave Docs, Wrapped Token Gateway).
Each Aave market runs on one network, so collateral you supplied on Ethereum supports loans only in the Ethereum market. Arbitrum, Base, Optimism, and the other networks each keep their own pools and their own Dashboard. Before you sign anything, check that your wallet is connected to the same network as the market the app shows, because a mismatch makes your supplied token look missing from the borrow screen.
Every collateral change, borrow, and repayment is an on-chain transaction that costs gas. On Ethereum, gas is paid in ether (ETH). The fee is charged whether the transaction succeeds or fails (source: ethereum.org, Gas and fees). Keep some ETH in the wallet on top of your collateral, so a later repayment never stalls for lack of gas.
Asset settings can change what your collateral allows. Efficiency Mode gives you more borrowing power when your collateral and the borrowed asset belong to one price-correlated group, such as stablecoins (source: Aave, FAQ). Riskier collateral is limited in two other ways. An asset can be given a loan-to-value of 0, which stops it from being turned on as collateral. Each asset also has supply and borrow caps (source: Aave DAO, Aave v3.7: Isolation Mode & Siloed Borrowing Removal). An older setting, Isolation Mode, capped borrowing against certain collateral with a debt ceiling. Aave V3 removed it in the v3.7 upgrade, whose second phase executed on May 28, 2026 (source: Aave Governance, Upgrade Aave instances to v3.7 Part 2).
The tokens you supply have to sit in a wallet you control, so anything held on an exchange needs to be withdrawn first. If what you want is exposure to the AAVE token's price, with no supplying or borrowing involved, BloFin offers another way to trade it. AAVE/USDT Spot buys and sells the token itself, and the AAVEUSDT Perpetual is a contract that tracks its price. Both stay on the exchange. To hold AAVE in your own wallet instead, buy AAVE and withdraw it to an address you control.
Before you move tokens between an exchange and a wallet, check the trading costs on the BloFin fee schedule, so you know what buying the asset will cost before any gas is spent.
Borrowing on Aave step by step
Borrowing in the Aave app starts with a connected wallet and a supplied asset enabled as collateral. You choose a borrow asset, review the loan settings and confirm an amount that leaves a health-factor buffer. After the transaction, you keep monitoring the position (source: Aave, Borrow Tokens).
- Connect the wallet holding your supplied collateral to the same network as the market.
- Choose your loan asset in Assets to Borrow.
- Review its available amount, current rate, loan-to-value and liquidation threshold.
- Enter an amount that leaves your projected health factor well above 1.
- Confirm the borrow in your wallet after reviewing the transaction.
- Check that the borrowed tokens arrived in your wallet.
- Monitor your health factor on the Dashboard as prices and interest change.
The Assets to Borrow table lists each token you can borrow with its available amount, its interest rate and your health factor. Once you confirm, the tokens arrive in your wallet with interest accruing from that moment (source: Aave, Borrow Tokens). The rate on screen is the variable rate right now, so read it as today's cost of the loan.
Loan-to-value (LTV) is the loan amount divided by the value of the collateral behind it (source: Investopedia, Loan-To-Value (LTV) Ratio). On Aave, LTV is the highest ratio at which a new borrow can be opened; the liquidation threshold is the ratio at which an open borrow can be liquidated (source: Aave, Toggle Collateral Status). A 75% LTV caps a new loan at three quarters of the collateral's value (source: Aave, Introduction to Aave V3). With an 80% threshold, that point arrives once your debt grows past 80% of the collateral's value (source: Aave, Health Factor & Liquidations).
Here is the arithmetic on a small first loan. Suppose ETH carries those two settings and you supply $150 worth of it. The most you can open is $150 × 0.75 = $112.50. You choose to borrow 100 GHO, which gives a health factor of ($150 × 0.80) ÷ $100 = 1.2. The loan then stays open until your ETH falls to $125 worth, a drop of one sixth.
A common first mistake is borrowing right up to the LTV limit. The app accepts a borrow of $112.50 worth of GHO, yet the health factor then starts at about 1.07, and a drop of less than $10 in the value of your ETH takes it to 1. Leaving room between your loan and the cap is what gives you time to act when prices move.
| Step | Label in the app | What happens | What to check |
|---|---|---|---|
| 1 | Connect Wallet | The app reads your address and supplies | The network matches the market |
| 2 | Assets to Borrow | You pick the token to borrow | Available amount and current rate |
| 3 | Review | LTV, liquidation threshold, and health factor appear | Health factor well above 1 |
| 4 | Confirm | Tokens arrive and the debt is recorded | The amount and the token received |
| 5 | Monitor | The Dashboard tracks the position | Health factor after price moves |
Variable debt and interest on an Aave loan
When a borrow confirms, Aave mints a variable debt token to your address, such as variableDebtGHO for a GHO loan. Its balance is what you currently owe, principal plus accrued interest. Transfers and approvals are disabled for this token, which keeps the debt with the wallet that borrowed (source: Aave, Tokenization).
The Your Borrowings table on the Aave Dashboard shows the live debt for each loan, which makes it the number to check before you repay or add collateral.
On most assets, the interest rate floats with utilization, which is the share of a pool's tokens that are currently borrowed. When most of the pool is lent out, the rate rises to attract new supply and repayments. When most of it sits idle, the rate falls (source: Aave, Introduction to Aave V3).
Most assets' borrow rates follow two slopes, one up to an optimal usage ratio and another from that point to full utilization, with the slope values set separately for every reserve (source: Aave, Interest Rate Strategy). Because the curve differs by token, compare Aave interest rates for the exact asset before you borrow.
Interest also changes your health factor, because it grows the debt side of the formula. Suppose the borrow rate holds near 5% a year on the 100 GHO loan against $150 worth of ETH. After a year you owe about 105 GHO, and your health factor slips from 1.2 to about 1.14 with no change in the ETH price. A long, quiet loan still needs checking now and then.
| What you watch | Where it shows | What moves it |
|---|---|---|
| Debt balance | Your Borrowings | Accrued interest and repayments |
| Borrow rate | Assets to Borrow | Utilization of that pool (GHO's rate is set by the Aave DAO) |
| Health factor | Dashboard | Collateral prices, debt size, and interest |
Health factor and liquidation on an Aave loan
The health factor is the number that keeps a loan open. It equals total collateral value times the weighted average liquidation threshold, divided by total borrow value. Below 1, the position can be liquidated by anyone, who repays part of your debt and takes collateral plus a bonus (source: Aave, Health Factor & Liquidations).
With $10,000 worth of ETH at an 80% liquidation threshold backing $6,000 worth of GHO, the health factor is ($10,000 × 0.80) ÷ $6,000 = 1.333 (source: Aave, Health Factor & Liquidations). It reaches 1 when the ETH is worth $7,500. A fall of $2,500, or a quarter of the collateral's value, is therefore enough to open the position to liquidation.
Two things lower the reading without any action from you. Collateral prices come from oracles, which report each token's price against a base currency such as the US dollar. A lower oracle price for your collateral therefore lowers your health factor (source: Aave, FAQ). Interest lowers it too, because the debt in the formula grows as interest accrues.
Stablecoin collateral carries the same exposure. A stablecoin's market price can drift from $1.00, for example to $0.95. That drift moves your health factor like any other price change (source: Aave, FAQ).
No single health factor is safe for every position. The right buffer depends on how volatile your assets are and how closely their prices move together, which is why two stablecoins can run closer to 1 than ETH against GHO. To raise the reading, supply more collateral or repay part of the loan (source: Aave, Health Factor & Liquidations).
Liquidations are open to anyone, and in practice they are a race between automated bots that watch oracle prices and compete to submit the first transaction. The liquidator's bonus comes out of your collateral, so a liquidation on Aave costs you more than the debt it clears (source: Aave, Health Factor & Liquidations).
| Ratio | What it controls | With a 75% LTV and 80% threshold |
|---|---|---|
| Loan-to-value | The largest new borrow | Borrow up to 75% of collateral value |
| Liquidation threshold | The level where liquidation starts | Liquidation risk at 80% of collateral value |
| Health factor | Distance from that level right now | Below 1 is liquidatable |
Repaying an Aave loan and freeing your collateral
Repaying reverses the borrow. In Your Borrowings on the Dashboard, choose the token, approve the transfer if the app asks, enter the amount and confirm. Your debt then falls while your health factor improves. Once you repay in full, the collateral is released for withdrawal (source: Aave, Repay Tokens).
You repay in the asset you borrowed, so a GHO loan is closed with GHO plus the interest it has accrued. If you no longer hold that token, the Aave app offers a repay-with-collateral option on some markets, which uses a flash loan and a decentralized exchange (DEX) swap to pay the debt with your aTokens. Check the exchange rate and slippage before you confirm, because a slippage setting that is too low can make the transaction fail (source: Aave, FAQ).
Repaying an ERC-20 token such as GHO or USDC needs an approval that lets the Aave Pool contract move it from your wallet. You can grant it with a transaction, which costs a network fee, or with a signature, which costs no fee (source: Aave, Repay Tokens). Signature approvals work through permit, an extension to the ERC-20 standard that sets a token allowance from a signed message (source: Ethereum Improvement Proposals, ERC-2612: Permit Extension for EIP-20 Signed Approvals). The approval only grants permission, and your debt stays the same until the repayment itself confirms.
You can repay part of the loan to lift your health factor, or all of it to close the position. On 100 GHO of debt against $150 worth of ETH at an 80% threshold, repaying 40 GHO raises the health factor from 1.2 to 2.0, because $120 of adjusted collateral now covers $60 of debt. Once Your Borrowings shows zero, the supplied ETH keeps earning supply interest, and you can withdraw it or turn its collateral status off.
| Before you repay | Why it matters | What to do |
|---|---|---|
| Same market | Debt belongs to one network's pool | Repay on the market where you borrowed |
| Approval | ERC-20 repayments need an allowance | Approve, then confirm the repayment itself |
| Accrued interest | A full repayment includes interest | Check Your Borrowings for the live total |
| Gas | Each repayment is an on-chain transaction | Keep the network's native token in the wallet |
Looking to trade AAVE tokens on BloFin? To get started, you'll need to first create a BloFin account, fund your account with cryptocurrency, then open the AAVE/USDT Spot trading page or the AAVEUSDT Perpetual page.
Frequently asked questions
Do I need to hold the AAVE token to borrow on Aave?
Holding AAVE is optional for a loan, because Aave accepts any cryptocurrency supported by the protocol as collateral. The AAVE token is used for governance: holders submit proposals, debate them, and vote on changes to the protocol (source: Aave, Introduction to Aave V3). Holders can also back proposals that set or change the loan-to-value ratio and liquidation threshold of each collateral asset (source: Aave, Toggle Collateral Status). You can borrow for years without ever voting, or hold AAVE without ever opening a loan.
How much can I borrow on Aave?
Your borrowing limit depends on three things: the value of the collateral you supplied, the liquidity still available in that pool, and the borrow cap set for the asset. A borrow fails when the pool lacks enough unborrowed tokens or when your health factor would not allow it, even if your collateral looks large enough. Aave publishes every asset's borrow parameters, including its liquidation penalty, on its risk parameters dashboard (source: Aave, FAQ).
Why is the GHO borrow rate set by the Aave DAO?
GHO works differently from other borrowable assets because it is native to Aave. The Aave DAO manages its supply, sets its interest rate, and decides its risk parameters. Its oracle price is fixed. The interest borrowers repay on GHO goes to the DAO treasury, while on other assets the suppliers of that pool share the interest, apart from a percentage set by each asset's reserve factor that goes to the treasury (source: Aave, FAQ).
How do you borrow on Aave V4?
Borrowing on V4 runs through Aave Pro, an interface that shows every Liquidity Hub and Spoke from one account view, along with the risk premium, health factor, and rates for each position. V4 went live on Ethereum mainnet on March 30, 2026, with three hubs, called Core, Prime, and Plus, and the Core Hub is the default venue with the most assets. Tokens borrowed from it carry a "core" prefix. All three hubs started with conservative supply and borrow caps that the Aave DAO plans to raise (source: Aave Labs, Aave V4 is Live on Ethereum).
Why does borrowing ETH on Aave need an extra approval?
Native ETH is borrowed through a helper contract called WrappedTokenGateway, and that contract needs your approval first. The approval lets it use credit delegation to borrow on your behalf and unwrap the result into ETH in a single transaction (source: Aave, Borrow Tokens). The debt underneath is wrapped ETH (WETH), tracked by a variable debt token such as variableDebtWETH (source: Aave, Tokenization). Repaying in ETH goes back through the same gateway in one transaction (source: Aave, Repay Tokens).
Can I withdraw collateral while a loan is still open?
You can withdraw collateral during a loan as long as those funds are not needed to back the borrow and the withdrawal would not make your position liquidatable. The pool must also hold enough unborrowed liquidity, so when most of an asset is lent out, a withdrawal waits until suppliers add more or borrowers repay. The Aave app also offers Withdraw & Swap, which withdraws your collateral directly into a different token (source: Aave, FAQ).
Researched and written by the BloFin Academy editorial team with AI-assisted drafting. Primary sources include Aave guides on borrowing, repaying, collateral status, and health factor, the Aave FAQ, the Aave V3 introduction, tokenization, and interest-rate strategy documentation, the Aave Labs V4 launch post, ethereum.org on gas, ERC-2612 on signed approvals, and Investopedia on loan-to-value. All facts independently verified against cited documentation current as of October 2026.
This article is for informational and educational purposes only. It is not financial, investment, trading, or legal advice. Cryptocurrency can lose value. Borrowing on Aave can lead to liquidation if the health factor drops below 1. Spot AAVE/USDT buys the token. An AAVEUSDT Perpetual is a contract on the price. Do your own research. Consider your circumstances before using any protocol or trading any asset.