You might hold crypto you expect to rise and still need dollars for a bill, a new trade, or an emergency. Selling ends the holding you meant to keep, so many holders borrow against their coins instead, using lending software that runs on a public blockchain and needs no bank to approve the loan.
That software is called a decentralized finance (DeFi) lending protocol. It pools coins from many people and lends them to borrowers who put up collateral worth more than the loan. Aave is the best-known example, and as of February 2025 it was the largest DeFi lending platform by deposits (source: Wikipedia, Aave).
What is Aave?
Aave is a decentralized lending protocol: a set of smart contracts on public blockchains where you can supply crypto to earn interest or borrow against collateral worth more than the loan. It is an app that runs on networks such as Ethereum, and its two live versions, V3 and V4, both hold real markets today.
A smart contract is a program that sits at a fixed address on a blockchain and runs just as it was written, with no person needed to approve each step. You use one by sending a transaction from your wallet. Once that transaction is confirmed, the result cannot be undone (source: ethereum.org, Introduction to smart contracts).
Aave V3 is a group of these contracts built so that every loan is backed by more collateral than the debt it covers, a rule called overcollateralization. You reach the contracts from a self-custodial wallet that you control. No company or middleman stands between you and the pool (source: Aave Help, Introduction to Aave V3).
Because Aave is an app, it has no validators, no blocks, and no gas token of its own. Every action you take is a transaction on the underlying network, so you pay that network's fee each time. On Ethereum that fee is called gas, which is paid in ETH, the network's own coin (source: ethereum.org, Gas and fees). Calling Aave a blockchain mixes up the app with the computer it runs on, and that mistake sends people looking for an Aave gas token that does not exist.
A bank is the comparison most people reach for, and it works up to a point. Like a bank, Aave pays interest to people who deposit and charges interest to people who borrow. Unlike a bank, no one checks your income, no company holds your coins for you, and nobody calls you before your collateral is sold, because the rules sit in code that treats every wallet the same way. Supply, borrow, repay, and withdraw are the four actions behind how Aave works, and every other feature builds on them.
Most people come to Aave for one of three reasons. Some want interest on stablecoins that would sit idle in a wallet. Some want dollars to spend while they keep a coin they expect to rise. Others borrow one coin against another to make a trade without selling what they already hold.
How an Aave liquidity pool works
An Aave liquidity pool is one market's shared reserve for a single asset, such as USDC or ETH. Suppliers add coins to it and receive aTokens in return, borrowers take coins out against collateral, and the interest rate rises or falls with the share of the pool that is on loan.
Each pool runs under rules that token holders vote on, such as which assets count as collateral and how much you can borrow against them. Smart contracts check those rules on every borrow, repayment, and liquidation, so no staff member has to sign off on a loan (source: Aave Docs, Liquidity Pool).
When you supply, you receive interest-bearing aTokens, such as aUSDC for a USDC deposit, which stand for your share of the pool. Interest is added to that aToken balance in real time (source: Aave Docs, Glossary). The number in your wallet grows on its own, with no claim button to press. When you withdraw, the aTokens are burned and the pool sends back your coins with the interest they earned (source: Aave Help, Introduction to Aave V3).
The interest rate follows the utilization rate, which is the share of a pool that is on loan right now. When most of the pool is lent out, rates climb, which pulls in new deposits and pushes borrowers to repay. When most of it sits idle, rates fall to match the weaker demand (source: Aave Help, Introduction to Aave V3). That one rule sets both sides of Aave interest rates: borrowers pay more when coins are scarce, and suppliers earn more for the same reason.
Say you supply $150 worth of ETH to a market. The market's loan-to-value (LTV) ratio, which is the share of your collateral's value you are allowed to borrow, then lets you take $100 worth of GHO against it (source: Aave Help, Introduction to Aave V3). You keep your ETH and get dollars to spend, with $50 of extra value behind the loan as a safety margin.
The same pool explains the most common surprise for new suppliers. Your deposit can only come back when the pool holds coins that nobody has borrowed, and the amount you can take out is capped by what is free at that moment. If nearly all of a market is on loan, a full withdrawal may have to wait for repayments or new deposits, even though your claim on the pool has not changed (source: Aave Docs, Liquidity Pool).
Supplying and borrowing on Aave
On Aave you can be a supplier, a borrower, or both at once. Suppliers deposit a listed asset to earn interest from borrowers. Borrowers post collateral first and then take out a different asset, paying interest until they repay, while their collateral stays locked in the protocol.
Supplying is the simpler role. Supply 1,000 USDC and you start with 1,000 aUSDC, and over the months that follow the balance rises by whatever the pool's variable rate adds. Nothing about that deposit can be liquidated, because liquidation only ever applies to a debt and a pure supplier owes nothing. The other risks are a wait to withdraw while the pool is fully lent out and a bug in the contracts themselves.
Once your collateral is in, you can borrow up to the limit its LTV allows, and the borrowed coins arrive in your wallet for any use you choose. Your collateral stays locked until the debt and its interest are repaid in full (source: Aave Help, Introduction to Aave V3). Supplied coins keep earning interest while they back a loan, which is why many borrowers hold both roles at the same time.
| Role | What you send | What you receive | Main risk |
|---|---|---|---|
| Supplier | A listed asset | aTokens that grow with interest | A fully borrowed pool when you want to withdraw |
| Borrower | Collateral, then a borrow request | The borrowed asset and a growing debt | Liquidation if the health factor falls below 1 |
| Both | A supply, then a borrow against it | aTokens and a borrowed asset | The same liquidation risk as any borrower |
Three things are needed for either role: an asset the market lists, a self-custodial wallet that can sign transactions, and enough of the network's gas token to pay fees. The AAVE governance token is missing from that list on purpose, because the pools never check whether your wallet holds any. You can supply USDC, borrow against ETH, and repay a loan without ever owning the token that shares the protocol's name.
Borrowing appeals to holders who want cash without selling. The cost is that you now carry two risks at once: the coin you kept can still fall in price, and the debt keeps growing at a variable rate whether the market moves or not. A supplier who never borrows avoids that second risk. That is why many people start by supplying on Aave with a small stablecoin deposit, watch the aToken balance grow for a few weeks, and only later move on to borrowing on Aave, the step that brings in a health factor to watch.
Aave markets and networks
Aave is deployed as separate markets on many networks, and each market has its own pools, listed assets, rates, and risk parameters. A deposit on one network cannot back a loan on another, so the network you pick decides which assets you can use and what gas you pay.
Aave V3 runs on networks that include Avalanche, BNB Chain, Ethereum, Gnosis and Polygon. The layer 2 chains that host V3 markets include Arbitrum, Base and Optimism (source: Aave Help, Introduction to Aave V3). New deployments are added over time, so check the market your app has selected before you sign anything.
Markets also differ in how they treat newer or riskier coins. Aave V3 once held such coins in Isolation Mode, where a debt ceiling capped the total borrowed against them. The v3.7 upgrade removed that feature. Its second phase was executed on May 28, 2026 (source: Aave Governance, Upgrade Aave instances to v3.7 Part 2). Riskier collateral is now held back through Efficiency Mode (E-Mode) categories, LTV 0 settings and caps on each asset. An asset set to LTV 0 cannot be switched on as collateral (source: Aave DAO, Aave v3.7: Isolation Mode & Siloed Borrowing Removal). Each asset carries a supply cap and a borrow cap, which are hard limits on how much of it the protocol will accept or lend out (source: Aave Docs, Glossary). A popular pool can therefore stop taking new deposits for a while once it reaches its cap.
Liquidity stays inside the market where it was supplied. If you hold USDC on Arbitrum and the market you want is on Ethereum, you have to bridge the coins yourself, pay gas on both sides, and accept the bridge's own risk. Rates differ as well, because each pool prices its own supply and demand, so the same asset can pay one rate on one network and a different rate on another. Each of Aave's markets and networks also lists a different set of assets, which means a coin you can supply in one place may be missing in the next.
Gas costs change from network to network too. A layer 2 is a network built on top of Ethereum to process more transactions at a lower cost. Layer 2 scaling exists largely to cut gas costs (source: ethereum.org, Gas and fees). That makes a small first supply far cheaper on a layer 2 than on Ethereum mainnet. Before you confirm, check that your wallet is set to the same network as the market on screen. A mismatch is an easy way to send funds to the right protocol on the wrong chain.
Compound III, another lending protocol, uses a different market design. Each Compound III market lends a single base asset, such as USDC, against several kinds of collateral. Accounts earn interest there by supplying that base asset (source: Compound, Compound III documentation). An Aave market lists many borrowable assets side by side in one pool system, and that difference, one borrowable asset versus many, is the main point of comparison between Aave and Compound.
Aave V3 and Aave V4
Aave V3 and Aave V4 both run live markets today. V3 is deployed across many networks; V4 went live on Ethereum mainnet on March 30, 2026, with a design that pools supplied assets in shared hubs and lends them through separate spokes (source: Aave Labs, Aave V4 is Live on Ethereum).
V4 then launched on Avalanche on July 15, 2026 (source: Aave Labs, Aave V4 Launches on Avalanche). Its Arc market, on Circle's USDC-native Layer 1 blockchain, opened on September 16, 2026 (source: Aave Docs, Changelog). V4 also runs on Base (source: Aave Labs, Coinbase Tokenized Stocks Now Live on Aave V4).
| Feature | Aave V3 | Aave V4 |
|---|---|---|
| Where it runs | Ethereum, other networks and layer 2 chains | Aave's own V4 markets: Ethereum, Avalanche, Arc and Base |
| How supplied coins are pooled | One pool per asset in each market | Liquidity Hubs that many spokes draw from |
| Interface | The Aave Labs app | Aave Pro |
In Aave V4's hub and spoke design, a Liquidity Hub holds supplied assets in one place. Each spoke connects to that hub with its own accepted collateral, risk settings, and liquidation rules. When you supply through one spoke, your coins enter the hub and become available to every spoke connected to it. A careful institutional market and an ETH liquid staking market can therefore borrow from the same pool of coins, and neither one has to find its own group of suppliers first.
V4 opened on Ethereum with three hubs. The Core Hub carries the most assets and acts as the default, the Prime Hub suits suppliers who want tighter collateral rules, and the Plus Hub is built for stablecoin strategies that grow behind their own caps. A borrowable token with a "core" prefix is a credit line drawn from the Core Hub, and tokens from the other hubs carry their own prefixes. All three hubs started with deliberately low supply and borrow caps, which the Aave DAO plans to raise as it watches how the markets behave in live use. Aave Pro, the interface built for V4, shows every hub, spoke, rate and health factor in one free view (source: Aave Labs, Aave V4 is Live on Ethereum).
For a beginner, the version matters less than the market you choose. Both versions protect suppliers in the same basic way, by liquidating loans whose collateral falls too far, and anyone who has used V3 will find supplying on V4 familiar. The real changes sit in how coins are shared, how risk is priced, and how liquidations run. Those changes are what separate the two releases when you set Aave V3 and V4 side by side for a given position.
V3 and V4 are the two releases in Aave's history and versions that still hold live markets, and the safest habit is to treat each version and each network as its own market. Check the version label in the app, read the collateral rules for the asset you plan to use, and start with an amount you can afford to risk.
Health factor and liquidation on Aave
The health factor is the number Aave uses to measure how safe a loan is. It compares your collateral, weighted by each asset's liquidation threshold, with what you owe. Above 1, the loan is safe from liquidation; below 1, anyone can repay part of your debt and take some of your collateral at a discount.
The formula is total collateral value multiplied by the weighted average liquidation threshold, then divided by total debt. The liquidation threshold is a percentage that governance sets for each collateral asset. Take $10,000 worth of ETH as collateral at an 80% liquidation threshold against a GHO debt worth $6,000: the health factor is 1.333 (source: Aave Help, Health Factor and Liquidations). The arithmetic runs $10,000 × 0.80 = $8,000 of threshold-weighted collateral, then $8,000 ÷ $6,000 = 1.333.
Now let ETH fall until the same collateral is worth $7,000. The weighted value drops to $7,000 × 0.80 = $5,600, and $5,600 ÷ $6,000 gives a health factor of about 0.93. The loan is now open to liquidation. Above 0.95, with collateral and debt each worth at least $2,000, liquidators may repay a maximum of 50% of that debt. At 0.95 or lower, the cap rises to 100% of the debt (source: Aave Help, Health Factor and Liquidations).
The liquidator who steps in repays part of your debt and receives collateral of equal value plus a liquidation bonus. You therefore give up more collateral than the debt that was cleared. Liquidations are permissionless, which means any network participant can start one the moment a loan qualifies (source: Aave Help, Health Factor and Liquidations). Nobody sends you a warning first.
Three things push the health factor down: a falling collateral price, a bigger loan, and interest that keeps adding to your debt. You control the second directly, and you can answer the other two by adding collateral or repaying part of what you owe. Either step raises the factor again. No single number is safe for every position, because the right buffer depends on how volatile your assets are and how closely they move together. A stablecoin loan against stablecoin collateral can sit closer to 1 than a volatile coin borrowed against dollars (source: Aave Help, Health Factor and Liquidations). Efficiency Mode, or E-Mode, builds on the same idea by giving you more borrowing power when your collateral and your debt are closely linked in price (source: Aave Docs, Glossary).
Liquidation is the risk you control, but it is not the only one. Smart contract bugs and outages on the underlying network are the others behind the question is Aave safe, and no buffer protects you from those. Small loans face one more rule in Aave liquidation and the health factor: a partial liquidation must keep at least $1,000 of both collateral and debt in place, or the whole position is cleared (source: Aave Help, Health Factor and Liquidations).
Aave Labs, the Aave DAO, and the AAVE token
Three names share the Aave brand. Aave Labs is the company that first wrote the protocol and still contributes to it. The Aave DAO is the community of token holders that votes on changes. The AAVE token is the ERC-20 governance token those holders use to cast their votes.
Aave Labs is the original author of Aave and remains one of its contributors (source: Aave, About). The protocol is the set of smart contracts that holds the pools on each network. Keeping Aave Labs, the protocol, and the token apart tells you who does what: the company writes software, the contracts hold the funds, and the token holders set the rules.
| Name | What it is | What it does for you |
|---|---|---|
| Aave Labs | The company that first wrote the protocol | Builds software and apps that reach the contracts |
| Aave protocol | Smart contracts on each network | Holds the pools and runs loans and liquidations |
| AAVE token | ERC-20 governance token on Ethereum | Gives holders votes on protocol changes |
| GHO | The protocol's own stablecoin | A dollar token you can borrow against collateral |
The AAVE token is the protocol's own voting token, issued as an ERC-20 token on Ethereum. Holders of AAVE, and of stkAAVE, which is AAVE staked in the protocol's Safety Module, can vote on proposals or hand their voting power to someone else. Those votes decide new deployments, changes to parameters and new features (source: Aave Docs, AAVE Token). A proposal moves from open discussion to a vote and then to execution on-chain, which is the process at the heart of Aave governance (source: Aave Help, Introduction to Aave V3).
GHO is the protocol's own dollar stablecoin. It is a decentralized, overcollateralized and fully backed stablecoin governed by the Aave DAO (source: Aave Docs, Glossary). You borrow GHO against collateral the same way you borrow any other asset, which is why the $150 example used it. The GHO stablecoin was announced in 2023 and is backed by collateral deposited inside the protocol itself (source: Wikipedia, Aave).
A token and a supply position are different things, even though one name covers both. An AAVE balance carries votes and a market price, while an aUSDC balance is a claim on a pool that earns interest. If what you want is exposure to the AAVE price with no supply position at all, you can also trade the token on BloFin. AAVE/USDT Spot buys and sells the token itself, while the AAVEUSDT Perpetual is a USDT-margined contract that tracks the token's price without delivering it.
Before you place an order on either market, compare the maker and taker rates on the BloFin fee schedule, since fees change the real cost of every trade you open and close.
Getting started with Aave or the AAVE token
There are two different ways to start. Using the Aave protocol means signing transactions from your own wallet to supply or borrow on a market. Trading the AAVE token means buying the coin, or a contract on its price, at an exchange, which gives you price exposure and no supply position.
A careful first session on the protocol follows six steps:
- Set up a self-custodial wallet and write its recovery phrase down offline, where nobody else can see it.
- Open the Aave app from an address you typed yourself or saved earlier, because a copycat site can ask your wallet to sign away its coins.
- Choose one market, check its version and network, and switch your wallet to that network.
- Keep a little of the network's gas token in the wallet, because a transaction costs gas even when it fails (source: ethereum.org, Gas and fees).
- Supply a small amount of a stablecoin and watch the aToken balance grow before you add more.
- Borrow only once you can explain your health factor, and open the loan well above 1.
Trading the token is a separate action with separate results. A filled order for buying AAVE on Spot gives you AAVE tokens that you can withdraw to a wallet. A filled order on the AAVEUSDT Perpetual contract opens a position on the price, settled in USDT, and you receive no tokens. Neither order mints aTokens or opens a health factor, and neither one puts your coins into an Aave pool.
| Action | Where it happens | What you hold after |
|---|---|---|
| Supply on Aave | Your wallet, on one network's market | aTokens for that asset |
| Borrow on Aave | The same market, against your collateral | The borrowed asset and a debt |
| AAVE/USDT Spot order | BloFin's spot order book | AAVE tokens you can withdraw |
| AAVEUSDT Perpetual order | BloFin's perpetual order book | A perpetual position settled in USDT |
Before you confirm any borrow in the app, read the health factor it shows for the loan you are about to open, since that preview is the number liquidators will watch once the loan exists. If it lands close to 1, borrow less or add more collateral first, because a quiet day in the market is no promise of a quiet week.
Some people use both routes for different goals. They might hold AAVE for its votes, keep a stablecoin supply on Aave for interest, and use a perpetual position to hedge or speculate on price. Each route carries its own risks: protocol and liquidation risk on Aave, and market risk on the exchange, along with funding payments and liquidation if you trade a perpetual with margin.
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
Who created Aave and what does the name mean?
Stani Kulechov founded the project in 2017 under the name ETHLend, which matched loans directly between individual users. In January 2020 it relaunched as Aave, the Finnish word for ghost, and switched to a pooled design (source: Wikipedia, Aave). The people behind ETHLend went on to build Aave, and their goal was a lending platform simple enough for anyone to use, whatever their financial background. The same founder now leads Aave Labs as its chief executive (source: Aave, About).
What is a flash loan on Aave?
A flash loan is an uncollateralized loan that has to be borrowed and paid back inside one transaction block (source: Aave Docs, Glossary). Because the money leaves and returns within that single transaction, the pool never carries an unpaid balance from one block to the next, which is why no collateral is required. That timing also makes flash loans a tool for experienced developers who write their own code, and an ordinary borrower has no reason to use one (source: Wikipedia, Aave).
Is there a deadline to repay an Aave loan?
Aave loans carry no fixed due date. You can repay a loan in full or in part whenever you choose, either through the protocol's contracts directly or through an app such as the Aave Labs interface (source: Aave Help, Repay Tokens). You can also repay with the same token you borrowed or with aTokens of that same coin, which saves a withdrawal step (source: Aave Docs, Liquidity Pool). A loan that stays open for a year is allowed, though interest keeps adding to its cost every day it remains open.
Why does Aave need price oracles?
Aave relies on oracles because smart contracts on Ethereum cannot, on their own, read data kept outside the blockchain. If every computer running the network fetched a price from an outside website, they could get different answers and fail to agree on the result (source: ethereum.org, Oracles). An oracle solves that by publishing outside data, such as asset prices, on-chain, and Aave uses those prices to value every collateral asset and every debt (source: Aave Docs, Glossary). A wrong or delayed price can therefore trigger or block a liquidation.
Where does part of the interest paid on Aave go?
A portion of the interest that borrowers pay goes to the Aave Treasury, where it helps protect the protocol. That portion is called the reserve factor, and it is expressed as a percentage of the interest that borrowers accrue (source: Aave Docs, Glossary). The reserve factor is one reason suppliers in a pool earn a lower rate than borrowers in the same pool pay. The other reason is simple arithmetic: supplier interest is spread across every deposit, while only the coins on loan pay it.
Can someone else borrow against my Aave collateral?
Credit delegation lets you pass some of your borrowing power to another address, which can then take out loans backed by your collateral (source: Aave Docs, Glossary). The arrangement runs through the protocol's smart contracts, and it only makes sense with someone you trust, because their borrowing uses the same collateral that protects your own position. A delegate who borrows heavily shrinks the margin between you and liquidation, so treat delegation as lending your credit rather than lending a fixed sum.
Researched and written by the BloFin Academy editorial team with AI-assisted drafting. Primary sources include the Aave Help pages Introduction to Aave V3, Health Factor and Liquidations, and Repay Tokens, the Aave Docs glossary, liquidity pool, and AAVE token pages, the Aave Labs V4 launch post and About page, the ethereum.org pages on smart contracts, gas, and oracles, the Compound III documentation, and the Wikipedia entry on Aave. 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.