When you open a lending app, the screen fills with short labels: a balance in a token you never bought, a ratio that warns you as it falls toward 1, and a mode switch. Each one changes what can happen to your deposit. Lending protocols share a fixed vocabulary that is worth learning before you borrow.
Aave is the largest lending protocol of this kind; its newest version, Aave V4, went live on Ethereum on March 30, 2026 (source: Aave Labs, Aave V4 is Live on Ethereum). The supply and borrow cycle runs on a small set of terms: suppliers receive aTokens, borrowers watch a health factor, and stakers wait out a cooldown before they can leave.
What is an aToken?
An aToken is the token you receive when you supply an asset to Aave, such as aUSDC for USDC. It stands for your share of the pool. Interest is added to it automatically, which makes the balance in your wallet grow over time (source: Aave, Introduction To Aave V3).
You get your asset back by withdrawing, which burns the aToken and returns the matching amount of the underlying token, together with the interest it earned. That works whenever enough of the asset is sitting in the pool unborrowed (source: Aave, Introduction To Aave V3). When borrowers have drawn most of a pool, you can only take out what is still available.
A common mistake is to read an aToken as the AAVE token, because the names look so alike on a portfolio screen. An aUSDC balance is a claim on USDC you lent to the pool, so its value follows the dollar, while AAVE is a separate token whose price moves with the crypto market. If your wallet shows aUSDC and AAVE side by side, you hold two unrelated positions: USDC you supplied, and the protocol's own token.
The two meet in one place. Supplying AAVE itself gives you aAAVE, an aToken that earns the supply rate on AAVE and still counts toward your voting power in Aave governance (source: Aave Docs, Glossary). Checking the prefix on an aToken balance is the quickest way to tell a supplied position from a token you simply hold.
Collateral, loan-to-value and liquidation threshold
Collateral is the asset you supply to secure a loan on Aave, and it has to stay worth more than you owe. Loan-to-value (LTV) is the most you can borrow as a share of its value. The liquidation threshold is the point where the loan becomes open to liquidation (source: Aave Docs, Glossary).
Suppose you supply $10,000 worth of ETH to a market where ETH carries a 75% LTV (source: Aave Docs, Glossary). That LTV lets you borrow up to $7,500 against it. Now add an 80% liquidation threshold: once your debt is worth more than $8,000, which is 80% of the collateral, the loan can be liquidated (source: Aave, Health Factor & Liquidations).
The mistake is to treat the LTV as a target. Borrow the full $7,500 and your debt starts only $500 below the $8,000 threshold, so a fall of less than a tenth in the ETH price is enough to put the loan up for liquidation.
Each collateral asset has its own liquidation threshold, set by Aave governance (source: Aave, Health Factor & Liquidations). The loan also builds up interest the whole time it stays open (source: Aave, Introduction To Aave V3). That is why a loan you never touch still drifts toward the threshold, even in a week when prices hold still.
Credit delegation lets you pass part of your borrowing power to someone else, who then borrows against the collateral you supplied (source: Aave Docs, Glossary). Because your collateral secures that loan, credit delegation on Aave only makes sense with a borrower you trust to repay.
What is the health factor?
The health factor is the number Aave uses to show how safe a loan is. It weighs your collateral by each asset's liquidation threshold and divides the result by what you have borrowed. Above 1, the loan is clear of liquidation; below 1, it can be liquidated (source: Aave, Health Factor & Liquidations).
The formula is total collateral value times the weighted liquidation threshold, divided by total borrowed value. With $10,000 of ETH at an 80% threshold and a $6,000 GHO loan, the weighted collateral is $8,000, and $8,000 divided by $6,000 gives a health factor of 1.333 (source: Aave, Health Factor & Liquidations).
Prices move the number every day: if ETH falls by a quarter, the same collateral is worth $7,500 and the weighted value drops to $6,000, so the health factor sits at exactly 1, the edge of liquidation. A rising ETH price works the other way and lifts the number, which is why the same loan can look safe on Monday and risky on Friday.
No single level is safe for every loan, because the margin you need depends on how volatile your assets are and how closely they move together. You can raise a falling health factor by supplying more collateral or by repaying part of the loan. Act early, because liquidation on Aave is permissionless. Any network participant can start it once a loan qualifies, by repaying part of your debt and taking some of your collateral in return (source: Aave, Health Factor & Liquidations).
E-Mode, Isolation Mode, supply caps and borrow caps
Efficiency Mode, or E-Mode, is an Aave V3 setting that gives you more borrowing power when your collateral and loan are correlated, such as two dollar stablecoins (source: Aave Docs, Glossary). The 2026 v3.7 upgrade removed the older Isolation Mode (source: Aave DAO, Aave v3.7: Isolation Mode & Siloed Borrowing Removal).
E-Mode works through categories, and each category sets its own LTV, liquidation threshold and liquidation bonus. Once you switch a category on, you can only borrow assets inside it (source: Aave, Efficiency Mode (E-mode)). The higher limits make sense because correlated assets tend to move together. That is also where it breaks: if two stablecoins that normally trade at the same price split apart, a loan sized for E-Mode on Aave can lose its margin of safety quickly.
An asset in Aave Isolation Mode could back loans in only certain stablecoins, up to a debt ceiling: the most that could be borrowed against that asset across the whole market (source: Aave Docs, Glossary). Today E-Mode categories limit riskier collateral, because a category can let an asset count as collateral only inside it. An LTV of 0 and the supply and borrow caps on each asset do the same job (source: Aave DAO, Aave v3.7: Isolation Mode & Siloed Borrowing Removal).
Every market also has caps. A supply cap is the most of an asset that can be supplied to the protocol. A borrow cap, set by Aave governance, is the most of it that can be borrowed (source: Aave Docs, Glossary). Siloed borrowing was a third limit that stopped anyone who borrowed a siloed asset from borrowing anything else, and v3.7 removed it along with Isolation Mode (source: Aave DAO, Aave v3.7: Isolation Mode & Siloed Borrowing Removal).
GHO and sGHO
GHO is Aave's own dollar stablecoin. It is decentralized, overcollateralized and governed by the Aave DAO (source: Aave Docs, Glossary). Overcollateralized means the collateral behind it is worth more than the GHO in circulation. sGHO, short for Savings GHO, is a vault where you deposit GHO to earn a rate on it.
Savings GHO is a vault on Ethereum mainnet built to the ERC-4626 standard. You deposit GHO and receive sGHO shares, and each share is worth more GHO over time as an on-chain rate accrues. You can deposit or withdraw at any moment, because the vault has no cooldown, carries no slashing risk and never lends your GHO onward (source: Aave Docs, Savings GHO (sGHO)).
ERC-4626 is the Ethereum vault standard behind that design. Under that standard, your sGHO share count stays the same for as long as you hold it. Withdrawals are atomic, with no cooldown period. Your GHO arrives in the same transaction that redeems your shares (source: Aave Docs, Savings GHO (sGHO)).
Plain GHO earns nothing while it sits in a wallet, because it produces no underlying yield the way an aToken does (source: Aave Docs, Umbrella). That makes the choice simple when you hold Aave's GHO stablecoin: keep it idle, or move it into the sGHO savings vault, where it earns the current rate and you keep the same freedom to withdraw.
Safety Module, Umbrella and stkAAVE
The legacy Safety Module was built around staked AAVE that could be cut to cover a shortfall (source: Aave Docs, Glossary). Umbrella, which replaces it, is now Aave's backstop for bad debt, the loss left when a liquidation fails to cover a loan, and it works through staking of aTokens or GHO (source: Aave Docs, Umbrella).
In Umbrella, a deficit in one asset is covered by burning the stakes behind that asset, with no vote needed. That burn is slashing. Stakers of aTokens keep earning the normal supply rate and collect extra rewards that Aave calls Safety Incentives. GHO stakers earn Safety Incentives directly, since GHO has no underlying yield. The risk is limited to the asset you chose: staking aUSDC covers USDC bad debt only (source: Aave Docs, Umbrella).
A cooldown is the required wait before you can unstake. In Umbrella you start a 20-day cooldown, then withdraw during the 2-day window that follows it. Miss the window and the cooldown starts again. Your stake stays slashable for the whole wait (source: Aave Docs, Umbrella).
stkAAVE is AAVE staked in the legacy Safety Module. Its maximum slashing now reads 0% on the stkAAVE contract (source: Etherscan, stkAAVE contract read). AIP 459, executed on March 23, 2026, shortened its cooldown from 7 days to 2 days and took slashing on the stkAAVE/wstETH BPTv2 module, which stakes Balancer pool tokens, from 10% to 0% (source: Aave Governance, AIP 459 Reduce Safety Module Emissions). Leaving stkAAVE now means a 2-day cooldown and then a 2-day window to unstake. Staking AAVE for stkAAVE also lets you vote on proposals or delegate your voting power (source: Aave Docs, AAVE Token).
sGHO and a GHO stake in Aave Umbrella are easy to confuse. sGHO pays a savings rate you can leave at any moment; a GHO stake earns Safety Incentives for the risk of being burned and takes 20 days to leave.
AAVE, AIPs and the three Aave names
AAVE is the governance token of the Aave Protocol, which means holding it lets you vote on proposals or delegate your votes to someone else. It is an ERC-20 token on Ethereum that trades on both centralized and decentralized exchanges. Holders of stkAAVE can vote and delegate as well (source: Aave Docs, AAVE Token).
An AIP, or Aave Improvement Proposal, is the formal proposal that changes the protocol once token holders approve it. AIP-1 moved holders from the old LEND token to AAVE and started the Safety Module (source: Aave AIP repository, AIP-1). Aave governance runs from open discussion to a formal proposal and a vote, after which smart contracts carry out the result (source: Aave, Introduction To Aave V3).
Three names share the brand. Aave Labs maintains the Aave Labs interface, an app hosted on IPFS and one of several ways to reach the protocol. Every action is also available through the smart contracts themselves (source: Aave, Accessing Aave). The Aave Protocol is the set of open-source smart contracts that run the markets. Aave Labs neither controls nor operates it on any network (source: Aave, Introduction To Aave V3). Aave Labs, the protocol and the token can each make news on the same day: a Labs launch changes no rules, a passed AIP changes the protocol, and a price move changes the value of the AAVE you hold.
If you want the AAVE token itself, your next step is a market where it trades. On BloFin, you can buy and hold the token through AAVE/USDT Spot or trade its price with the AAVEUSDT Perpetual. Before you size a trade, compare the maker and taker rates for both markets on the BloFin fee schedule.
Trading the AAVE token on BloFin
On BloFin, AAVE trades in two markets. AAVE/USDT Spot is where you own the token, with no leverage and no funding fees. The AAVEUSDT Perpetual is a leveraged contract for going long or short, and a losing position on it can be liquidated.
Buying AAVE to hold points to Spot. Move USDT into the Spot account and open AAVE/USDT. A market order fills at once at the best price available, while a limit order waits at your price and pays the lower maker fee.
Trading AAVE on BloFin points to the Perpetual, where you set margin mode and leverage first. Isolated margin limits your loss to the margin assigned to that one position. Cross margin draws on the whole account balance, which pushes liquidation further away and puts more of the account at risk. Low leverage keeps a small price move from becoming a large share of your margin.
Keep the two kinds of risk apart. A health factor belongs to an Aave loan in your own wallet, while a liquidation price belongs to a perpetual position on the exchange, and one never offsets the other.
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
What is a flash loan on Aave?
A flash loan is a loan with no collateral that has to be borrowed and repaid within one transaction (source: Aave Docs, Glossary). Flash loans are an advanced feature aimed at developers. A smart contract receives the funds, runs its own operations, such as a swap or a liquidation, and returns the amount plus a fee before the transaction ends. If the repayment is missing, the whole transaction is reverted (source: Aave Docs, Flash Loans).
What does the reserve factor do on Aave?
The reserve factor is the share of borrower interest that goes to the Aave Treasury to help protect the protocol (source: Aave Docs, Glossary). Suppliers receive what is left of the interest borrowers pay. That split is one reason the rate on a supply screen sits below the borrow rate for the same asset. For a supplier, a higher reserve factor is a quiet cost, because it moves more of each interest payment to the treasury.
How does the utilization rate move Aave interest rates?
The utilization rate is the share of a pool that is currently borrowed. When borrowers take a large part of a pool, rates rise, which attracts new supply and pushes borrowers to repay. When most of the pool sits idle, rates fall (source: Aave, Introduction To Aave V3). Supply rates are usually shown as annual percentage yield (APY), the yearly yield with compounding included. APR is the same yearly figure without compounding (source: Aave Docs, Glossary).
What happens to collateral in an Aave liquidation?
A liquidator repays part of your debt and receives collateral of equal value plus a liquidation bonus. Above a health factor of 0.95, with collateral and debt each worth at least $2,000, up to half of the debt can be repaid this way. At 0.95 or below, or on a smaller position, all of it can. A partial liquidation must leave at least $1,000 of both collateral and debt, which stops dust, balances too small to be worth liquidating, from piling up (source: Aave, Health Factor & Liquidations).
What are hubs and spokes in Aave V4?
Aave V4 is built from hubs and spokes. A Liquidity Hub holds supplied assets in one place, and each spoke plugs into a hub with its own rules for which collateral counts and when liquidation starts. V4 launched with three hubs, called Core, Prime and Plus, each starting with conservative caps that the Aave DAO plans to raise over time (source: Aave Labs, Aave V4 is Live on Ethereum).
What is a price oracle on Aave?
An oracle is the service Aave uses to bring outside data on-chain, above all the prices of assets, which the protocol needs to value your collateral and your debt (source: Aave Docs, Glossary). Every health factor you see is only as current as the latest oracle price. Liquidators watch those updates closely and race to be the first to act on any loan that slips below 1 (source: Aave, Health Factor & Liquidations).
Researched and written by the BloFin Academy editorial team with AI-assisted drafting. Primary sources include the Aave Docs glossary and the Aave Docs pages on the AAVE token, flash loans, Savings GHO and Umbrella, plus Aave Help on Health Factor and liquidations, Efficiency Mode and accessing Aave. Other sources are the Aave V3 introduction, governance proposals AIP-1 and AIP 459, the Aave DAO v3.7 removal notes, the Aave Labs V4 launch announcement, and the Etherscan record for the stkAAVE contract. 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.