How to Use Aave: Complete DeFi Lending and Borrowing Tutorial (2026)
— By Tony Rabbit in Tutorials
How to use Aave: complete DeFi lending and borrowing guide. Earn 3-10% APY on stablecoins, borrow against crypto, use E-Mode, and manage your Health.
What Is Aave?
Aave is the largest decentralized lending and borrowing protocol in crypto. Deposit crypto to earn interest, or borrow against your deposits without selling - no banks, no credit checks, no paperwork.
With $24.8 billion in TVL across 20+ chains, Aave is the most battle-tested DeFi protocol in existence. It has operated since 2020 without any major security incidents on its core contracts.
Why Use Aave Instead of a Bank or CEX?
| Feature | Aave (DeFi) | Bank Savings | CEX Lending (Binance Earn) |
|---|---|---|---|
| Stablecoin APY | 3-10% | 0.5-4% | 2-8% |
| KYC Required | ❌ No | ✅ Yes | ✅ Yes |
| Custody | Self-custody (smart contract) | Bank holds funds | Exchange holds funds |
| Withdraw Anytime | ✅ Instant, 24/7 | ⚠️ Business hours | ⚠️ May restrict |
| Transparent Rates | ✅ On-chain, real-time | ❌ Bank sets privately | ⚠️ Can change |
| Borrow Against Crypto | ✅ Instant | ❌ No | ⚠️ Limited |
| Bankruptcy Risk | Smart contract risk | FDIC insured (up to $250K) | Exchange risk (Celsius, FTX) |
Step 1: Connect Your Wallet
Step 2: Supply Assets to Earn Interest
- On the Aave dashboard, find the asset you want to deposit (ETH, USDC, USDT, DAI, WBTC)
- Click Supply next to the asset
- Enter the amount
- First time: approve the token spending (one-time gas cost)
- Confirm in your wallet - you receive aTokens (e.g., aUSDC)
Your interest accrues every second. The aTokens in your wallet automatically increase as interest accumulates. Withdraw at any time.
Current Supply Rates (Aave V3)
| Asset | Ethereum APY | Arbitrum APY | Base APY | Risk Level |
|---|---|---|---|---|
| USDC | 4-8% | 3-7% | 4-9% | Low (stablecoin) |
| USDT | 4-7% | 3-6% | 3-7% | Low (stablecoin) |
| ETH / WETH | 1.5-3% | 1-2.5% | 1-3% | Medium (volatile) |
| WBTC | 0.5-2% | 0.3-1.5% | N/A | Medium (volatile) |
| DAI | 5-10% | 4-8% | 4-8% | Low (stablecoin) |
| GHO | Special* | N/A | N/A | Low (Aave native) |
*GHO rates are boosted for AAVE stakers. Rates are variable and change with supply/demand. Check app.aave.com for live rates.
Step 3: Borrow Against Your Deposits
Once you've supplied assets, you can borrow other tokens using your deposits as collateral:
- Go to the Borrow section
- Select the asset to borrow (e.g., borrow USDC against ETH collateral)
- Enter the amount
- Review the borrow APY (the interest you'll pay)
- Check your Health Factor - must stay above 1.0
- Click Borrow and confirm
Understanding Health Factor and Liquidation
The Health Factor is the most critical number on Aave:
Health Factor Risk Levels
Health Factor = (Collateral × Liquidation Threshold) / Total DebtExample: $10,000 ETH collateral × 0.825 threshold / $5,000 debt = 1.65 Health Factor
How to Avoid Liquidation
- Never borrow more than 50% of your collateral value
- Use stablecoin collateral to avoid volatility risk (USDC → borrow USDT = very safe)
- Set up alerts with DEXTools or DeFi Saver to monitor positions
- Keep extra collateral ready to deposit if prices drop
- Consider E-Mode for correlated asset pairs (see below)
E-Mode: Maximum Capital Efficiency
Efficiency Mode lets you borrow more when using correlated assets:
| E-Mode Category | Example | Normal LTV | E-Mode LTV | Use Case |
|---|---|---|---|---|
| Stablecoin | USDC → borrow USDT | 80% | 97% | Stablecoin yield farming |
| ETH Correlated | wstETH → borrow ETH | 80% | 93% | Leveraged staking |
| BTC Correlated | WBTC → borrow cbBTC | 73% | 92% | BTC yield strategies |
Aave on Different Networks
| Network | Gas Cost | TVL | Best For |
|---|---|---|---|
| Ethereum | $5-30 | Highest | Large positions ($10K+) |
| Arbitrum | $0.01-0.10 | High | Most users (best balance) |
| Base | $0.001-0.05 | Growing | Small positions, beginners |
| Polygon | $0.01-0.05 | Medium | Established DeFi users |
| Optimism | $0.01-0.10 | Medium | OP incentive farming |
| Avalanche | $0.05-0.50 | Medium | Fast finality |
To move assets between chains, use our cross-chain bridging guide.
GHO: Aave's Native Stablecoin
GHO is a decentralized stablecoin you can only mint through Aave:
- Mint GHO by borrowing against your Aave collateral at a fixed interest rate
- Discounted rate for stkAAVE holders - up to 50% off borrow rate
- Backed by overcollateralized Aave deposits
- Currently available on Ethereum mainnet
Aave Fees and Costs
| Action | Fee | Notes |
|---|---|---|
| Supply (Deposit) | Free (gas only) | You earn interest |
| Withdraw | Free (gas only) | Instant, anytime |
| Borrow | Variable APY | Interest accrues continuously |
| Repay | Free (gas only) | No early repayment penalty |
| Flash Loans | 0.05% | Same-block borrow + repay |
| Liquidation Penalty | 5-10% | Only if health factor < 1.0 |
Aave vs Other DeFi Lending Protocols
| Feature | Aave V3 | Compound V3 | MakerDAO / Sky | Spark |
|---|---|---|---|---|
| TVL | $24.8B | ~$3B | ~$8B | ~$4B |
| Chains | 20+ | 5 | Ethereum only | Ethereum + Gnosis |
| Borrow Any Asset | ✅ | ⚠️ USDC focus | ❌ DAI/USDS only | ❌ DAI only |
| E-Mode | ✅ | ❌ | ❌ | ❌ |
| Flash Loans | ✅ | ❌ | ❌ | ✅ |
| Native Stablecoin | GHO | ❌ | DAI / USDS | Uses DAI |
| Best For | All-round DeFi lending | Simple USDC lending | DAI minting | DAI-focused lending |
Step 4: Repay and Withdraw
Repay Your Loan
- Dashboard → find your active borrows → click Repay
- Enter amount (or "Max" for full repayment)
- Approve and confirm - your Health Factor improves
No lock-ups, no early repayment penalties. Repay anytime.
Withdraw Deposits
- Dashboard → supplied assets → click Withdraw
- Your aTokens are burned and you receive original tokens + earned interest
- If you have borrows, you can only withdraw collateral that keeps Health Factor > 1.0
Advanced Strategies
1. Supply wstETH (liquid staked ETH)
2. Enable ETH E-Mode (93% LTV)
3. Borrow ETH against wstETH
4. Swap borrowed ETH → wstETH → supply again
5. Repeat 2-3 times for leveraged staking yield
Risk: Minimal if wstETH maintains peg to ETH
1. Supply USDC on Aave
2. Enable Stablecoin E-Mode (97% LTV)
3. Borrow USDT at lower rate
4. Supply borrowed USDT into a higher-yield protocol
Risk: Stablecoin depeg event (rare but possible)
1. Supply ETH as collateral
2. Borrow USDC against ETH
3. Buy more ETH with borrowed USDC
4. Supply new ETH → borrow more → repeat
⚠️ If ETH drops 30-40%, you get liquidated with penalty
Security Best Practices
- Bookmark app.aave.com - phishing sites exist. Never click links from DMs
- Start small - test with $50-100 before committing large amounts
- Monitor Health Factor daily if you have active borrows
- Use stablecoin pairs for lowest liquidation risk
- Consider DeFi Saver for automated liquidation protection
- Revoke unused approvals - use Etherscan's token approval checker
- Hardware wallet for large positions - Ledger guide
Using DEXTools With Aave
Use DEXTools alongside Aave to:
- Monitor collateral token prices in real-time
- Check liquidity depth before supplying exotic tokens
- Track market cap changes that could affect your positions
- Verify token contracts with DYOR tools
Troubleshooting
Cannot Supply or Borrow
- Check you have enough gas tokens for the network
- Some assets have reached their supply cap (protocol limit)
- First-time actions require a separate approval transaction
Health Factor Dropping
- Add more collateral or repay part of your debt immediately
- Switch to a more stable collateral asset
- Set up DeFi Saver automation for liquidation protection
Key Takeaways
- Aave is the #1 DeFi lending protocol with $24.8B TVL across 20+ chains
- Earn 3-10% APY on stablecoins by supplying - higher than most banks
- Borrow against your crypto without selling - keep your upside exposure
- Start on Arbitrum or Base for gas fees under $0.10
- Health Factor > 2.0 is the safe zone - never let it drop below 1.5
- E-Mode lets you borrow up to 97% LTV on correlated assets
- No KYC, no lock-ups - deposit and withdraw anytime, 24/7
- Use DEXTools to monitor collateral prices
Disclaimer: DeFi lending involves smart contract risk, liquidation risk, and variable interest rates. Aave has been audited but no protocol is 100% safe. Never deposit more than you can afford to lose. DYOR.