What is Aave and how does it work?

Aave is a decentralized lending protocol where you can deposit crypto to earn interest (3-10% APY on stablecoins) or borrow against your deposits as collateral. It runs on smart contracts across 20+ blockchains with $24.8B in total value locked.

What APY can I earn on Aave?

Stablecoin supply rates (USDC, USDT, DAI) typically range from 3-10% APY depending on the chain and demand. ETH earns 1-3% and WBTC earns 0.5-2%. Rates are variable and change in real-time.

What is Health Factor on Aave?

Health Factor measures your collateral safety. Above 2.0 is safe, 1.0-1.5 is dangerous, and below 1.0 triggers liquidation where your collateral is sold with a 5-10% penalty. Never borrow more than 50% of your collateral value.

What is E-Mode on Aave?

E-Mode (Efficiency Mode) lets you borrow more against correlated assets. For example, you can borrow USDT against USDC at up to 97% LTV instead of the normal 80%, because both are stablecoins that should maintain similar value.

Which chain should I use Aave on?

Beginners should use Arbitrum or Base where gas fees are under $0.10. Ethereum has the deepest liquidity but costs $5-30 per transaction. Use Ethereum for positions above $10,000.

Aave is the most battle-tested DeFi lending protocol with no major exploits on core contracts since 2020. However, smart contract risk always exists. Start small, monitor your Health Factor, and never deposit more than you can afford to lose.

What is GHO stablecoin?

GHO is Aave's native stablecoin that you can mint by borrowing against your Aave collateral at a fixed interest rate. AAVE token stakers get a discounted borrow rate of up to 50% off.

How do I avoid liquidation on Aave?

Keep your Health Factor above 2.0, never borrow more than 50% of collateral value, use stablecoin pairs for lowest risk, set up DeFi Saver alerts, and keep extra collateral ready to deposit if prices drop.

How to Use Aave: Deposit, Borrow, Repay and Manage Health Factor (2026)

March 20, 2026 — By Tony Rabbit in Tutorials

Learn how to use Aave in 2026 with a practical walkthrough for depositing collateral, borrowing assets, repaying debt, and managing liquidation risk through Health Factor.

Intent check: This page is the full Aave app walkthrough for deposits, borrowing, repaying, and Health Factor. If you only want the narrower borrowing flow, read How to Borrow on Aave Safely. If you want the protocol explainer for V3, GHO, and market design, read Aave Protocol Explained.

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.

$24.8B

Total Value Locked

20+

Chains Supported

Since 2020

No Core Exploits

GHO

Native Stablecoin

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

👛

Get Wallet

MetaMask or OKX Wallet

→

🌐

Open Aave

app.aave.com

→

🔗

Connect

Click Connect Wallet

→

⛓️

Pick Chain

Arbitrum or Base (cheapest)

→

✅

Ready!

Start lending

💡 Best Chain for Beginners: Start on Arbitrum or Base where gas fees are under $0.10. Ethereum mainnet has the deepest liquidity but gas costs $5-30 per transaction.

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

💡 Why Borrow? Borrowing lets you access liquidity without selling your crypto. Example: you hold 10 ETH worth $30,000. Instead of selling, borrow $15,000 USDC against it. You keep your ETH exposure while having cash to use. If ETH goes up, you still benefit.

Understanding Health Factor and Liquidation

The Health Factor is the most critical number on Aave:

Health Factor Risk Levels

> 2.0

Safe - collateral worth 2x+ your debt

1.5 - 2.0

Moderate risk - monitor closely

1.0 - 1.5

Danger zone - add collateral or repay debt NOW

< 1.0

LIQUIDATED - collateral sold with 5-10% penalty

📐 Health Factor Formula:
Health Factor = (Collateral × Liquidation Threshold) / Total Debt

Example: $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

⚠️ E-Mode Risk: Higher LTV means liquidation is closer. With 97% LTV on stablecoins, a 3% depeg triggers liquidation. This is generally safe for major stablecoins (USDC, USDT) but risky for algorithmic stablecoins.

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

Leveraged Staking (Low Risk)

APY: 5-12%

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

Stablecoin Yield Farming (Low Risk)

APY: 4-10%

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)

Leveraged Long ETH (High Risk)

Risk: HIGH

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.