What is Aave (AAVE)?
Aave (AAVE) is a decentralized finance lending protocol, and its governance token, that lets people deposit and borrow crypto without a bank. Aave users earn interest on deposits or post collateral to borrow other assets, with smart contracts rather than staff handling each step.
Aave began in 2017 as ETHLend, founded by Stani Kulechov, and rebranded to Aave in 2018. Aave is consistently ranked by DefiLlama among the largest lending protocols by total value locked, and it is often described as a bank that runs on code.
How does borrowing on Aave work?
Aave requires borrowers to post more collateral than they borrow, a model called overcollateralization. An Aave user who wants to borrow $100, for example, must deposit assets worth more than that, with the allowed ratio for each asset set by governance. Because Aave relies on collateral rather than credit, there are no bank-style identity checks or loan approvals.
Aave automatically liquidates a position when its collateral value falls to a risky level, recovering the loan. Aave's combination of overcollateralization and automatic liquidation is what keeps its lending markets running without an intermediary.
What are Aave flash loans and GHO?
An Aave flash loan lets a user borrow a large amount without collateral, on the condition that it is repaid within the same transaction. Aave flash loans are used for arbitrage, collateral swaps and debt refinancing, and they have become one of the best-known features in DeFi.
Aave launched GHO, its own dollar-pegged stablecoin, on Ethereum in July 2023. With GHO, Aave extended its business from deposits and loans into stablecoin issuance.
What is the AAVE token used for?
The AAVE token is used for governance votes that set Aave's rules, such as interest-rate models, collateral parameters and listed assets. According to the Aave documentation, AAVE has a maximum supply of 16 million tokens.
AAVE holders can stake in the Safety Module to earn rewards while accepting that part of their stake may cover protocol losses. In 2025 Aave introduced Umbrella, a newer protection system in which depositors stake their aTokens to backstop bad debt. The Aave DAO has also run a buyback program since April 2025 that uses protocol revenue to purchase AAVE on the open market.
What is Aave V4 and what comes next?
Aave V4 went live on Ethereum mainnet on March 30, 2026, according to the official Aave blog. Aave V4 uses a hub-and-spoke design, in which hubs pool liquidity and spokes act as tailored lending markets.
Aave deployed V4 on Avalanche in July 2026 and, per major crypto media reports, opened an Equities Hub on Base in September 2026 that accepts tokenized stocks as collateral for eligible non-U.S. users. Aave's stated direction is to extend its lending markets to more networks and to real-world-asset collateral.
What are the risks of Aave?
Aave has a long operating record but carries risks typical of DeFi. The main risks for Aave include smart-contract bugs or exploits, large liquidations during market crashes, problems with collateral assets or oracle prices, and operational risks from the new V4 architecture and real-world-asset collateral. Regulatory uncertainty around DeFi lending in various countries is another factor.
The AAVE price is strongly influenced by conditions across the wider DeFi market. This article is for information only and is not investment advice; any investment decision is your own responsibility.
