Aave

A decentralized non-c custodial liquidity protocol for lending and borrowing digital assets on blockchains like Ethereum.

What is Aave?

Aave is an open-source DeFi protocol that enables users to supply digital assets to liquidity pools to earn interest or borrow against overcollateralized deposits, operating across 14 networks including Ethereum, Polygon, Avalanche, and Arbitrum as of September 2025. Suppliers receive aTokens—such as aETH for deposited ETH—which accrue interest dynamically based on pool utilization and can be redeemed anytime, with average stablecoin supply APYs on Ethereum around 2-5% over the past year depending on market conditions. Borrowers must deposit collateral worth at least 125-150% of the borrowed amount (e.g., $1,250 in ETH to borrow $1,000 in USDC), monitored via a Health Factor metric where values above 1 prevent liquidation; if it drops below 1, collateral is automatically sold to repay the loan, protecting suppliers.

The protocol’s AAVE token, with a circulating supply of approximately 15 million tokens and a total supply capped at 16 million, facilitates governance through Aave Improvement Proposals (AIPs), where holders vote on asset listings like adding EURC stablecoin or protocol upgrades, and staking AAVE in the Safety Module to backstop shortfalls, earning rewards up to 5-10% APY. Aave pioneered flash loans in 2020, allowing uncollateralized borrowing up to millions in a single transaction for arbitrage or swaps, with over $10 billion in cumulative flash loan volume executed by mid-2025, though they carry risks like failed executions incurring gas fees. Its native GHO stablecoin, overcollateralized by supplied assets, has seen $200 million minted in the past year, maintaining 150-200% collateralization ratios.

Security is bolstered by over 50 audits from firms like Trail of Bits, a $25 million bug bounty program, and the Shortfall Secured mechanism using staked AAVE to cover insolvency, with no major exploits since a $24 million insurance fund payout in 2023. Total value locked (TVL) stands at over $12 billion as of September 2025, processing billions in weekly volume, making it the largest DeFi lending protocol by TVL and supporting over 30 digital assets including USDT, USDC, WBTC, and LINK.