Aave is the largest decentralized lending protocol by TVL. It lets you earn yield by supplying assets as liquidity, or borrow against your crypto holdings without selling them. In 2026, Aave v3 operates across Ethereum, Base, Arbitrum, Polygon, and several other chains.
Supplying Assets (Earning Yield)
Supplying assets to Aave earns you the supply APY — interest paid by borrowers.
- Go to app.aave.com
- Connect wallet (MetaMask, Coinbase Wallet, etc.)
- Select network (Base or Arbitrum for low gas)
- Click "Supply" on any asset
- Enter amount and confirm
You receive aTokens in return (e.g., supply USDC → receive aUSDC). These tokens auto-accrue interest in real-time — your aUSDC balance increases every block.
Typical supply APYs (2026):
- USDC/USDT: 3–8% (varies with utilization)
- ETH: 1–4%
- wBTC: 0.5–2%
Supply APY = borrowing demand driven. When utilization is high (lots of borrowers), supply APY increases automatically.
Borrowing Against Collateral
To borrow, you first supply collateral — more than the amount you borrow.
- Supply collateral (e.g., ETH)
- Navigate to Borrow
- Select asset to borrow (e.g., USDC)
- Enter amount — stay well below your maximum
- Monitor your Health Factor
Why borrow instead of sell?
- Maintain exposure to your collateral asset (bullish on ETH, want to keep it)
- Access liquidity without a taxable event
- Leverage: borrow stablecoin, buy more ETH, repeat
Health Factor
Health Factor (HF) is the most important number in your Aave position.
HF = (Collateral value × liquidation threshold) / Borrowed amount
- HF > 1.5: Safe
- HF between 1.0 and 1.5: Caution — one bad day could liquidate
- HF < 1.0: Liquidation triggered
When HF drops below 1, anyone can liquidate your position — they repay part of your debt and receive your collateral at a discount (~5–10%). You lose collateral.
Managing HF:
- Keep HF above 1.5 at minimum; above 2.0 is conservative
- If collateral price drops, either add more collateral or repay part of the loan
- Set price alerts on your collateral asset
Loan-to-Value (LTV) Ratios
Each asset has a maximum LTV:
- ETH: ~80% LTV (borrow up to $80 for every $100 of ETH collateral)
- wBTC: ~70% LTV
- Altcoins: 50–65% LTV
- Stablecoins: ~75–77% LTV
Liquidation threshold is slightly above LTV — you have a buffer before liquidation triggers.
E-Mode (High-Efficiency Mode)
Aave v3 introduced E-Mode for correlated assets. If your collateral and borrowed asset are in the same E-Mode category (e.g., all stablecoins), you get much higher LTV (up to 97%).
Useful for: borrowing USDT against USDC collateral, or borrowing ETH against stETH collateral (high LTV, low liquidation risk since they track each other).
Interest Rate Modes
Variable rate — Fluctuates with utilization. Common default. Rates spike during high demand.
Stable rate — Fixed for the life of the loan (if available). Not always available; typically higher than variable during normal conditions.
Most users use variable rate for borrowing stablecoins against ETH collateral.
Risks
Liquidation — Collateral value drops, HF falls below 1. Set price alerts.
Smart contract risk — Aave is heavily audited (multiple firms) and has operated since 2020 without a major exploit. But no protocol is zero-risk.
Oracle risk — Aave uses Chainlink price oracles. Oracle manipulation or failure could trigger incorrect liquidations (has happened on smaller protocols).