Aave is the largest decentralised lending protocol in DeFi, enabling users to borrow and lend over 30 crypto assets without a bank or credit check. Launched in 2020 (evolved from ETHLend, founded 2017), Aave pioneered several DeFi innovations: flash loans (uncollateralised loans that must be borrowed and repaid within one transaction block), rate switching (borrowers can toggle between stable and variable interest rates), and credit delegation (lending credit lines to others). Aave operates on Ethereum, Polygon, Avalanche, Optimism, Arbitrum, and other chains. Lenders deposit assets into liquidity pools and receive aTokens that accrue interest in real time. Borrowers must post overcollateral (typically 120-150% of the loan value) to access funds — protecting lenders from default risk. AAVE is the protocol’s governance token: holders vote on new assets, risk parameters, and protocol upgrades. Aave GHO is the protocol’s own USD-pegged stablecoin. Aave’s smart contracts have secured over $20 billion in deposits at peak and are among the most battle-tested in DeFi. In 2024, Aave introduced a major upgrade (Aave v3.1) improving efficiency and safety, and the Aave DAO voted to rebrand to Aave Network with its own Layer 1.
Example: A trader holds 10 ETH and wants cash without selling. They deposit ETH into Aave as collateral, borrow 5,000 USDC at 4% variable APR, and use the USDC to cover living expenses. As long as ETH stays above the liquidation threshold, they keep the ETH exposure and repay the loan when convenient. If ETH rises, their borrowing capacity increases automatically.
Learn more: Aave Protocol
