Aave
Aave connects crypto suppliers with borrowers through collateral-backed lending
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Aave lets people supply crypto to lending markets and borrow against eligible collateral, with smart contracts recording their balances and debt. Supplying can earn interest without creating a loan. Borrowing adds an obligation whose cost and liquidation risk change with market conditions. The available choices depend on the selected deployment, asset permissions and liquidity. A supply balance, borrowing allowance and withdrawable amount describe different things, even when they appear together. Choosing between supply alone, ordinary borrowing and specialized credit features therefore starts with the intended use of the assets. Each choice changes what remains accessible and which obligations the account must support.
Borrowing confirmation and the resulting debt record
A missing debt balance after a borrowing request leaves the action unresolved. A successful ordinary borrow should deliver the requested asset and record the corresponding debt against the collateral account. The resulting health factor describes that account after borrowing. A wallet confirmation prompt alone does not establish that these changes occurred.
First inspect the existing transaction status without submitting another request. Confirm that the displayed account, network and market match the transaction. A successful receipt with an outdated dashboard calls for refreshing the account data. A failed transaction calls for reviewing the failure before retrying; a pending request remains unresolved. Completion requires the asset transfer and debt record to agree with the successful operation.
| Borrowing stage | Required account or market condition |
|---|---|
| Establish borrowing capacity | Eligible supplied collateral must support the intended debt under the selected market rules. |
| Execute the borrow | The asset must permit borrowing, with sufficient liquidity and capacity under applicable limits. |
| Confirm the account change | A successful transaction must correspond to the asset transfer and the updated debt and health records. |
Supplying alone or committing collateral to debt
Supplying transfers assets into the protocol and creates a claim on the supplied balance and its accrued interest. In V3, aTokens represent that claim. Their balances incorporate supply interest, while the underlying assets provide liquidity for borrowers. Holding an aToken therefore differs from holding the underlying asset outside the lending market.
Collateral eligibility adds borrowing capacity to a supply position. An asset can be available for supplying without being eligible collateral, and collateral settings affect which balances support debt. Leaving an account without debt avoids borrower liquidation, although supplied funds retain protocol, asset and liquidity risks.
Supply interest does not require opening a loan. Borrowing is an additional commitment with separate costs and constraints.
Market selection determines available liquidity and permissions
The selected deployment determines which assets the account can supply or borrow, which limits apply and where its position exists. V3 uses separate lending pools. A balance in one pool does not automatically support debt in another.
V4 uses a Hub and Spoke design. A Hub holds shared liquidity and accounting, while Spokes manage particular lending arrangements and their risk settings. Positions belong to the relevant Spoke, and Hub limits constrain how much liquidity each Spoke can use. Shared liquidity does not make all collateral permissions interchangeable.
Network choice also changes exposure to congestion, security failures and any bridges on which an asset depends. A familiar token label alone cannot establish that two deployments have equivalent asset backing or operational risks.
Interest costs and the distinction between pooled assets and GHO
Utilization and variable borrowing costs
Utilization measures how much supplied liquidity borrowers are using. Ordinary pool interest rates respond to utilization through configured rate models. More borrowing or less available supply can raise borrowing costs, while repayments can move conditions in the opposite direction. The rate shown before a transaction therefore does not lock in the lifetime cost of a variable debt position.
Supply earnings and borrowing costs apply to their respective balances. Comparing their displayed percentages alone omits the amounts involved and any difference in asset values. V4 can also apply a collateral-dependent risk premium to borrowing costs. Network transaction fees add a separate cost when managing the position.
GHO borrowing
GHO is the protocol’s native stablecoin, designed to track the U.S. dollar. Its collateral-backed issuance differs from borrowing an ordinary asset that suppliers previously deposited. The V3 facilitator creates GHO against eligible collateral, subject to its configured capacity. Governance controls its borrowing parameters, and borrowing interest goes to the DAO treasury. A target peg does not guarantee an unchanged market price.
Borrowing power and the liquidation boundary
Loan-to-value limits govern how much new debt eligible collateral can support. Liquidation thresholds govern when an existing position becomes vulnerable to liquidation. These parameters have different purposes, so unused borrowing capacity and distance from liquidation are not equivalent measurements.
In V3, the health factor divides collateral value weighted by its liquidation thresholds by total debt value. Falling collateral prices, rising borrowed-asset prices or accumulated interest can reduce it. A V3 borrowing position becomes eligible for liquidation when its health factor falls below 1. The threshold identifies eligibility; it does not predict exactly when a liquidator will execute a transaction.
Liquidators repay debt and receive collateral with a liquidation bonus. Repaying debt or adding eligible collateral can improve account health, but no single health factor suits every combination of asset volatility and price correlation.
Repayment releases borrowing capacity while withdrawal uses liquidity
Partial repayment and closing debt
Partial repayment reduces an outstanding obligation without requiring the supplier to withdraw the remaining assets. Full repayment must cover the debt that exists when the transaction executes, including accrued interest. The original borrowed amount can therefore be smaller than the amount needed to close the position. A reduced debt record confirms a partial repayment; closing one debt does not erase other outstanding borrowings.
Withdrawing supplied assets
Withdrawal requires enough available underlying liquidity. When supplied assets support debt, the remaining position must also satisfy the applicable collateral rules. Repaying everything removes the account’s borrowing constraint, but it does not replenish liquidity that other borrowers are using. A displayed supply balance can consequently exceed the amount immediately available for withdrawal.
Repayment reduces liabilities. Withdrawal reduces supplied assets, so the two actions change opposite sides of the account.
V3 efficiency and isolation settings narrow different choices
Efficiency Mode
Efficiency Mode, or E-mode, applies category-specific collateral parameters and borrowing permissions. It can allow greater borrowing capacity for eligible combinations, commonly involving assets with related prices. The category determines permitted borrowing assets, and additional restrictions can apply to collateral outside its eligible set. Greater capacity also permits a position that is more sensitive to a breakdown in the assumed price relationship.
Isolation Mode and siloed borrowing
Isolation Mode restricts borrowing against a designated collateral asset to permitted debt assets and a debt ceiling. That isolated asset must be the account’s only enabled collateral. Other assets can still be supplied without serving as additional collateral. This restriction belongs to the collateral configuration, not to every deposit in the market.
Siloed borrowing restricts the debt side: borrowing a designated siloed asset prevents simultaneous borrowing of other assets. These controls solve different exposure problems. Ordinary borrowing allows a broader mix only where the selected market and asset settings permit it.
Flash loans and delegated credit serve different funding needs
Flash loans provide liquidity for operations that settle within one transaction. In V3, the simple flash-loan function requires repayment of the borrowed amount plus its fee before completion. Failure to satisfy repayment causes the transaction to revert. This mechanism supports programmed operations such as liquidation or asset switching without requiring an ordinary continuing loan.
The multi-asset flash-loan function can instead open authorized debt where collateral or credit delegation permits it. That exception creates a continuing obligation; it does not remove the collateral requirement behind that debt. Fee treatment also depends on the function and applicable permissions.
Credit delegation lets another address borrow against a delegator’s available borrowing capacity. The delegator authorizes an amount for the relevant debt asset, and the debt is recorded against the delegator’s account, subject to its collateral and health constraints. Repayment arrangements between the parties require separate agreement or contract logic. Ordinary borrowing avoids that additional relationship when the asset recipient and collateral owner are the same account.
Governance and backstops change the risk assumptions
Governance can change protocol parameters and approve upgrades. Authorized stewards can also adjust specified parameters within delegated boundaries. An account therefore operates under rules that can evolve after its initial supply or borrowing transaction. Borrowing capacity and asset availability are configuration-dependent properties.
Umbrella allows participants to stake supported assets to backstop specified protocol deficits. Participants accept slashing risk, meaning the system can consume staked assets to cover qualifying shortfalls. Its coverage follows configured asset and deployment relationships. It is not a universal promise to reimburse every supplier loss, bridge failure or liquidation.
Smart-contract defects, incorrect oracle valuations and deteriorating collateral liquidity can affect lending positions. Audits and risk controls reduce particular failure risks without eliminating them. Borrower liquidation and supplier losses are distinct outcomes, even when the same market stress contributes to both.
Borrowing preserves exposure while selling reduces the holding
Collateral-backed borrowing provides another asset while retaining exposure to the supplied collateral. That continued exposure comes with interest, collateral restrictions and potential liquidation. Selling some of a holding reduces that exposure and avoids creating the corresponding protocol debt, although execution introduces its own trading costs.
For an account seeking supply interest alone, adding debt introduces obligations that the supply function does not require. For an operation confined to one transaction, a supported flash loan may fit the timing. Continuing access to borrowed funds requires continuing support for the debt. Borrowing retains collateral exposure with ongoing debt obligations; selling reduces the holding without creating that debt.
Everyday questions about Aave
Do I need to own AAVE tokens to supply or borrow?
Ordinary supplying and collateral-backed borrowing do not require ownership of the AAVE governance token. They require supported assets, applicable permissions and sufficient collateral for borrowing. Transaction fees require the relevant network fee asset. Holding governance tokens and maintaining a lending position are separate forms of participation.
Why does a token approval leave my supply balance unchanged?
An approval authorizes a contract to transfer tokens but does not itself supply them. The supply operation must also execute successfully before the lending account gains a supply balance. Some interfaces combine authorization with the operation, while others request separate actions.
Can another address repay my V3 debt?
The V3 repayment functions allow repayment on behalf of another account. The payer must provide the required asset and any necessary transfer authorization, while the repayment targets the debtor’s address. Paying someone else’s debt does not transfer their collateral or confer control over their remaining position.
Does disconnecting my wallet stop borrowing interest?
Disconnecting a wallet does not repay an outstanding loan or stop its interest accrual. The debt exists in the protocol’s account records independently of a browser session. Closing the interface also leaves collateral exposure and liquidation conditions in place.
Are an aToken balance and an AAVE token balance the same thing?
An aToken represents a V3 supply position, while AAVE is a governance token. The aToken corresponds to a particular underlying asset and includes accrued supply interest. Supplying creates an aToken balance, not an AAVE governance-token balance.