What is Aave?

Aave is a decentralized non-custodial lending protocol where users deposit crypto assets to earn interest and borrowers supply collateral to take out loans — all governed by smart contracts with no intermediary. Originally launched as ETHLend in 2017 and rebranded to Aave in 2018, Aave pioneered flash loans (uncollateralized loans that must be borrowed and repaid within a single transaction block) and introduced aTokens, interest-bearing receipt tokens that automatically accrue yield in the holder’s wallet. AAVE is the protocol’s governance token.

Aave operates across more than a dozen blockchain networks and uses an over-collateralization model: borrowers must deposit more value than they borrow, with collateral ratios varying by asset risk. If a position’s health factor falls below a threshold (collateral value drops relative to borrowed value), liquidators can repay part of the debt in exchange for the collateral plus a bonus, protecting the protocol from bad debt. Aave v3 introduced Efficiency Mode (E-Mode) for correlated assets (e.g., ETH and stETH) and cross-chain portals, and GHO, Aave’s native overcollateralized stablecoin minted directly against deposited collateral — positioning Aave to compete with MakerDAO’s DAI issuance model.

Aave’s risk profile includes smart contract risk (exploits in any supported asset’s contract can propagate losses), oracle risk (price feeds from Chainlink or others could be manipulated), and governance risk (token holders control risk parameter changes, creating a potential attack vector if quorum thresholds are insufficient). The protocol has historically avoided catastrophic exploits of its own core contracts, but has suffered losses from collateral assets whose prices manipulated during borrow-and-liquidate attacks. The launch of GHO introduces stablecoin-specific risks: if GHO loses its peg, Aave’s treasury and AAVE stakers (who backstop the Safety Module) face potential losses.

Reviewed by the 2Bitcoins Editorial Team · Updated June 2026. Not financial advice.