Aave

Aave is the largest lending protocol in decentralized finance: a set of smart contracts where users deposit crypto to earn interest or borrow against their collateral, with no bank and no credit check. Founded as ETHLend in 2017 by Stani Kulechov, Aave now runs on Ethereum and a dozen other networks, issues its own stablecoin, GHO, and launched its fourth version in 2026. This page explains how Aave lending works, what the AAVE token is used for, who governs the protocol and which risks borrowers and lenders take.

What Aave does

Aave connects lenders and borrowers through shared liquidity pools. Lenders supply assets such as ETH, USDC or wrapped bitcoin and receive aTokens that grow with the interest paid. Borrowers must first deposit collateral worth more than the loan; if its value falls below a set threshold, anyone can liquidate part of the position and claim a bonus. Rates move automatically with the share of each pool that is borrowed. Aave also offers flash loans, borrowed and repaid within a single transaction.

How the protocol works

Version 3, first deployed in March 2022 on six networks and on Ethereum in January 2023, added isolation mode and efficiency mode for correlated assets. Version 4, live on Ethereum since 30 March 2026, reorganizes liquidity into hubs (Core, Prime and Plus) that several markets can draw from, and has since been deployed on Avalanche, Arc and Base. Prices come from Chainlink oracles, with caps (CAPO) on yield-bearing assets to limit manipulation.

GHO, launched on 15 July 2023, is a decentralized stablecoin minted by Aave borrowers against their collateral; the interest goes to the DAO. Horizon, opened in August 2025, is a separate market for institutions that borrow stablecoins against tokenized real-world assets.

The AAVE token

AAVE replaced the original LEND token in October 2020, at 100 LEND for 1 AAVE, with a fixed supply of 16 million. It is used to vote and to back the protocol: under the Umbrella system, stakers can be slashed to cover bad debt. Since 2025 the DAO has bought back AAVE with protocol revenue (more than 205,000 AAVE by February 2026), a programme paused on 19 April 2026 after the rsETH incident.

Governance

Aave Governance V3 runs on Ethereum, with voting also possible on Polygon and Avalanche to save fees. A proposal goes from a forum discussion to a Snapshot temperature check, then a formal request for final comments (ARFC), and finally an onchain Aave Improvement Proposal executed after a timelock. In April 2026 holders approved the “Aave Will Win” plan, about 75% in favour: Aave Labs receives $25 million and 75,000 AAVE, and all revenue from Aave-branded products goes to the DAO. Several long-time service providers, including BGD Labs and Chaos Labs, left in 2026.

History and key dates

• November 2017: ETHLend raises $16.2 million in an ICO; renamed Aave in 2018.
• October 2020: LEND migrates to AAVE; $25 million raised from Blockchain Capital, Standard Crypto and Blockchain.com Ventures.
• 3 December 2020: Aave V2 goes live on Ethereum.
• March 2022: Aave V3 launches on six networks.
• 15 July 2023: GHO stablecoin launches.
• November 2025: an Aave Labs entity obtains MiCA authorization in the EU.
• 30 March 2026: Aave V4 goes live on Ethereum.
• April 2026: Kelp rsETH bridge exploit leaves bad debt on Aave V3.

Security and risks

Aave’s code has been audited by Trail of Bits, Sigma Prime, Certora, ChainSecurity and others, and its bug bounty pays up to $5 million. The main incident so far was external: on 18 April 2026 an exploit of Kelp’s rsETH bridge let an attacker post rsETH as collateral and borrow about 82,650 WETH, leaving roughly $195 million of bad debt, according to reports. Aave’s contracts were not hacked, but the episode shows how a weak collateral asset can hurt every lender.

• Liquidation risk: a sharp price drop can wipe out part of a borrower’s collateral.
• Oracle risk: a faulty price feed could trigger wrong liquidations.
• Collateral and depeg risk: bridged or liquid staking tokens can lose their peg.
• Governance risk: risk parameters depend on DAO votes and outside contractors.

Our risk score is 3 out of 5: a mature, heavily audited protocol, but the 2026 bad debt event shows real collateral risk.

How to use Aave safely

• Open the app from aave.com and check the URL every time.
• Keep your health factor well above 1, and borrow stablecoins only against collateral you would hold anyway.
• Avoid exotic collateral and check which assets are frozen before supplying.
• Learn the basics of lending markets with our DeFi guide before using leverage.