What Is Aave? DeFi Lending, V3, V4, GHO and Risks Explained

Aave is a decentralised, non-custodial lending protocol: you supply crypto to a shared pool to earn interest, or post collateral to borrow other assets against it. There are no loan officers or credit checks. Smart contracts set interest rates from supply and demand, and positions that become under-collateralised are liquidated automatically.

As of 17 October 2026, Aave is the largest lending protocol tracked by DefiLlama, with about $18.0 billion in total value locked across its versions. This guide explains what the name means, how supplying and borrowing work, what changed with Aave V3 and V4, what GHO and Umbrella are, and the risks to understand first.

What does Aave mean?

"Aave" is Finnish for "ghost". The project started as ETHLend, a peer-to-peer lending marketplace founded by Stani Kulechov, and rebranded to Aave in 2018 as it moved from matching individual lenders and borrowers to pooled, "peer-to-contract" lending, according to this Finematics explainer.

The word now covers three things:

The protocol: the smart contracts that hold deposits and issue loans.
The DAO: holders of the AAVE token vote on listings, risk parameters and treasury spending.
The AAVE token: a governance token with a maximum supply of 16 million, of which about 15.4 million were circulating on 17 October 2026, per CoinGecko.

How Aave works: supplying and borrowing

Aave runs on pooled liquidity. Everyone who supplies USDC, for example, adds to one USDC pool, and borrowers draw from it. The interest rate rises as more of the pool is borrowed, which pulls in new supply and discourages extra borrowing.

Supplying

When you supply an asset, Aave mints aTokens such as aUSDC or aWETH. Their balance grows over time as borrowers pay interest, according to the Aave V3 overview. You can withdraw at any time, but only up to the pool's unborrowed liquidity. If a pool is fully borrowed, you wait until borrowers repay or new supply arrives.

Borrowing

To borrow, you first supply collateral. Aave loans are always over-collateralised: your collateral must be worth more than the debt. Your debt is tracked by variableDebtTokens, which accrue interest over time. Each collateral asset has two key numbers:

Loan-to-value (LTV): the maximum share of the collateral's value you can borrow at the start.
Liquidation threshold: the higher ratio at which the position becomes liquidatable.

Our guide to crypto loan LTV covers these ratios in detail.

Health factor and liquidations

Aave combines your positions into one number, the health factor: the value of your collateral, weighted by each asset's liquidation threshold, divided by your debt. Above 1 you are safe. Below 1, anyone can repay part of your debt and receive your collateral plus a bonus.

In Aave V3.3, the default close factor lets a liquidator repay up to 50% of the position. That rises to 100% when the health factor falls below 0.95, or when the position is small, according to the V3.3 proposal from BGD Labs. Our health factor guide has worked examples, and DeFi loan liquidations explained covers what happens step by step.

A simple example

Say you supply ETH worth $10,000 to a market where ETH has a liquidation threshold of 80% (an illustrative figure; real values differ by market). You borrow $5,000 of USDC. Your health factor is ($10,000 × 0.80) ÷ $5,000 = 1.6. If ETH falls 37.5%, your collateral is worth $6,250, the health factor reaches 1.0, and you can be liquidated. Repaying debt or adding collateral pushes that point further away.

Aave V3: the version most people use

Aave V3 holds most of the protocol's deposits: about $17.0 billion of the $18.0 billion total, with roughly $14.1 billion of that on Ethereum, as of 17 October 2026 per DefiLlama. DefiLlama tracks V3 on more than 20 networks, including Base, Arbitrum, Avalanche, Polygon, BNB Chain, Optimism, Gnosis, Plasma and Monad. All of these are EVM chains. Aave also has a small deployment on Aptos, which DefiLlama lists as Aave Aptos.

V3 added three risk tools, described in the V3 docs:

Efficiency Mode (E-Mode): higher LTV when you borrow and supply assets that move together, such as two dollar stablecoins, or ETH and a liquid staking token.
Isolation Mode: newer or riskier collateral can only borrow a set basket of assets, usually stablecoins, up to a debt ceiling.
Siloed borrowing: if you borrow a flagged asset, it must be your only borrow in that pool.

V3 also offers flash loans, which are borrowed and repaid within one transaction.

Aave V4: hub-and-spoke lending

Aave V4 was activated on Ethereum mainnet on 30 March 2026, according to Aave Labs' April 2026 development update. It is a new architecture rather than an upgrade of V3.

Hubs hold the liquidity. The update mentions Core, Prime and Plus hubs.
Spokes are separate borrowing markets that draw on a hub, each with its own collateral list and risk settings.

The aim is to let Aave open specialised markets without splitting liquidity into many small pools. Aave V4 also uses a Dutch-auction style liquidation bonus, where lower health factors pay liquidators a higher bonus, according to Aave's liquidation docs.

V4 is still small compared with V3. DefiLlama showed about $655 million deposited in V4 on 17 October 2026, mostly on Ethereum, with smaller amounts on Avalanche and Arc, per its API. The two versions run side by side, so check which one you are using before you deposit.

What is GHO?

GHO is Aave's own over-collateralised dollar stablecoin. It went live on Ethereum in July 2023 after a governance vote, and you mint it by posting collateral on Aave V3, according to The Defiant. Fees from GHO borrowing go to the Aave DAO treasury rather than to suppliers.

About $698 million of GHO was in circulation on 17 October 2026, per DefiLlama's stablecoin data. Holders can deposit GHO into sGHO, a savings vault that Aave's docs describe as an ERC-4626 vault with no cooldown and no slashing risk. For how GHO fits with other dollar tokens, see our stablecoins explainer.

Umbrella: Aave's safety module

For years Aave's backstop was the Safety Module: users staked AAVE, which governance could slash to cover a shortfall. In June 2025 Aave introduced Umbrella (per 0xResearch and LlamaRisk), which the Aave docs say replaces the existing Safety Module with an automated system.

Users stake aTokens (such as aUSDC, aUSDT and aWETH) or GHO, and earn rewards on top.
If bad debt appears in an asset, the matching staked tokens are burned to cover it, with no governance vote needed. Risk is isolated: staked aUSDC only covers USDC deficits.
The DAO absorbs a first slice of losses. For USDT, the docs give a 100,000 USDT offset.
Unstaking needs a 20-day cooldown, followed by a 2-day window to withdraw, and funds can still be slashed during the cooldown.

Umbrella stakers take on real loss risk in exchange for the rewards. Read the docs for the asset you plan to stake.

Risks of using Aave

Aave is one of the longest-running DeFi lenders, but it is not risk-free.

Liquidation. A fast price drop can push your health factor below 1 before you react, and you lose the liquidation bonus on top of the repaid debt.
Oracle risk. Liquidations depend on price feeds. A wrong or delayed price can trigger liquidations. See our guide to price oracles.
Smart contract risk. Audits reduce but don't remove bugs, especially in new code such as V4.
Liquidity risk for suppliers. If a pool is nearly fully borrowed, you may not be able to withdraw until utilisation falls.
Collateral risk. A stablecoin or liquid staking token used as collateral can lose its peg.
Governance risk. The DAO can change parameters such as LTVs, caps and rates.
Variable rates. Borrow rates can jump when a pool's utilisation spikes.

Our DeFi safety checklist applies to Aave as much as any protocol.

Aave alternatives and where JewelSwap fits

Aave's nearest rival by deposits is Morpho, with about $11.0 billion in Morpho Blue as of 17 October 2026 per DefiLlama's lending rankings. Spark, Compound and others follow. We compare them in Aave alternatives and the best crypto lending platforms of 2026.

Aave runs on EVM chains. JewelSwap works on MultiversX, Sui and Radix, where it offers liquid staking (JWLSUI, JWLEGLD and JWLXRD), Scallop and Cetus farms on Sui, and NFT lending on MultiversX. If you want to borrow on Sui, our Sui lending comparison covers the main options.

Frequently asked questions

What is Aave in simple terms?

Aave is a decentralised lending protocol. You supply crypto to a shared pool to earn interest, or post collateral to borrow other assets. Smart contracts set the rates and liquidate loans that become under-collateralised.

What does the name Aave mean?

Aave is the Finnish word for "ghost". The project started as ETHLend and rebranded to Aave in 2018.

Has Aave V4 launched?

Yes. Aave V4 was activated on Ethereum mainnet on 30 March 2026 with a hub-and-spoke design. It runs alongside Aave V3, which still holds most of the protocol's deposits.

Is Aave safe?

Aave is one of the longest-running DeFi lenders, but no protocol is risk-free. The main risks are liquidation, oracle failures, smart contract bugs, withdrawal delays when pools are fully borrowed, and collateral that loses its peg.

What is GHO on Aave?

GHO is Aave's over-collateralised dollar stablecoin, launched on Ethereum in July 2023. You mint it by posting collateral on Aave, and the interest borrowers pay goes to the Aave DAO.

What is Aave Umbrella?

Umbrella is Aave's automated safety module, introduced in June 2025. Users stake aTokens or GHO for rewards, and those stakes can be burned to cover bad debt in the matching asset. Withdrawals need a 20-day cooldown.

Keep reading

This article is educational and isn't financial advice. TVL, supply and token figures are as of 17 October 2026 from DefiLlama, CoinGecko and Aave's documentation, which are linked above. Protocol parameters change through governance, so check the live app before you act.

Viktor Vostrikov

Co-Founder

About the author.

Co-Founder at JewelSwap & Chief Strategy Officer at iDenfy. Viktor brings his successful track record of superb development & project management.