DeFi
Aave
A decentralized lending protocol where users deposit crypto to earn interest and borrow against collateral.
Last Updated
2026-03-29
Related Concepts
What is Aave?
Aave is a decentralized protocol for lending and borrowing cryptocurrencies without intermediaries. Lenders earn interest by depositing assets into liquidity pools, while borrowers take out loans by providing collateral.
How does Aave work?
- Lenders deposit assets into shared liquidity pools to earn yield.
- Borrowers provide crypto collateral to withdraw other assets.
- Interest rates adjust automatically based on supply and demand.
- If collateral value drops below a threshold, the position is liquidated.
- Flash loans allow borrowing without collateral if repaid in the same block.
Why does Aave matter?
Aave provides permissionless access to credit and interest-bearing accounts, removing the need for credit scores or bank approvals. It enables anyone with crypto to participate in global lending markets and earn yield on their holdings.
Key features of Aave
- Decentralized lending and borrowing
- Algorithmic interest rates
- Over-collateralized loans
- Flash loan capabilities
- Community governance via AAVE token
Examples of Aave
- Depositing USDC to earn a variable APY.
- Using ETH as collateral to borrow DAI.
- Executing a flash loan for cross-exchange arbitrage.