Aave is a decentralised lending service, part of DeFiDeFi (decentralised finance)Financial services, such as lending, saving and trading, that run on smart contracts on a blockchain instead of through a bank or other middleman., that runs on smart contractsSmart contractA program that runs on a blockchain and automatically carries out what it was written to do once certain conditions are met. on Ethereum and other networks. People deposit crypto there to earn interest, or borrow against other crypto as CollateralCollateralAn asset pledged as security for a loan. In DeFi, the collateral usually has to be worth more than the loan.. AAVE, in capitals, is the service's governance tokenGovernance tokenA token that gives voting rights over a DeFi service's rules and treasury. It is not a share and gives no ownership stake or right to dividends..
How does Aave work?
Aave is a bit like a pawnbroker: you put up something of value and get a loan against it. The difference is that software runs everything around the clock and keeps checking that the collateral still covers the loan. The collateral always has to be worth more than the loan, and interest rates depend on how much of the money in each pool is lent out.
Each borrower's position is measured by its health factorHealth factorA number that shows how well the collateral covers a DeFi loan. If it falls below 1, part of the collateral can be sold to repay the debt.. If that number falls below 1, for example after a price drop, part of the loan can be settled using the collateral plus a penalty. This is called LiquidationLiquidationWhen a loan or leveraged position is closed automatically because the collateral or margin no longer covers the debt..
History and token
Stani Kulechov founded its predecessor, ETHLend, in 2017. The name Aave, Finnish for "ghost", was adopted on 18 September 2018. The first version of Aave launched in January 2020 and the fourth, Aave V4, on 30 March 2026.
AAVE replaced the older LEND token in 2020, and the total supply is 16 million. Holders vote in the Aave DAO on interest rates, new assets and other changes to the service.
What to keep in mind
- Aave is a DeFi service. The lending service has no licence under MiCA, and no deposit guarantee covers it.
- A sharp price fall can lead to liquidation, and bugs in the code or wrong price data can cause losses.
- Aave and AAVE are not the same thing. You can use the service without owning the token.
Everything in Myntkaup Learn is written and regularly reviewed by the Myntkaup editorial team. It is for education and is not investment advice. Editorial policy. Updated 18 October 2026.