How to Use Aave: Deposit, Borrow, Repay and Manage Health Factor (2026)
— By Tony Rabbit in Tutorials
Learn how to use Aave in 2026 with a practical walkthrough for depositing collateral, borrowing assets, repaying debt, and managing liquidation risk through Health Factor.
Intent check: This page is the full Aave app walkthrough for deposits, borrowing, repaying, and Health Factor. If you only want the narrower borrowing flow, read How to Borrow on Aave Safely. If you want the protocol explainer for V3, GHO, and market design, read Aave Protocol Explained.
What Is Aave?
Aave is the largest decentralized lending and borrowing protocol in crypto. Deposit crypto to earn interest, or borrow against your deposits without selling - no banks, no credit checks, no paperwork.
With $24.8 billion in TVL across 20+ chains, Aave is the most battle-tested DeFi protocol in existence. It has operated since 2020 without any major security incidents on its core contracts.
Why Use Aave Instead of a Bank or CEX?
| Feature | Aave (DeFi) | Bank Savings | CEX Lending (Binance Earn) |
|---|---|---|---|
| Stablecoin APY | 3-10% | 0.5-4% | 2-8% |
| KYC Required | ❌ No | ✅ Yes | ✅ Yes |
| Custody | Self-custody (smart contract) | Bank holds funds | Exchange holds funds |
| Withdraw Anytime | ✅ Instant, 24/7 | ⚠️ Business hours | ⚠️ May restrict |
| Transparent Rates | ✅ On-chain, real-time | ❌ Bank sets privately | ⚠️ Can change |
| Borrow Against Crypto | ✅ Instant | ❌ No | ⚠️ Limited |
| Bankruptcy Risk | Smart contract risk | FDIC insured (up to $250K) | Exchange risk (Celsius, FTX) |
Step 1: Connect Your Wallet
Step 2: Supply Assets to Earn Interest
- On the Aave dashboard, find the asset you want to deposit (ETH, USDC, USDT, DAI, WBTC)
- Click Supply next to the asset
- Enter the amount
- First time: approve the token spending (one-time gas cost)
- Confirm in your wallet - you receive aTokens (e.g., aUSDC)
Your interest accrues every second. The aTokens in your wallet automatically increase as interest accumulates. Withdraw at any time.
Current Supply Rates (Aave V3)
| Asset | Ethereum APY | Arbitrum APY | Base APY | Risk Level |
|---|---|---|---|---|
| USDC | 4-8% | 3-7% | 4-9% | Low (stablecoin) |
| USDT | 4-7% | 3-6% | 3-7% | Low (stablecoin) |
| ETH / WETH | 1.5-3% | 1-2.5% | 1-3% | Medium (volatile) |
| WBTC | 0.5-2% | 0.3-1.5% | N/A | Medium (volatile) |
| DAI | 5-10% | 4-8% | 4-8% | Low (stablecoin) |
| GHO | Special* | N/A | N/A | Low (Aave native) |
*GHO rates are boosted for AAVE stakers. Rates are variable and change with supply/demand. Check app.aave.com for live rates.
Step 3: Borrow Against Your Deposits
Once you've supplied assets, you can borrow other tokens using your deposits as collateral:
- Go to the Borrow section
- Select the asset to borrow (e.g., borrow USDC against ETH collateral)
- Enter the amount
- Review the borrow APY (the interest you'll pay)
- Check your Health Factor - must stay above 1.0
- Click Borrow and confirm
Understanding Health Factor and Liquidation
The Health Factor is the most critical number on Aave:
Health Factor Risk Levels
Health Factor = (Collateral x Liquidation Threshold) / Total DebtExample: $10,000 ETH collateral x 0.825 threshold / $5,000 debt = 1.65 Health Factor
How to Avoid Liquidation
- Never borrow more than 50% of your collateral value
- Use stablecoin collateral to avoid volatility risk (USDC -> borrow USDT = very safe)
- Set up alerts with DEXTools or DeFi Saver to monitor positions
- Keep extra collateral ready to deposit if prices drop
- Consider E-Mode for correlated asset pairs (see below)
E-Mode: Maximum Capital Efficiency
Efficiency Mode lets you borrow more when using correlated assets:
| E-Mode Category | Example | Normal LTV | E-Mode LTV | Use Case |
|---|---|---|---|---|
| Stablecoin | USDC -> borrow USDT | 80% | 97% | Stablecoin yield farming |
| ETH Correlated | wstETH -> borrow ETH | 80% | 93% | Leveraged staking |
| BTC Correlated | WBTC -> borrow cbBTC | 73% | 92% | BTC yield strategies |
Aave on Different Networks
| Network | Gas Cost | TVL | Best For |
|---|---|---|---|
| Ethereum | $5-30 | Highest | Large positions ($10K+) |
| Arbitrum | $0.01-0.10 | High | Most users (best balance) |
| Base | $0.001-0.05 | Growing | Small positions, beginners |
| Polygon | $0.01-0.05 | Medium | Established DeFi users |
| Optimism | $0.01-0.10 | Medium | OP incentive farming |
| Avalanche | $0.05-0.50 | Medium | Fast finality |
To move assets between chains, use our cross-chain bridging guide.
GHO: Aave's Native Stablecoin
GHO is a decentralized stablecoin you can only mint through Aave:
- Mint GHO by borrowing against your Aave collateral at a fixed interest rate
- Discounted rate for stkAAVE holders - up to 50% off borrow rate
- Backed by overcollateralized Aave deposits
- Currently available on Ethereum mainnet
Aave Fees and Costs
| Action | Fee | Notes |
|---|---|---|
| Supply (Deposit) | Free (gas only) | You earn interest |
| Withdraw | Free (gas only) | Instant, anytime |
| Borrow | Variable APY | Interest accrues continuously |
| Repay | Free (gas only) | No early repayment penalty |
| Flash Loans | 0.05% | Same-block borrow + repay |
| Liquidation Penalty | 5-10% | Only if health factor < 1.0 |
Aave vs Other DeFi Lending Protocols
| Feature | Aave V3 | Compound V3 | MakerDAO / Sky | Spark |
|---|---|---|---|---|
| TVL | $24.8B | ~$3B | ~$8B | ~$4B |
| Chains | 20+ | 5 | Ethereum only | Ethereum + Gnosis |
| Borrow Any Asset | ✅ | ⚠️ USDC focus | ❌ DAI/USDS only | ❌ DAI only |
| E-Mode | ✅ | ❌ | ❌ | ❌ |
| Flash Loans | ✅ | ❌ | ❌ | ✅ |
| Native Stablecoin | GHO | ❌ | DAI / USDS | Uses DAI |
| Best For | All-round DeFi lending | Simple USDC lending | DAI minting | DAI-focused lending |
Step 4: Repay and Withdraw
Repay Your Loan
- Dashboard -> find your active borrows -> click Repay
- Enter amount (or "Max" for full repayment)
- Approve and confirm - your Health Factor improves
No lock-ups, no early repayment penalties. Repay anytime.
Withdraw Deposits
- Dashboard -> supplied assets -> click Withdraw
- Your aTokens are burned and you receive original tokens + earned interest
- If you have borrows, you can only withdraw collateral that keeps Health Factor > 1.0
Advanced Strategies
1. Supply wstETH (liquid staked ETH)
2. Enable ETH E-Mode (93% LTV)
3. Borrow ETH against wstETH
4. Swap borrowed ETH -> wstETH -> supply again
5. Repeat 2-3 times for leveraged staking yield
Risk: Minimal if wstETH maintains peg to ETH
1. Supply USDC on Aave
2. Enable Stablecoin E-Mode (97% LTV)
3. Borrow USDT at lower rate
4. Supply borrowed USDT into a higher-yield protocol
Risk: Stablecoin depeg event (rare but possible)
1. Supply ETH as collateral
2. Borrow USDC against ETH
3. Buy more ETH with borrowed USDC
4. Supply new ETH -> borrow more -> repeat
⚠️ If ETH drops 30-40%, you get liquidated with penalty
Security Best Practices
- Bookmark app.aave.com - phishing sites exist. Never click links from DMs
- Start small - test with $50-100 before committing large amounts
- Monitor Health Factor daily if you have active borrows
- Use stablecoin pairs for lowest liquidation risk
- Consider DeFi Saver for automated liquidation protection
- Revoke unused approvals - use Etherscan's token approval checker
- Hardware wallet for large positions - Ledger guide
Using DEXTools With Aave
Use DEXTools alongside Aave to:
- Monitor collateral token prices in real-time
- Check liquidity depth before supplying exotic tokens
- Track market cap changes that could affect your positions
- Verify token contracts with DYOR tools
Troubleshooting
Cannot Supply or Borrow
- Check you have enough gas tokens for the network
- Some assets have reached their supply cap (protocol limit)
- First-time actions require a separate approval transaction
Health Factor Dropping
- Add more collateral or repay part of your debt immediately
- Switch to a more stable collateral asset
- Set up DeFi Saver automation for liquidation protection
Key Takeaways
- Aave is the #1 DeFi lending protocol with $24.8B TVL across 20+ chains
- Earn 3-10% APY on stablecoins by supplying - higher than most banks
- Borrow against your crypto without selling - keep your upside exposure
- Start on Arbitrum or Base for gas fees under $0.10
- Health Factor > 2.0 is the safe zone - never let it drop below 1.5
- E-Mode lets you borrow up to 97% LTV on correlated assets
- No KYC, no lock-ups - deposit and withdraw anytime, 24/7
- Use DEXTools to monitor collateral prices
Disclaimer: DeFi lending involves smart contract risk, liquidation risk, and variable interest rates. Aave has been audited but no protocol is 100% safe. Never deposit more than you can afford to lose. DYOR.
Related Guides
- How to Borrow on Aave Safely: Collateral, Health Factor and Repayment Flow (2026)
- JustLend Tutorial: How to Lend and Borrow on TRON (2026)
- Deposit Growth vs Borrow Growth in DeFi: Guide
- Aave Protocol Explained: V3, GHO, Risk Modes and How the Market Works (2026)
- Borrow Cap vs Supply Cap: How Lending Limits Protect DeFi Markets
- EVAA Protocol Tutorial
Frequently Asked Questions
What is Aave and how does it work?
Aave is a decentralized lending protocol where you can deposit crypto to earn interest (3-10% APY on stablecoins) or borrow against your deposits as collateral. It runs on smart contracts across 20+ blockchains with $24.8B in total value locked.
What APY can I earn on Aave?
Stablecoin supply rates (USDC, USDT, DAI) typically range from 3-10% APY depending on the chain and demand. ETH earns 1-3% and WBTC earns 0.5-2%. Rates are variable and change in real-time.
What is Health Factor on Aave?
Health Factor measures your collateral safety. Above 2.0 is safe, 1.0-1.5 is dangerous, and below 1.0 triggers liquidation where your collateral is sold with a 5-10% penalty. Never borrow more than 50% of your collateral value.
What is E-Mode on Aave?
E-Mode (Efficiency Mode) lets you borrow more against correlated assets. For example, you can borrow USDT against USDC at up to 97% LTV instead of the normal 80%, because both are stablecoins that should maintain similar value.
Which chain should I use Aave on?
Beginners should use Arbitrum or Base where gas fees are under $0.10. Ethereum has the deepest liquidity but costs $5-30 per transaction. Use Ethereum for positions above $10,000.
Is Aave safe to use?
Aave is the most battle-tested DeFi lending protocol with no major exploits on core contracts since 2020. However, smart contract risk always exists. Start small, monitor your Health Factor, and never deposit more than you can afford to lose.
What is GHO stablecoin?
GHO is Aave's native stablecoin that you can mint by borrowing against your Aave collateral at a fixed interest rate. AAVE token stakers get a discounted borrow rate of up to 50% off.
How do I avoid liquidation on Aave?
Keep your Health Factor above 2.0, never borrow more than 50% of collateral value, use stablecoin pairs for lowest risk, set up DeFi Saver alerts, and keep extra collateral ready to deposit if prices drop.