Use Aave to Lend and Borrow
Aave V4 went live on Ethereum mainnet on 30 March 2026 with a hub-and-spoke architecture, and reached its first non-Ethereum network — Avalanche — on 15 July 2026. Aave V3 markets continue to run in parallel, so the first thing to get right is which deployment you are actually using.
Aave is an over-collateralised money market. You supply an asset, it earns the market's supply rate, and it can be pledged as collateral so you can borrow a different asset without selling what you hold. Nothing about that core loop changed in V4 — what changed is where the liquidity sits and how risk is compartmentalised, which affects the rates you see and the assets you can pair.
This guide walks the full round trip: choosing a deployment, supplying, borrowing, monitoring the health factor, repaying and withdrawing. It also covers the failure modes that actually cost people money on lending protocols, which are almost never smart-contract exploits and almost always liquidations the borrower did not see coming.
What you'll need (prerequisites)
- Self-custodial wallet (MetaMask, Rabby, etc.)
- ETH or native gas token
- Tokens to lend and borrow with
- Familiarity with transaction approvals
How Aave V4's hub-and-spoke design changes what you see
In V4 a per-chain Liquidity Hub holds the supplied assets centrally, and Spokes connect to it. Each Spoke brings its own collateral set, risk parameters and liquidation rules while drawing on the shared Hub liquidity. The practical consequence is that borrowing depth no longer has to be duplicated for every new market: a conservative Spoke and a more permissive one can coexist without fragmenting the underlying pool.
The other user-visible change is accounting. V4 adopts the ERC-4626 vault standard, which removes the rebasing behaviour of the older aTokens — your token balance stays constant and the share price appreciates instead. If you have tax software or a spreadsheet that assumed a growing aToken balance, it will need updating. The initial V4 asset list was deliberately narrow (stablecoins such as USDT, USDC and EURC alongside assets like XAUt and cbBTC) and is being widened progressively as governance watches how liquidity behaves.
None of this deprecates V3. Many chains still run V3 markets only, and the two have separate front-end views, separate risk parameters and separate rates. Read the market header before you deposit — a position opened in a V3 market is not visible or manageable from a V4 Spoke.
Recommended for this tutorial
Tools and accounts referenced in the steps below:
Step-by-step
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Step 1: Decide which deployment and market you want
Open the official Aave app and check three things before anything else: the chain selector, whether the market is a V3 pool or a V4 Spoke, and the current supply/borrow rates for the assets you care about. Rates on Aave are utilisation-driven and move continuously, so a rate you read yesterday is not a rate you can count on today. Aave's own site and its governance forum are the only places worth trusting for which markets are live; aggregators lag.
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Step 2: Connect a self-custodial wallet — and verify the URL first
Type the address in by hand or use a bookmark you created yourself. Search-ad phishing that clones lending front-ends is a recurring problem, and a cloned Aave page can only hurt you if you sign something on it. Click Connect Wallet, choose your wallet, and approve the connection signature — a connection request never moves funds. If a "connect" prompt asks you to approve a token or sign a message containing a spender address, close the tab.
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Step 3: Fund the wallet with the asset and with gas
You need the asset you intend to supply plus the chain's native token for gas. Keep a real buffer, not the exact amount: if you are liquidation-sensitive you must be able to send a repay transaction during a volatile block, and running out of gas at that moment is a self-inflicted liquidation. On Ethereum mainnet that buffer should be meaningfully larger than on an L2.
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Step 4: Approve the token, then supply
The first interaction with any ERC-20 needs an approve transaction granting the Aave contract permission to move that token. Prefer an exact-amount approval over unlimited where the interface offers the choice, or use a permit signature if the token supports one. Then submit the supply transaction. Once confirmed you hold the market's receipt token, and your position appears in the dashboard with a live supply APY.
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Step 5: Enable the asset as collateral and read your borrowing power
Supplying and collateralising are separate switches. Toggle use as collateral only for the assets you actually want backing a loan — anything you leave un-collateralised cannot be seized in a liquidation. The dashboard then shows your maximum loan-to-value, which is set per asset per market. Borrowing to the maximum is the single most common way to get liquidated; treat the maximum as a hard ceiling you never approach.
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Step 6: Borrow, and check the resulting health factor before confirming
Choose the asset to borrow and the amount. Before you confirm, look at the projected health factor: it is the ratio of your risk-adjusted collateral to your debt, and the position becomes liquidatable when it reaches 1. Aave shows the projected value for the transaction you are about to send. A health factor of 2 or above on volatile collateral, and rather more if your collateral and debt can move in opposite directions, is a defensible starting point. Confirm in your wallet and wait for the transaction to land.
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Step 7: Monitor the position and keep repayment capacity ready
Health factor moves on its own as prices move and as borrow interest accrues. Set a price alert on your collateral asset, and keep either spare collateral or spare borrowed-asset balance in the same wallet so you can top up or repay in one transaction. Repaying part of the debt and adding collateral both raise the health factor; the former is usually cheaper in gas and always cheaper in risk.
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Step 8: Unwind: repay, disable collateral, withdraw, and record it
To close out, repay the debt (interest accrues to the block you repay in, so the app will offer a "repay all" that includes a small buffer), then withdraw the supplied asset. Open the transactions on the chain's explorer and confirm the balance changes match what you expected. Save the hashes — supply interest and borrow interest are both reportable events in most jurisdictions, and reconstructing them a year later from a rebase-free vault balance is tedious.
What it actually costs
Aave does not charge a flat trading fee. Your cost is the spread between the borrow rate you pay and the supply rate you earn, both of which float with pool utilisation, plus network gas, plus — if things go wrong — the liquidation penalty. Rates and penalties are set per asset per market by governance, so read them in the app for your specific market rather than assuming a number from a guide.
Gas is the difference between a viable and a pointless position size. A full supply-approve-borrow-repay-withdraw cycle is five or six transactions. On Ethereum mainnet that can dominate the economics of a small position; on an L2 it is usually negligible. If your position is small, use an L2 deployment.
Liquidation is where the real cost sits. When the health factor falls to 1, a liquidator repays part of your debt and takes collateral plus a bonus. You do not choose the timing and you do not get the bonus back. The penalty is a parameter you can read in the market's risk details before you borrow.
Security pitfalls
- Phishing front-ends. Reach the app from a bookmark. Never from a search ad, a Discord link, or a message that arrived unprompted.
- Unlimited approvals left standing. After you unwind a position, revoke approvals you no longer need at revoke.cash. An old unlimited allowance is a permanent liability if the approved contract is ever compromised. See how to revoke token approvals.
- Signature phishing. Aave asks for transactions and, at most, permit signatures scoped to a token and amount. A blind
eth_signrequest, or a permit whose spender you do not recognise, is an attack. - Correlated collateral and debt. Borrowing an asset that rises when your collateral falls compounds the risk from both sides. Borrowing a stablecoin against volatile collateral is the simpler, more survivable shape.
- Oracle and depeg risk. Health factor is computed from oracle prices. A collateral asset that depegs — or an oracle that moves sharply — can liquidate a position that looked comfortable minutes earlier.
- Version confusion. Funds supplied to a V3 market are not collateral in a V4 Spoke and vice versa. Check the market label on every transaction.
- Hardware wallet for size. A position large enough to care about is a position large enough to sign from a hardware device. See setting up a Ledger.
Troubleshooting
- Transaction reverted on supply. Almost always a missing or insufficient allowance, or a supply cap that has been reached for that asset in that market. Re-run the approval, or check the asset's cap in the market details.
- Borrow button disabled. The asset may have a borrow cap, may be restricted in that Spoke, or your collateral may not be enabled. Check the collateral toggle first — it is the usual answer.
- Transaction stuck pending. Resubmit with a higher fee (replace-by-fee) using the same nonce, or cancel by sending a zero-value transaction to yourself at that nonce with a higher fee. Do this before you send anything else, because later transactions queue behind it.
- "Repay all" leaves dust debt. Interest accrued in the block your repay landed in. Repay the remaining dust in a second transaction; the app will show the exact figure.
- Position missing from the dashboard. You are almost certainly on the wrong chain or the wrong market version. Switch the network in your wallet and re-check the market selector before assuming anything is lost.
- Balance did not grow the way you expected. V4 uses ERC-4626 vault shares rather than rebasing tokens: the share count stays fixed and the redeemable value rises. Read the underlying value, not the token count.
- You were liquidated. Nothing can be reversed on-chain. Withdraw whatever collateral remains, work out which price move triggered it, and size the next position so the same move would not.
FAQ
Is Aave V4 live, and should I use it instead of V3?
Aave V4 launched on Ethereum mainnet on 30 March 2026 and was deployed on Avalanche on 15 July 2026, its first network beyond Ethereum. V3 markets remain live on many chains. V4's asset list is being widened progressively, so the practical answer is to use whichever deployment has the market you need with depth and a rate you accept — and to keep track of which one your position lives in.
What is a health factor and what number should I hold?
It is the ratio of your risk-adjusted collateral value to your debt value. At 1 the position can be liquidated. There is no universally safe number because it depends on how volatile your collateral is, but borrowing far below your maximum loan-to-value and holding a health factor comfortably above 2 on volatile collateral leaves room for an adverse move without forcing you to act inside a single block.
What does Aave charge?
There is no flat fee for supplying or borrowing. You pay the borrow interest rate, which floats with pool utilisation, and you earn the supply rate. Network gas is charged separately and is far cheaper on L2 deployments than on Ethereum mainnet. Liquidation carries a penalty set per asset by governance — read it in the market's risk parameters before you borrow.
Why did my aToken balance stop growing?
Aave V4 adopts the ERC-4626 vault standard, which replaces the rebasing balances of earlier aTokens. Your share balance is now constant and the value per share increases. Interest is still accruing; it just no longer shows up as a rising token count. Integrators, auditors and tax tools generally find this easier to reconcile.
Has Aave been audited, and does that make it safe?
Aave is among the most heavily reviewed protocols in DeFi and audit reports are linked from the official documentation. Audits reduce the chance of a contract bug; they do not remove oracle failure, governance risk, collateral depegs or your own liquidation risk. Treat an audit as a floor, not a guarantee.