A bank decides who may borrow and on what terms. On Aave (opens in a new tab), those rules are written into smart contracts: people deposit crypto into shared pools to earn interest, while others borrow from the same pools against collateral, and everyone acts from a wallet they control. The protocol made its debut in 2020, created by the team that had previously built ETHLend. Aave Labs calls itself the original author of the code.
Deposits come back as aTokens, such as aUSDC, which accrue interest automatically. Rates move with the utilisation rate, the part of a pool that is currently lent out. Every loan is overcollateralised, so a borrower locks up more value than they take out. Should that collateral fall below its minimum threshold, a liquidator repays part of the loan and receives collateral worth more than the sum repaid. Besides Ethereum, the contracts run on several other networks, Arbitrum, Base and Avalanche among them.
AAVE, the governance token, arrived in 2020 to replace LEND. AIP-1, the first Aave Improvement Proposal, switched on a contract that exchanged 100 LEND for each AAVE, and the supply was set at 16 million. The same proposal launched the Safety Module, where holders can stake AAVE for rewards. Staked AAVE was meant as a reserve to absorb a shortfall. That job is moving to Umbrella, in which depositors stake their aTokens, and each stake only covers bad debt in that asset on that network.
Europe has a regulated link to the project too. In November 2025 the Central Bank of Ireland authorised Push Virtual Assets Ireland, a subsidiary of Aave Labs, as a crypto-asset service provider under MiCA. Aave Labs stresses that the licence applies solely to Push's on- and off-ramps between fiat money and stablecoins, and that the protocol remains decentralised and permissionless.
Borrowers can lose collateral in a liquidation, audits cannot rule out a flaw in the contracts, and the AAVE price can tumble within days.
Official website: aave.com (opens in a new tab)