Overview
Aave is the largest lending protocol in decentralized finance. It lets people deposit crypto to earn interest and borrow against their crypto, with no bank and no credit check. It was founded by Stani Kulechov as ETHLend in 2017 and relaunched as Aave in 2020.
Aave runs on Ethereum and many other networks and held about $18 billion in deposits in October 2026, according to DeFiLlama, making it one of the biggest DeFi apps of all.
How it works
- Lenders deposit tokens into a pool and earn interest from borrowers.
- Borrowers must first deposit collateral worth more than they borrow, for example $150 of ETH to borrow $100 of USDC.
- If the value of the collateral falls too far, the position is liquidated: part of the collateral is sold to repay the loan.
Interest rates adjust automatically with supply and demand. Aave also offers flash loans, instant loans that must be repaid within the same transaction, a tool used by traders and developers.
V4, GHO and Horizon
- Aave V4 went live on Ethereum on 30 March 2026. It uses a “hub and spoke” design that pools liquidity in a central hub while letting specialized markets (spokes) set their own rules. V4 deposits reached a record of about $800 million by late August 2026, still a small part of Aave overall.
- GHO is Aave’s own dollar stablecoin, created when users borrow against their deposits.
- Horizon is Aave’s market for institutions to borrow against tokenized real-world assets, such as Treasury funds.
The AAVE token
| AAVE at a glance | |
|---|---|
| Maximum supply | 16 million AAVE |
| In circulation (Oct 2026) | about 15.4 million |
| Price (21 Oct 2026) | about $154 |
| All-time high | about $662 (May 2021) |
| Market cap | about $2.4 billion (#44) |
AAVE is used for governance and can be staked in Aave’s Safety Module, which protects the protocol against losses in exchange for rewards. In 2025, the DAO approved buybacks of $50 million a year funded by protocol revenue. These were paused in spring 2026 while the DAO dealt with bad debt linked to the rsETH token, whose problems left some loans on Aave under-collateralized.
The US SEC closed its investigation into Aave at the end of 2025.
Security and reliability
Aave’s core contracts have run since 2020 through several major crashes without a large hack. The main risks are:
- Collateral risk. If a token accepted as collateral fails or is hacked, as with rsETH in 2026, Aave can be left with bad debt.
- Liquidations. Borrowers can lose part of their collateral quickly in sharp market drops.
- Oracle risk. Aave depends on price feeds (mainly Chainlink) being accurate.
- Governance. Aave’s DAO has had heated disputes, including between the DAO and the company Aave Labs.
Aave vs. the competition
| Aave | Morpho | Compound | |
|---|---|---|---|
| Deposits (Oct 2026) | ~$18 billion | Several billion | Smaller |
| Model | Shared pools (V3) and hub-and-spoke (V4) | Separate custom markets | Shared pools |
| Own stablecoin | GHO | No | No |
Our verdict
Aave is the backbone of DeFi lending: the largest, the most proven, and constantly evolving with V4, GHO and real-world assets. For DeFi as a whole, it is a cornerstone.
As an investment, AAVE benefits from real revenue, but 2026 showed the risks of the collateral it accepts, and buybacks were paused. AAVE is a high-risk, long-term bet on DeFi lending. Invest only what you can afford to lose, and if you borrow on Aave, watch your liquidation level closely.
This review is for information only and is not financial advice.