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Decentralized finance (DeFi) has transformed how people interact with money, and Aave is one of the leading protocols driving that change. With Aave, anyone can lend and borrow cryptocurrencies without a bank, credit check, or intermediary all powered by smart contracts ✨.
If you're new to the platform or simply want a clear overview of how borrowing and lending work on Aave, this guide is for you.
What Is Aave?
Aave is an open-source liquidity protocol where users deposit crypto assets to earn interest or borrow assets against collateral. It supports a wide variety of tokens, including stablecoins, Layer-1 assets, and popular DeFi tokens.
Why Use Aave?
Aave offers several advantages:
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Passive income when lending 💰
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Over-collateralized borrowing (no credit score required)
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Flash loans for advanced users ⚡
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Transparent smart-contract management
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Flexible interest rates (stable or variable)
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How to Lend Crypto on Aave 🟢
Lending is the simplest way to use Aave. You deposit your assets into a liquidity pool and earn interest automatically.
🔹 Step 1: Connect Your Wallet
Go to app.aave.com and connect a compatible wallet such as:
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MetaMask
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Ledger
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Coinbase Wallet
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Rabby Wallet
Make sure you're on the correct blockchain network (Ethereum, Polygon, Optimism, Arbitrum, etc.).
🔹 Step 2: Choose an Asset to Supply
Aave displays all supported assets along with APY rates. Select the token you want to supply (e.g., USDC, ETH, DAI).
🔹 Step 3: Approve and Confirm the Deposit
Click “Supply”, approve the token, then confirm the transaction in your wallet. Once confirmed:
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You instantly begin earning interest 🌱
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You receive aTokens, which represent your deposit and continuously accumulate interest
🔹 Step 4: Track Your Earnings
Your dashboard will show real-time APY, rewards, and total supplied value. You're free to withdraw at any time.
How to Borrow Crypto on Aave 🔵
Borrowing requires collateral. When you supply an asset, you unlock a borrowing limit based on the deposited value.
🔹 Step 1: Enable the Asset as Collateral
In your dashboard, toggle “Use as Collateral” for the asset you supplied.
Each token has its own Loan-to-Value (LTV) ratio, which determines how much you can borrow.
🔹 Step 2: Select the Asset You Want to Borrow
Aave shows available assets along with:
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Borrow APY
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Available liquidity
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Risk parameters
Choose what you want to borrow for example, borrowing stablecoins while holding ETH is common.
🔹 Step 3: Choose the Interest Rate Mode
Aave offers two rate types:
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Variable rate (fluctuates with market demand)
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Stable rate (less volatile, but not fixed forever)
Pick the option that fits your strategy.
🔹 Step 4: Borrow and Confirm the Transaction
Click “Borrow”, adjust the amount, and confirm the transaction in your wallet.
After approval, the borrowed assets appear immediately in your wallet 🚀
Understanding Liquidation Risk ⚠️
Aave is fully collateralized. If the value of your collateral drops or your borrowed amount increases due to interest:
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Your Health Factor may fall
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If the Health Factor goes below 1.0, liquidation can occur
Keep your Health Factor safe by:
✔ Adding more collateral
✔ Repaying part of the loan
✔ Avoiding the maximum borrowing limit
Repaying Your Loan 🔁
To repay:
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Go to your dashboard
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Choose the borrowed asset
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Click “Repay”
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Confirm the transaction
Once repaid, you’re free to withdraw any remaining collateral.
Final Thoughts 🌐
Aave makes lending and borrowing cryptocurrencies accessible to anyone, combining transparency, strong security, and full user control. Whether you want to earn passive income or access liquidity without selling your assets, Aave offers a flexible and efficient DeFi experience.
As always, remember that DeFi carries risks so keep an eye on collateral ratios, market volatility, and gas fees.
Disclaimer: This content is informational and should not be considered financial advice. The views expressed in this article may include the author's personal opinions. Readers are encouraged to do thorough research before making any investment decisions. The Crypto Canadas is not responsible for any financial losses.
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