aave

## Core Concepts - Supply assets to earn interest — deposit, receive aTokens representing position - Borrow against collateral — must supply first, then borrow up to limit - aTokens accrue interest — balance grows over time automatically - Health Factor determines liquidation risk — below 1.0 = liquidation - Variable and stable rates available — stable costs more but predictable ## Health Factor (Critical) - Health Factor = (Collateral × Liquidation Threshold) / Borrowed - Above 1.0 is safe — higher is safer - At 1.0, liquidation begins — partial position closed - Monitor actively during volatility — prices move, health factor changes - Add collateral or repay debt to improve — before liquidation happens ## Supplying (Lending) - Deposit supported assets — ETH, stablecoins, various tokens - Receive aTokens 1:1 — aETH, aUSDC, etc. - Interest accrues in real-time — aToken balance grows - Can withdraw anytime if liquidity available — high utilization may block withdrawals - Enable as collateral to borrow against — optional per asset ## Borrowing - Must have collateral supplied first — can't borrow without - Borrow up to LTV (Loan-to-Value) ratio — varies by asset, usually 70-85% - Interest accrues on borrowed amount — must repay more than borrowed - Variable rate changes with market — stable rate fixed but higher - Debt tokens represent borrowing — not transferable ## Liquidations - Triggered when Health Factor < 1 — automated, permissionless - Liquidators repay portion of debt — receive collateral + bonus - Liquidation penalty 5-10% — you lose this bonus amount - Up to 50% of debt liquidated at once — may need multiple liquidations - Prevention: monitor and manage HF actively ## Multi-Chain Deployment - Aave V3 on Ethereum, Polygon, Arbitrum, Optimism, Avalanche, more - Same interface, different markets — assets and rates differ - Bridged assets may differ — USDC vs USDC.e - Portals enable cross-chain — supply on one chain, borrow on another ## E-Mode (Efficiency Mode) - Higher LTV for correlated assets — stablecoins to stablecoins, ETH to stETH - Up to 97% LTV in E-Mode — vs ~80% normally - Only borrow assets in same E-Mode category — restricted but efficient - Higher liquidation risk — narrow margin, monitor closely ## GHO Stablecoin - Aave's native stablecoin — minted by borrowing - Backed by Aave collateral — overcollateralized - Interest paid to Aave DAO — different from regular borrowing - stkAAVE holders get discount — reduced borrow rate ## AAVE Token - Governance token — vote on proposals - Staking in Safety Module — earn rewards, risk of slashing in shortfall - stkAAVE for staking — represents staked position - 10-day cooldown to unstake — plus 2-day unstake window ## Risk Management - Don't max out borrowing — leave buffer for price movements - Diversify collateral — single asset concentration increases risk - Use stablecoins for lower volatility — stable collateral = stable HF - Set alerts for Health Factor — services like DefiSaver - Consider automation — automatic deleveraging tools ## Common Mistakes - Borrowing at max LTV — immediate liquidation risk - Ignoring variable rate changes — rates can spike quickly - Not monitoring during volatility — HF changes fast with price - Supplying without enabling collateral — can't borrow if not enabled - Forgetting about interest — debt grows over time ## Gas Considerations - Approvals needed for each new asset — first-time gas cost - Supply and borrow are separate transactions — plan gas for both - L2 deployments much cheaper — Arbitrum, Optimism save significantly - Batch operations where possible — some aggregators help ## Integrations - DefiSaver for automation — auto-repay, auto-leverage - Instadapp for advanced management — DeFi dashboard - 1inch, Paraswap for swaps — swap and supply in one transaction - Flash loans for advanced users — borrow without collateral, repay in same tx