Aave
Aave borrowing is governed by collateral, health factor and repayment
Published
Aave borrowing is an overcollateralized loan workflow in which supplied assets create borrowing capacity, a health factor tracks the position, interest enlarges the debt, and repayment releases collateral for withdrawal. On Aave V4, a chosen Spoke applies its collateral factor, permitted assets and rate premium; Aave V3 markets use loan-to-value and liquidation-threshold settings. In both versions, the wallet receives borrowed tokens only after smart contracts confirm adequate collateral and available liquidity.
From supplied collateral to borrowed tokens
The Aave borrowing workflow runs through five decisions: wallet and network, market, collateral, debt amount and post-transaction monitoring. Aave Pro exposes the V4 Hub and Spoke choice, while the Aave V3 interface groups comparable choices by market and reserve.
- Connect a wallet through MetaMask or WalletConnect, then select the network and address holding the intended collateral.
- Choose a V4 Spoke or V3 market, supply an eligible ERC-20 token and enable it as collateral when required.
- Review the collateral factor or LTV, available liquidity, borrow cap, rate and projected health factor.
- Enter the debt amount, inspect the network fee and confirm the borrow transaction in the connected wallet.
- After confirmation, check the received token balance, outstanding debt and updated health factor on the dashboard.
With no existing allowance, a conventional ERC-20 setup uses two state-changing transactions to approve and supply; the borrow becomes a third. Permit-based approval replaces the approval transaction with a signature when supported. On Aave V3, borrowing ETH through the wrapped-token route uses WETH and the WrappedTokenGateway to deliver the base asset in one composed borrow action.
V4 Spokes and V3 markets do not share one parameter set
Aave V4 borrowing is organized by a Spoke that enforces collateral rules while a connected Hub holds and routes liquidity. Aave V3 borrowing is organized by a market whose reserves carry their own LTV, liquidation threshold, caps and rate strategy.
V4's 2-part Hub-and-Spoke structure lets the same asset appear under distinct collateral and pricing rules. Aave Pro identifies both parts of the market, so USDC, WETH or WBTC in one Spoke should not be treated as interchangeable with the same ticker elsewhere.
Collateral quality also feeds a V4 user risk premium on top of the Hub's base drawn rate. V3 prices debt mainly through reserve utilization and market configuration. E-Mode in V3 and specialized Spokes in V4 improve capital efficiency only for permitted asset relationships; neither creates a protocol-wide borrowing ratio.
Collateral factor and LTV define the opening ceiling
More broadly, Aave borrowing capacity is the sum of each enabled collateral asset's oracle value multiplied by its applicable factor, further constrained by available liquidity and borrow caps. V4 calls the opening ratio the collateral factor, or CF; V3 calls it loan-to-value, or LTV.
Risk ratios use basis-point precision: 1 basis point equals 0.01%, and 10,000 basis points represent 100%. A collateral factor of 0% contributes no capacity for a new borrow, even when the supplied asset remains visible in the account.
The displayed maximum therefore reflects more than the wallet's collateral value. An existing debt balance, a lower factor, an exhausted cap or reduced available liquidity lowers the amount. Chainlink feeds and other configured Aave oracle sources translate different token balances into one base value before validation. Selecting the exact maximum leaves the smallest gap between debt and the permitted limit.
Health factor is the position's operating limit
The Aave health factor compares risk-adjusted collateral with total debt. In V3, the numerator uses collateral value multiplied by weighted liquidation thresholds; V4 applies its configured collateral factors, and both versions divide the resulting value by total debt.
Generally, Aave marks a borrow position as eligible for liquidation once its health factor is below 1. Contracts express that boundary as 1e18 in WAD, an 18-decimal fixed-point format, while interfaces render it as the readable number 1. Higher collateral prices and repayments raise the metric; growing debt or falling collateral values reduce it.
Worked example: hypothetical values only
Every changing input in this worked example is hypothetical: collateral value is $10,000, LTV is 70%, liquidation threshold is 80%, and debt is $5,000. Opening capacity equals $7,000, while health factor equals $10,000 × 80% ÷ $5,000, or 1.6. After a hypothetical 25% collateral decline, value becomes $7,500 and health factor becomes 1.2. A hypothetical $1,000 repayment leaves $4,000 of debt and raises health factor to 1.5.
Crossing the boundary invokes different liquidation engines. V3's default close factor is 50%; it rises to 100% when health factor is 0.95 or lower, or when collateral or debt value falls below $2,000. A partial V3 liquidation must leave at least $1,000 of both debt and collateral. V4 removes the fixed close factor, targets a configured post-liquidation health factor and uses a hard-coded $1,000 dust threshold.
Interest begins at confirmation and expands the debt
Equally, Aave borrow interest starts accruing when the borrow transaction confirms and increases the debt without another wallet action. The live rate is not a durable figure because utilization, governance settings, rate-curve parameters and V4 collateral risk continually determine it.
The other half of this is described in Aave notes. V3 uses a 2-region utilization curve: the first slope operates below optimal usage, while a steeper second slope prices scarce liquidity above it. V4 separates interest into 2 concurrent streams. Drawn debt accrues at the Hub's base rate, and premium debt adds the charge produced by the borrower's collateral composition.
Four common reserve actions - supply, withdraw, borrow and repay - change balances or utilization and update protocol accounting. A later rate change affects future accrual rather than rewriting previously accumulated debt. Full repayment consequently means the original principal plus all interest recorded through the repayment transaction.
Repayment reduces debt before collateral becomes withdrawable
Even so, Aave repayment supports two outcomes: a partial payment lowers debt and improves health factor, while a full payment closes the selected debt position. Direct protocol repayment transfers the same asset that was borrowed, including the interest accumulated in that asset.
An ERC-20 repayment without an existing allowance commonly requires two wallet actions: approval followed by repayment. An EIP-2612 signature replaces the separate approval transaction for supported tokens. For a supported native-asset route, the gateway unwraps WETH and repays ETH-denominated debt in one composed transaction.
Full repayment does not automatically send supplied assets back to the wallet; the supply position remains until a separate withdrawal is confirmed. With debt still open, a withdrawal must leave the health factor at or above the protocol boundary. The amount is also limited by unborrowed liquidity available in the relevant Hub or V3 pool.
Why a borrow or withdrawal reverts after preview
An Aave borrow or withdrawal reverts when final onchain validation disagrees with the preview or a required condition has changed. The contracts check collateral status, caps, liquidity, token balances, allowances, reserve flags, oracle values and the resulting health factor during execution.
V4 also refreshes dynamic risk snapshots on three health-decreasing actions: borrowing, withdrawing and disabling collateral. These snapshots use 32-bit configuration keys, supporting 2^32 possible identifiers. If the latest collateral factor makes the requested action unsustainable, the transaction reverts and the position remains unchanged, although the submitted transaction still consumes network gas.
Version selection matters because V3 and V4 coexist. Aave V4 activated on Ethereum on March 30, 2026 with three initial Hubs - the Core Hub, Prime Hub and Plus Hub - while V3 positions continued operating. Matching the dashboard, network, market and wallet address distinguishes a parameter failure from viewing a different position.
Aave borrowing: frequently asked questions
Does an Aave borrow have a fixed repayment date?
An ordinary Aave variable-rate borrow has no fixed maturity date. The position remains open until you repay, while interest keeps accruing and collateral requirements remain enforceable. Time alone does not close the debt. A falling health factor, a disabled market action or insufficient collateral changes what you can do before repayment, even though no calendar deadline was set.
Can I repay Aave debt with a different token?
Direct repayment uses the same asset that was borrowed. A USDC debt is settled with USDC at the protocol layer, while an interface may compose a swap from another token before sending the repayment. That composed route adds swap execution and its own gas cost, so the wallet should review both the conversion amount and the final debt reduction.
Which token pays gas when I repay on Ethereum?
Ethereum repayments use ETH to pay network gas, even when the debt asset is USDC, GHO, WETH or another ERC-20 token. The wallet therefore needs enough ETH for the approval transaction, when required, and for the repayment transaction. A signature-based approval avoids a separate paid approval transaction, but the onchain repayment still consumes ETH.
Can another wallet repay my Aave position?
Another wallet can reduce an Aave debt through the version's on-behalf flow. Aave V3 lets the payer name the borrower address, while Aave V4 routes the action through an approved position manager. The paying wallet supplies the borrowed asset and pays gas. Repayment reduces the named borrower's debt and does not transfer ownership of that borrower's remaining supply position.
Are supplied assets still earning while they secure an Aave borrow?
Supplied assets continue earning the applicable supply return while enabled as collateral. Aave V3 represents the claim with interest-bearing aTokens, while Aave V4 accounts for supplied shares through its Hub-and-Spoke system. Supply returns and borrow costs move independently, so earning on collateral does not cancel the interest accruing on the debt.
