Coin columns · Ethereum City (Capital)
Aave and AAVE: The Governance Token of Ethereum’s Lending Giant
How a DeFi lending market is run by its token holders
AAVE is the governance token of Aave, a lending service that began on Ethereum. Users deposit coins to earn interest while others borrow against collateral, making Aave a best-known DeFi (finance run by code, not banks) lender.
1. From ETHLend to Aave
Aave began in 2017 as ETHLend, a peer-to-peer lending service founded by Stani Kulechov, and took the name Aave (Finnish for ‘ghost’) in 2018. The Aave Protocol launched in January 2020, and in October 2020 the old LEND token was swapped for AAVE at 100 to 1. Total supply is fixed at 16 million AAVE.
On the Crypto Nation map, AAVE stands in Ethereum City (the capital), because it was first issued on Ethereum. Aave Labs builds the software, while decisions such as interest rates and accepted collateral are voted on by the Aave DAO of AAVE holders.
2. A pooled lending design
Users deposit coins into shared pools, and others borrow by posting collateral worth more than the loan. Rates move automatically with how much of a pool is borrowed, and if collateral falls too far, anyone may repay part of the debt and take the collateral at a discount (liquidation).
AAVE has three main roles: voting, a DAO buyback programme using treasury funds (from 2025), and rewards tied to ‘Umbrella’, a safety mechanism live since 5 June 2025. Umbrella stakers lock deposit receipts such as aUSDC, or GHO, which are burned automatically to cover any bad debt, and earn rewards for taking that risk.
3. Where it is used, and key dates
Aave is among the most widely used DeFi lenders, for earning interest or borrowing without selling coins. It also runs the stablecoin GHO (since July 2023) and Horizon, a market for institutional real-world assets launched in August 2025.
Key dates: launch in January 2020, V3 in March 2022, Umbrella in June 2025 and, in late March 2026, V4 on Ethereum mainnet. V4 uses a hub-and-spoke design in which one large liquidity pool feeds several markets, and Aave Labs says V3 keeps running.
4. Things to know
Aave relies on smart-contract code and price feeds (oracles), so bugs, wrong prices or a collateral crash can trigger cascading liquidations. In November 2022 one trader’s manipulation of the CRV market left Aave with unrecoverable debt, the kind of event Umbrella targets. Deposits are not insured like bank deposits.
In 2026 tension between the developer and the DAO surfaced. In April Chaos Labs, Aave’s risk manager for over three years, left over differing views on risk, and BGD Labs and the Aave Chan Initiative chose not to renew. After Aave Labs sent part of a DAO revenue stream to a company wallet, Kulechov proposed ‘Aave Will Win’ to make Aave Labs a DAO subsidiary; many contributors were reported dissatisfied.
Written from information public up to October 2026. It does not recommend or rate any coin and is not investment advice. If something is wrong, please tell us through the contact page.