How to Borrow Crypto on Aave: A Step-by-Step Guide

Borrowing crypto on Aave means supplying an asset as collateral to a lending pool, then drawing a loan in a different asset against that collateral's value, with the loan continuously monitored by a health factor that determines when it becomes eligible for liquidation.

Before you start: understand the mechanism

Aave is a DeFi lending protocol where all borrowing is overcollateralized — you must supply more value in collateral than you borrow. There's no credit check and no fixed repayment schedule; instead, the protocol enforces safety through collateral ratios and continuously accruing interest on both sides. If your collateral's value falls too far relative to your debt, anyone can trigger a liquidation that sells off part of your collateral to repay the loan, generally at a penalty to you.

Knowing this before you deposit a single token changes how you should size a position: borrowing conservatively relative to your collateral is what actually protects you here, not luck.

Step 1: Connect a wallet and choose your collateral asset

Connect a self-custody wallet — a crypto wallet you control the keys to — to Aave's app on your chosen network. Decide what you're supplying as collateral. Volatile assets (ETH, staked ETH derivatives) and stablecoins are both accepted, but they carry different loan-to-value (LTV) limits: stablecoin collateral typically allows borrowing a higher percentage of its value than a volatile asset does, because its price is far less likely to swing suddenly.

Step 2: Supply collateral

Supply the chosen asset to the relevant Aave market. Once supplied, it starts earning the market's supply interest rate immediately, and it becomes usable as collateral (you can also toggle an asset to be supplied without using it as collateral, if you just want to earn yield without borrowing against it).

Step 3: Check your available borrowing power

Aave will show your total collateral value, your current borrowing power (based on the asset's LTV parameter), and your liquidation threshold — the collateral ratio at which liquidation becomes possible. These are not the same number: LTV determines the maximum you can initially borrow, while the liquidation threshold is typically set a bit higher (safer) than the max LTV, leaving a buffer.

Step 4: Choose what to borrow and how much

Select the asset you want to borrow and an amount well below your maximum available borrowing power. Borrowing right up to the limit leaves no room for price movement before you're at liquidation risk. A common conservative approach is to borrow only a fraction of what's technically available, keeping a wide buffer.

You'll also choose between a variable interest rate (which floats with market utilization) and, on markets where it's offered, a stable rate option. Variable rates are more common and reflect real-time supply and demand for that asset.

Step 5: Monitor your health factor

Your health factor is a single number summarizing how safe your position is — the higher above 1, the safer. It falls as your collateral's price drops or your debt (via accruing interest) grows, and it rises if you repay debt or add collateral. A health factor at or below 1 means the position is eligible for liquidation.

Set your own personal threshold well above the protocol's liquidation point, and check it regularly, especially during volatile markets. See our guide on avoiding liquidation for specific tactics.

Step 6: Repay or manage the position over time

You can repay part or all of the borrowed amount (plus accrued interest) at any time, which improves your health factor and frees up collateral. You can also add more collateral to improve your buffer without repaying anything, or withdraw excess collateral if your health factor has room to spare.

Aave borrowing at a glance

Concept	What it means	Why it matters
LTV (loan-to-value)	Max % of collateral value you can initially borrow	Sets your starting borrowing power
Liquidation threshold	Collateral ratio at which liquidation becomes possible	Your real safety line, not the LTV
Health factor	Single risk score combining collateral, debt, and thresholds	The number to actually monitor day to day
Variable rate	Interest rate that floats with pool utilization	Determines your ongoing borrowing cost
Liquidation penalty	Extra fee charged if you're liquidated	The cost of letting health factor hit 1

Bottom line

Borrowing on Aave is mechanically simple — supply collateral, borrow against it, repay over time — but the real skill is risk management: borrowing well below your maximum limit, watching your health factor, and understanding that market volatility can erode your buffer faster than you expect. Check live rates and utilization on the yield dashboard before opening a position, and never borrow an amount you couldn't comfortably repay or top up on short notice.