Aave Leads Lending Protocols by TVL With $16.36 Billion Locked

Aave ranked first among decentralized lending protocols by total value locked on Nov. 10, with $16.362 billion locked and $11.891 billion in active loans across its markets.

Those figures measure separate parts of the protocol’s activity: the value held in its markets and the amount borrowers have taken out. Aave is a decentralized lending protocol, and its V3 markets use blockchain contracts to connect suppliers and borrowers through shared pools.

A person who supplies an asset to a V3 pool receives an interest-bearing aToken tied to that asset. The interest comes from borrowing activity, and the return can change as pool utilization shifts. Borrowing rates also vary with utilization, or how much of a pool’s available assets are being borrowed.

Borrowers draw funds from a pool against eligible collateral. For a standard V3 loan, the collateral backing the position must be worth more than the debt.

Aave uses a health factor to measure a borrow position’s proximity to liquidation. A reading below 1 makes the position eligible for liquidation. A decline in collateral value or an increase in debt can move a position closer to that threshold; a liquidator may repay part of the debt and receive collateral at a discount.

Suppliers can withdraw only liquidity that has not been borrowed. If all of a pool’s available funds are lent out, suppliers have to wait for borrowers to repay or for additional funds to enter the pool before withdrawing those assets.

Collateral requirements do not remove every risk. Software flaws, inaccurate price data or problems with assets used as collateral can also affect users and their positions.

The Aave (AAVE) token is used for protocol governance and is separate from the aTokens suppliers receive. Aave also has GHO, a dollar-pegged stablecoin, and V4 lending markets organized around shared liquidity hubs and spokes.