| APY | Annual Percentage Yield, which is the yield/interest after a year, including compounding interest. This differs from APR, which does not account for compounding effects. |
| aTokens | Interest-bearing tokens received by users when they supply assets to Aave V3 markets. aTokens represent the user’s share of the liquidity pool and accrue interest in real-time. |
| Borrow Cap | A limit set by Aave Governance on the maximum amount of an asset that can be borrowed from the protocol. This helps manage exposure and risk associated with each asset. |
| Collateral | An asset supplied to Aave to secure a borrowing position. The collateral must exceed the value of the borrowed amount to ensure the protocol’s solvency. |
| Cooldown Period | A mandatory waiting period that stakers must observe before they can unstake their tokens from the Safety Module. |
| Credit Delegation | A feature where users can delegate their borrowing power to another user who can then take out loans using the collateral of the delegator. This is facilitated through the Aave Protocol’s smart contracts. |
| Debt Ceiling | The maximum debt that could be issued against an asset in Isolation Mode. Removed in Aave V3.7 along with Isolation Mode. |
| E-Mode | Efficiency Mode allows borrowers to extract higher borrowing power when using correlated assets (e.g., stablecoins). Since Aave V3.7, a category can be isolated so that only its collateral assets count toward borrowing power. |
| Facilitator | A contract approved by Aave Governance to mint and burn GHO, up to a governance-defined bucket capacity. |
| Flash Loan | A type of uncollateralized loan offered by Aave, which must be borrowed and repaid within the same transaction. |
| GHO | A decentralized, overcollateralized stablecoin that is fully backed, transparent, and native to the Aave Protocol. It is governed and managed by the Aave DAO. |
| Governance Power | Refers to the ability to create proposals or vote in Aave’s governance system, based on AAVE, stkAAVE, or aAAVE token holdings. |
| Health Factor | A ratio that determines the health of a user’s loan position. It compares the user’s collateral value, weighted by each asset’s liquidation threshold, to their total debt. A health factor below 1 triggers liquidation. |
| Isolation Mode | An Aave V3 feature that limited borrowers using an isolated asset as collateral to borrowing certain stablecoins up to a debt ceiling. Removed in Aave V3.7 and replaced by isolated E-Mode categories. |
| Liquidation | The process that occurs when a borrower’s health factor drops below 1, where a liquidator repays part or all of the debt and receives the borrower’s collateral plus a liquidation bonus, bringing the position back to a safer level. |
| Liquidation Bonus | The bonus provided to liquidators as an incentive to purchase undercollateralized assets in a liquidation event. It is expressed in percentage points. |
| Liquidation Threshold | The point at which a loan becomes eligible for liquidation due to insufficient collateral relative to borrowed funds. The threshold is defined per asset and determines the collateral value required to maintain a position. |
| Liquidity Hub | The central liquidity source in Aave V4. It holds Hub Assets, grants each Spoke credit and debit lines, and enforces system-wide accounting. |
| Liquidity Index | Tracks the cumulative interest earned by a reserve over time, used to calculate accurate interest payments. |
| Loan To Value (LTV) | The maximum percentage of a collateral asset’s value that can be borrowed. For example, an LTV of 75% means that for every 1 ETH of collateral, up to 0.75 ETH worth of assets can be borrowed. |
| Network Risk | Risks associated with the blockchain networks on which Aave operates, such as congestion, security vulnerabilities, or network failures. |
| Oracle | A service used by Aave to fetch external data, such as the prices of assets, which is critical for determining the value of collateral and debt. |
| Ray units | A unit of measurement with 27 decimals, used by Aave for internal calculations to ensure precision, particularly for rates and exchange values. |
| Reserve Factor | A percentage of interest accrued by borrowers that is allocated to the Aave Treasury to help safeguard the protocol. |
| Risk Admin | An entity or automated system responsible for adjusting risk parameters in Aave without going through a governance vote. This allows Aave to respond quickly to unforeseen risks. |
| Safety Module | The legacy staking mechanism where AAVE (stkAAVE) and ABPT (stkABPT) are staked as insurance against shortfall events. Umbrella is gradually replacing it for bad-debt coverage. |
| sGHO | Savings GHO, an ERC-4626 vault on Ethereum where GHO deposits earn a rate with no cooldown period and no slashing risk. |
| Siloed Borrowing | An Aave V3 feature that restricted certain assets to being borrowed alone. Removed in Aave V3.7. |
| Spoke | An Aave V4 module for a specific supply and borrow use case, asset type, or risk profile. Users interact with Spokes, which route liquidity to and from the Liquidity Hub. |
| Supply Cap | A limit set on the total amount of a particular asset that can be supplied to the Aave protocol. |
| Umbrella | The onchain system that semi-automatically covers bad debt in Aave V3 pools by slashing staked assets, mainly wrapped aTokens. Stakers earn rewards and accept slashing risk on the asset and network they stake. |
| Utilization Rate | A metric that determines the proportion of borrowed assets to the total available assets in a reserve. A higher utilization rate indicates higher borrowing demand. |
| Voting Power | The amount of influence a user has in governance decisions, determined by the amount of AAVE, stkAAVE, or aAAVE they hold. |