Aave step by step: borrow USDC against wrapped bitcoin
A walkthrough of Aave v3: wrap BTC, connect a wallet, supply collateral, borrow USDC, watch the health factor, repay and withdraw.
Advanced
Aave is a lending protocol: software on Ethereum and other networks that lets you supply one asset as collateral and borrow another. Nobody approves you and nobody holds your keys. This guide walks through borrowing USDC, a dollar token, against wrapped bitcoin on Aave v3.
Careful: Borrowing against bitcoin can lose the collateral. On Aave, liquidation is automatic and comes with no warning. Wrapping bitcoin adds risks of its own. This guide is education, not advice. Start with an amount you could afford to lose while you learn.
First: what wrapped bitcoin is
Aave does not run on the Bitcoin network, so it cannot hold native BTC. It accepts wrapped bitcoin: tokens such as WBTC or cbBTC that live on Ethereum or on a layer-2 network. Each token is issued by a company that holds real BTC to back it, one for one.
It is a separate step. You turn native BTC into the wrapped token, usually by depositing BTC at an exchange and withdrawing WBTC or cbBTC to your Ethereum wallet, on the network you plan to use.
It has a cost. Exchange fees, withdrawal fees and network fees apply, going in and coming back.
It has its own risk. A wrapped token is a claim on BTC held by the issuer. If the issuer fails or freezes redemptions, the token can be worth less than the bitcoin behind it.
What you need
An Ethereum wallet whose keys you hold. A hardware wallet is the safer choice.
Wrapped bitcoin (WBTC or cbBTC) in that wallet.
A little of the network's own currency for transaction fees: ETH on Ethereum and on most layer-2 networks.
Supply collateral and borrow
Type app.aave.com in your browser yourself and bookmark it: app.aave.com. Fake copies of the site exist, and ads often lead to them.
Click Connect wallet and choose your wallet. Connecting only shows your address. It moves nothing.
Choose the market at the top of the page: the same network your wrapped bitcoin is on.
Under Assets to supply, find WBTC or cbBTC and click Supply. Enter the amount.
Approve the token in your wallet the first time, then confirm the supply. These are two signatures, and each one costs a network fee.
Under Your supplies, check that the asset is switched on as collateral. If the switch is off, it cannot back a loan.
Under Assets to borrow, find USDC and click Borrow. Enter the amount. Before you confirm, the app shows what your health factor will be after the loan.
Borrow well below the maximum the app offers. The maximum leaves almost no room for a price fall.
Confirm in your wallet. The USDC arrives at your address.
The health factor
The health factor is one number that says how safe the position is. It compares the value of your collateral, adjusted by a limit that Aave sets for that asset, with what you owe. Higher is safer. Below 1, the position can be liquidated: anyone can repay part or all of your debt and take your collateral in exchange, plus a penalty. It happens in seconds and there is no appeal.
The health factor falls when bitcoin's price falls, and it also drifts down slowly as interest is added to your debt. The interest rate on Aave is variable and can change every day. See Health factor and liquidation for how to read it and how much room to leave.
Repay
Have USDC in your wallet: the amount borrowed plus the interest added since.
Under Your borrows, click Repay next to USDC.
Enter an amount, or choose the maximum to close the loan. You can repay any part at any time.
Approve and confirm in your wallet. The health factor rises straight away.
Withdraw your collateral
Under Your supplies, click Withdraw next to your wrapped bitcoin.
With the loan fully repaid, you can withdraw everything. With a loan still open, the app only lets you withdraw what keeps the health factor above 1.
Confirm in your wallet. The wrapped bitcoin returns to your address.
To go back to native BTC, reverse the wrapping step, for example through the exchange you used. Fees apply again.
What can go wrong
Liquidation, if the price falls and you do not add collateral or repay in time.
A fake website or a bad signature. Read what your wallet asks you to sign. Never enter a recovery phrase on any site.
A fault in the software of Aave, the wrapped token or the network.
A wrong network or address. Tokens sent to the wrong place are usually lost.
Good to know: The portal's Borrow page offers the same supply, borrow and repay steps, with your own wallet signing each action, when the feature is switched on for your account. Firsthand Bitcoin never holds your keys or your collateral.