Aave E-Mode explained

E-Mode, short for efficiency mode, is a setting on Aave V3 that lets you borrow more against your collateral when the asset you borrow moves in step with the asset you supplied. It trades flexibility for borrowing power.

Why correlation matters

The danger in any Aave loan is that the collateral loses value compared with the debt. If you supply ETH and borrow a dollar stablecoin, a fall in ETH hurts your health factor directly, so the protocol demands a wide safety buffer.

Now suppose you supply one dollar stablecoin and borrow another, or supply a staked ETH token and borrow ETH. Both sides of the loan tend to rise and fall together, so the ratio between them hardly moves. The buffer that made sense for unrelated assets is far larger than needed. E-Mode lets governance define groups of such assets and give them tighter settings.

What changes when you switch it on

Each category is defined by Aave governance. It has a label, its own three risk values, a list of assets that count as collateral inside it, and a list of assets that may be borrowed. Categories and their numbers differ from market to market and change over time, so check live values instead of relying on figures quoted elsewhere.

The restrictions

• You can be in one category at a time in a given market.
• While E-Mode is on, you can only borrow assets that the category lists as borrowable. If you already owe something outside that list, you cannot enter the category until it is repaid.
• Collateral that the category does not list still counts, but at its normal settings, not the boosted ones.
• You can switch E-Mode off only if the position would still be healthy under normal settings. A loan that relies on the boosted threshold has to be reduced first.

The trade-offs

Higher limits make it possible to build a position with a very thin margin. That is the point of the feature, and also its main risk.

• Correlation can break. Stablecoins have traded well below one dollar for short periods, and staked tokens can trade at a discount to the asset behind them. With a thin margin, even a small gap can be enough to trigger liquidation.
• Interest still accrues. If the borrow rate is higher than the yield on the collateral, the health factor drifts down over time. Rates can also spike, as explained in how Aave interest rates work.
• Less flexibility. You give up the ability to borrow unrelated assets from the same position.

Common uses

People typically use E-Mode to borrow one stablecoin against another, to borrow ETH against a staked ETH token, or to repeat those steps several times to increase exposure. These are descriptions of how the feature is used, not recommendations.

Each asset page lists the E-Mode categories that include it, with their exact settings. Our health factor calculator uses normal-mode settings, so for an E-Mode position it errs on the cautious side. You can compare current stablecoin rates on the stablecoins page.