Aave v3 for treasuries: supplying, aTokens, borrowing and liquidations

How Aave v3 deposits, interest-bearing aTokens, loans and liquidations work, and the accounting policy choices each one forces.

2026-10-16 · 6 min read

If your treasury supplies or borrows on Aave v3, your ledger has to deal with a token whose balance grows on its own, a loan that accrues interest every block, and the risk of a forced sale. None of these is settled by a single accounting rule, so the policy you choose, and the records behind it, matter.

Supplying assets and receiving aTokens

When you supply an asset such as USDC to Aave, the protocol mints aTokens to your wallet one-for-one with the amount supplied [1]. The aToken represents both your deposit and the yield it earns. You redeem by burning aTokens and receiving the underlying asset back [1].

Interest is not paid out as separate transfers. Instead, your aToken balance rises continuously, so the wallet balance itself reflects principal plus accrued interest [1]. Under the hood the contract stores a scaled balance and multiplies it by a liquidity index that tracks accumulated interest for the reserve [1]. For accounting, this means no on-chain transfer event marks each interest accrual; you have to measure growth by comparing balances or index values at chosen dates.

Borrowing, health factor and liquidations

Supplied assets can serve as collateral. Aave positions must stay over-collateralised, and risk is tracked through a health factor [2]. Debt is represented by non-transferable variable debt tokens whose balance shows principal plus accumulated interest [1].

If the health factor drops below 1, the position becomes eligible for liquidation: an outside liquidator repays part of the debt and takes collateral at a discount, called the liquidation bonus [2]. Liquidation thresholds and bonuses are set per asset [2]. In practice a liquidation is one transaction that reduces your debt, removes some of your collateral, and costs you the bonus on top.

Note on versions: Aave v4 launched on Ethereum mainnet on 30 March 2026 with a different hub-and-spoke design, while v3 continues to operate [3]. This article covers v3; v4 positions need their own review.

Common accounting approaches

There is no Aave-specific standard. The approaches below are policy choices that teams make with their auditors and tax advisers, and the right answer depends on facts and jurisdiction.

• Deposit as a transfer (basis continuity): the aToken is treated as the same economic holding as the underlying asset, so no gain or loss is recorded on supply and cost carries over.
• Deposit as a disposal: the underlying is derecognised at fair value, a gain or loss is recorded, and the aToken (or a receivable) is recognised at that value. This can follow from a view that ownership passes to the pool.
• Interest: as the aToken balance grows, many teams recognise the increase as interest income, either periodically (for example at month end using balance or index snapshots) or only when withdrawn. Whichever you pick, apply it consistently and document the measurement date and price source.
• Borrowing: borrowed assets are a liability, not income. Accrued interest on the debt token is interest expense.
• Liquidation: split it into its parts rather than booking one net loss: the collateral disposed of, the debt extinguished, and the bonus paid to the liquidator.

Under US GAAP, ASU 2023-08 fair value measurement applies only to crypto assets meeting six scope criteria, including that the holder has no enforceable rights to underlying assets [6]. A receipt token redeemable for an underlying asset needs an asset-by-asset scope assessment; the guidance we reviewed does not address aTokens specifically [6]. The AICPA added a chapter on auditing crypto lending and borrowing to its digital assets practice aid in September 2025, which signals the evidence auditors will expect [7].

In the UK, HMRC's current manual says that where the recipient of lent tokens can deal with them freely, beneficial ownership has likely passed and the loan is a disposal for capital gains purposes [4]. On 13 July 2026 the government published a policy paper and draft legislation to treat qualifying single-asset lending, borrowing and liquidity pool arrangements on a no gain, no loss basis for individuals and trustees, with effect from 6 April 2027 [5]. As of October 2026 that is not yet in force, and companies are not covered by that paper [5].

What to do

• Write down your policy for supply (transfer or disposal), interest timing, and liquidation before positions grow material.
• Capture balance or liquidity index snapshots at each period end so interest can be measured without on-chain transfer events.
• Track debt token balances separately and record borrowed assets as a liability.
• Monitor health factor, and when a liquidation happens, record collateral, debt and bonus as separate lines.
• UK entities: check whether the April 2027 no gain, no loss rules apply to you, and keep current HMRC treatment until then.
• Note whether each position is on Aave v3 or v4 and on which chain.

Sources

1. Tokenization (Aave)
2. Aave v3 (Aave)
3. Aave V4 launches on Ethereum mainnet with 'hub-and-spoke' architecture (The Block)
4. CRYPTO61620 - Decentralised Finance: Lending and staking: Chargeable Gains: Making a DeFi loan (HMRC)
5. Tax treatment of Cryptoasset Loans and Liquidity Pools (HM Revenue & Customs (GOV.UK))
6. 2.3 Crypto Assets Within the Scope of ASU 2023-08 (Deloitte DART)
7. New: Digital assets practice aid addresses auditing of lending, borrowing (Journal of Accountancy (AICPA & CIMA))

General information for finance teams, current as of publication. Not legal, tax or accounting advice.

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