What is Aave protocol?

This article will answer the question, “what is Aave?”. Aave is a decentralized finance (DeFi) lending protocol that lets users borrow and lend cryptocurrencies. Those who borrow pay interest, while those who lend earn interest.

The protocol was originally built on the Ethereum blockchain before expanding to other blockchains, including Avalanche, Fantom, and Harmony.

History

Aave was launched in 2017 by Stani Kulechov, a Finnish programmer and entrepreneur. Kulechov founded it while still studying law at the University of Helsinki.

The protocol began operations as ETHLend. However, it was renamed Aave, which means “ghost” in Finnish, in 2018. ETHLend differed from the current protocol in that instead of pooling funds, it tried to match lenders and borrowers in a peer-to-peer fashion. ETHLend had its own token called LEND.

The LEND cryptocurrency migrated to Aave with a rate of 100 LEND tokens to 1 AAVE. ETHLend then became a subsidiary of Aave.

The protocol went live on the Ethereum mainnet in January 2020. By August of the same year, it had risen to be the second Defi protocol to get $1 billion in total value locked (TVL), with MakerDao being the first.

What is Aave protocol?

The protocol uses a system of smart contracts to enable the borrowing and lending of cryptocurrencies in a trustless manner.

Lenders deposit funds to the platform, which are then collected into a liquidity pool. Borrowers draw from the liquidity pools the funds they wish to borrow.

Those who deposit their tokens into the liquidity pools receive aTokens, which allow them to collect interest on their deposits.

Anyone who wants to take out a loan must deposit collateral worth the same amount of crypto they wish to borrow.

Besides the regular loans, users also benefit from flash loans, instantaneous crypto loans that require no collateral. The loans, unlike regular loans, have to be paid back within one block transaction. If not, they are automatically reversed.

What is AAVE

AAVE is the native token of the platform. The token has several uses. Holders can use them as collateral when taking a loan from the platform.

Using the tokens as collateral raises a borrower's borrowing limit. Those who borrow the tokens also benefit by bypassing borrowing fees and getting a discount on fees if they post the tokens as collateral. The tokens are also used for governance. Holders can use them to vote on the direction of the platform and how to manage its funds. Each token is equal to one vote.

Furthermore, the tokens can be staked within the Safety Module to earn staking rewards and add more security to the platform. The platform offers returns of up to 9.1% a year for staking.

Pricing

According to Coinmarketcap, as of writing, the protocol's tokens are trading at $60.21 per coin. They currently rank as the 49th largest cryptocurrency with a live market cap of $848,523,426. The tokens have a max supply cap of 16 million coins. There are currently 14,093,193 of them in public circulation.

Those who wish to invest in the tokens can find them listed in various crypto exchanges, including Binance, Kraken, Huobi Global, Uphold, Bitrue, and Deepcoin.

Achievements

The crypto lending platform has come a long way as a crypto project looking to dominate the DeFi space. As of 2022, the project has made huge steps to realize its goal.

In March 2022, Aave V3 was launched. It came with several features, including Portal, which allows the protocol to operate seamlessly across different blockchains. Other features include eMode, Isolation mode, and Risk Management features.

eMode enhances borrowers’ power by assessing the correlation between their collateral and borrowed assets. Isolation mode mitigates solvency risk when a newly listed asset is added to the platform’s liquidity pools. Risk Management features protect the platform from insolvency.

The platform has gone beyond lending and borrowing crypto by launching Lens Protocol, an NFT-based decentralized social network protocol that runs on the Polygon network.

Although not an achievement but one in the works, in July 2022, the platform's community approved proposals to launch a Stablecoin called GHO. The proposal was backed by 99.9% of the voters. GHO will launch as an overcollateralized stablecoin pegged to the US dollar. It will also backed by a diversified set of crypto assets.

Conclusion

Aave stands out as one of the leading crypto lending platforms. According to analytics platform DeFi Llama, it is one of the largest public lending markets with $4.26 billion in total value locked (TVL).

Its native token is also doing well compared to other cryptocurrencies. Many crypto prediction platforms agree that better days are yet to come for the token.

It is worth noting that before investing in any crypto asset, extensive research should always be done.