What Is Aave?

Aave (AAVE) is a lending system that allows users to lend, borrow, and earn interest on crypto assets. The platform is a decentralized money market protocol where users can participate as either borrowers or lenders. Here, borrowers can borrow cryptocurrencies by paying variable interest rates. At the same time, the lenders provide liquidity to the market to earn passive income in the form of interest. In simpler words, Aave is a decentralized finance (DeFi) lending platform that creates an open and transparent system that works without the involvement of any intermediaries. 

Running on the Ethereumblockchain, the Aave protocol aims to simplify the borrowing and lending of cryptocurrencies. The Aave protocol is essentially a system of smart contracts that manages the funds and enables instant loans. As per the whitepaper, the protocol algorithmically decides the interest rates for borrowers and lenders on its own. For borrowers, the protocol calculates the interest rate based on the funds available in the pool and the amount of funds the borrower requires. For lenders, the interest rate is calculated based on the earn rate and withdrawals at any time.

The whitepaper indicates that the Aave platform brings two key innovations to the lending ecosystem. Firstly, it provides stable interest rates that help borrowers do financial planning. Secondly, the other unique feature of Aave is the availability of “flash loans.” Flash loans are where the users don’t require any collateral and can quickly get approvals. Collateral is a valuable asset pledged as security for the repayment of a loan. Moreover, these flash loans are instantly settled and can be used by the borrowers for arbitrage opportunities.

AAVE is the native token of the Aave platform. This ERC-20 token is the platform’s cryptocurrency and is primarily used as a governance token. The token is used for voting and deciding the outcomes of the platform’s Aave improvement proposals (AIPs)—proposals to improve the platform. Additionally, the token offers an advantage that users who deposit AAVE as collateral can get a transaction fee discount, and the users who borrow the AAVE are not charged any fee. Aave is a Deflationary Token, and almost 80% of the fee collected by the system is used to burn AAVE. Burning is a process where a fraction of tokens are sent to a wallet with no private key. Hence the tokens are subsequently lost forever. Token burning is done in order to reduce token availability and increase the token value. 

History of Aave

Aave was launched in January 2017 by developer Stani Kulechov. He is a Finnish programmer and is currently the CEO of Aave. Stani graduated from the University of Helsinki in 2018 and is an entrepreneur with experience in crypto technology, fintech, and blockchain space.

Stani launched Ethland in 2017, but it was renamed Aave in 2018. The platform conducted an ICO on November 29, 2017, and managed to raise $17.86 million. 

The whitepaper of Aave was released in January 2020, and in August 2020, Aave announced version 2 of its protocol. The mainnet of this V2 protocol went live on December 3, 2020.

How Are New AAVE Tokens Created? 

Staking in Aave means depositing one’s AAVE tokens within the protocol. The staking is done on the platform to act as a mitigation tool in case of a shortfall event. During a shortfall event, the protocol uses 30% of the assets locked in staking to cover the deficit. As an incentive to supply liquidity to the pool, the protocol rewards the liquidity providers. 

The protocol rewards 550 new AAVE tokens per day to be split between the stakers in the proportion of their contribution to the platform. Staking of AAVE can be done by heading over to the Aave app’s staking section and connecting to the respective wallet.

How Many AAVE Tokens Are There?

There is a maximum supply of 16 million AAVE coins.

How to Purchase AAVE

The AAVE token is available on several centralized and decentralized exchanges like Coinbase.

Released: November 2017